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Dubai Bubble Burst

Dubai projects come to screeching halt

Dubai projects come to screeching halt Hazel Heyer, eTN Staff Writer  Dec 29, 2008

One's claim to fame as the hotel/resort and residential real estate success visible from outer space, as well as the Eight Wonder of the World may not be enjoyed by its developers in Dubai for much longer. This giant palm is about to droop.

Nakheel, one of the world’s biggest and busiest property developers famous for the large colony of man-made islands in Dubai, is showing signs that future growth may be stalled. The Palm Islands may have had its growth stunted by the economic meltdown now descending upon the shores of Dubai and the other emirates.

Nakheel has adequate funds for current projects but has no plans to launch new developments as sales are slowing, said Nakheel’s CEO Chris O’ Donnell. This would mean Nakheel’s current portfolio including the Palm Trilogy, The Waterfront and The World, each boasting iconic and radical designs – respectively, the palm tree national sign, the striking peninsula and the cluster of 300 islands forming a world map – built on reclaimed land may no longer see full completion. O'Donnell said Nakheel had not made any sales in the last couple of months and the firm's first sukuk, worth around $3.6 billion would come up for renewal in November 2009.

Unfortunately, huge funds mishandled during construction may have contributed to the end of construction. Earlier in April, the Khaleej Times reported that Nakheel was at the center of a crackdown on alleged corruption in the emirate of Dubai. Two people were arraigned on suspicion of bribery days before a high-profile sales team led by its CEO, headed to the US to lure investors to Dubai’s $300 billion property boom.

Nakheel’s completed developments will have increased Dubai’s coastline by another 1000 km. by 2010 while the overall project spread is set to exceed two billion square feet. The completed major projects under development currently are worth over $60 billion.

Nakheel also teamed up with US property magnate Donald Trump to sell condominiums on its $12.3 billion artificial Palm-shaped island. Trump and Nakheel, the developer of more than $30 billion in real estate in Dubai have signed a deal in October 2005 creating Trump’s International Hotel and Tower. Both companies have invested substantially in a pioneering $ US600 million development spread across a portfolio of eight hotels and resorts including the 800-unit condo-hotel of the US mogul. Trump’s tower is the initial development in Nakheel and The Trump Organization's exclusive joint-venture in the Middle East.

Furthermore, Trump Organization's agreement with Nakheel included exclusive rights for 19 countries in the Middle East region and 17 major brands. Designers and architects of Trump work closely with Nakheel on the design and interior finishes of the building for quality standards. The Trump Organization has invested substantial sums directly in the Nakheel projects, and staffed sales, marketing and management responsibility for each real estate development including introducing The Trump Touch concierge services to the UAE. Sales for The Palm Trump International Hotel and Tower kick-started in end of 2005 with a ground-breaking ceremony in the booming emirate.

However, neither Donald Trump nor Trump Jr. sounded excited about prospects in Dubai during their talks this year at the NYU Hospitality conference and CityScape show in New York. Foresight may have led this real estate royalties to loosen their grip on their interest in the City of Gold as evidenced by the lackluster tone.

Recently, O’Donnell confided with Reuters that Nakheel was not in discussions over the sale of the company and that a public listing for the firm was still an option, but there was no time frame. He said he also did not see any further layoffs after the firm had announced plans to trim its workforce by 15 percent. Nakheel employs a workforce of about 2000. If projects are dropped, their imported labor will be sent home.

Nakheel's vision was kingdom; the task, mammoth. The company’s most prestigious creations are the Palm Trilogy, with the Palm Jebel Ali in the pipeline, expected to be a luxury tourism and retail capital. This destination was planned to house world-class resorts and water homes built on stilts. The Palm Jumeirah, built in 2006, is being groomed to be the hot bed for retail, accommodation and entertainment with the famous Golden Mile being the deluxe hotel strip of the Palm. Finally, the most ambitious and gigantic of all, the Palm Deira launched in November 2004 boasts public and private beaches, a marina, 8000 villas with shopping malls and other ultra-luxury landmark sites.

There are 12 more sites with commercial and tourism value on Nakheel’s drawing board; they may indeed remain on the drawing board for good.

Dubai projects come to screeching halt
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