Folllowing a self-induced ‘coma phase’, Memon Investments is now seeing strong investor interest in its sports-themed tower developments
Memon Investments has five towers under construction in Dubai Sports City (DSC) — four Champions Towers and the Frankfurt Sports Tower. Launched between 2007 and 2008, the projects hit a roadblock during the financial downturn, as did many others in the emirate. But since last year, construction work has moved on to the fast lane.
“Our target as a developer is to deliver four projects this year. Last year, we looked at all of our projects, recognising the support we got from contractors and authorities, and finalised the plans with the consultants to speed up project completion,” says Mahmood Shaikhani, Group Director of Shaikhani Group, which is developing the projects through its UAE real estate development arm, Memon Investments.
The developer says it plans to deliver the G+14 Champions Tower I, which is already 97 per cent complete, next month, the Frankfurt Sports Tower in July, the G+16 Champions Tower III, which is surrounded by lakes and located close to the Els Club, in September, and the G+12 Champions Tower II, which offers views of a canal and is 65 per cent complete, in December. The G+20 Champions Tower IV, the largest of the Champions Towers, will be handed over in December next year.
“We restarted work in earnest on Frankfurt Sports Tower in March last year. The tiling work, roof and mechanical, electrical and plumbing [MEP] work are done. We’re just doing the finishing work now,” says Shaikhani.
“For Champions Tower III, we sped up work starting in August, and in January for Champions Tower II. Work on Champions Tower IV was sped up in July,” says Shaikhani. Most of the towers broke ground in 2007, but Frankfurt Sports Tower and Champions Tower IV broke ground in 2009, when the market started to nosedive.
“Champions Tower IV was already prepared to start construction, so we tried to sell it, but the price we were getting at that time was only Dh600 per square foot. Having been in the market for so long, we had to make our presence felt,” Shaikhani explains. “Having said that, we did go into a coma phase until 2012, as did everyone else.”
The developer did not totally stop working on the project, but continued at a much slower pace.
“If you put a project on hold for more than six months, the Dubai Land Department [DLD] will cancel the project, and it would take too much time to reactivate it. So we had to keep things going in slow motion to keep our projects in progress status,” says Shaikhani. “The master developer of Dubai Sports City also slowed down work on the infrastructure, which caused us to slow down as well.”
Change of pace
The strategy worked. Champions Tower IV had only been completed up to the basement when the developer started to cut down its workload, but it rose four floors from 2009 to 2012. Since July, when construction went into overdrive, nine floors have been added to reach the 13th level.
The G+20 structure will be completed in July, but finishing work will take another year, according to the developer. Buyer interest has surged since last year, as the tower is now almost sold out.
“The drawings for the tower were approved in 2009, but we had to ask for a new building permit. Some building codes had changed, so we adapted our drawings and things went so fast, within six weeks we had the approval and got a lot of work done within nine to ten months,” says Shaikhani, lauding the new online approval system the government introduced last year.
Many building regulations were changed between 2007 and this year, Shaikhani points out. Some of the changes required the use of fire-rated doors and installation of additional underground tanks for swimming pools and storm water.
“All of these used to cause delays due to the design changes, which often took more than six months to be approved,” says Shaikhani.
“But now the DLD, Dubai Electricity and Water Authority, Dubai Civil Defence and other government entities are so organised, the integrated system allows you to see the building codes and submit your drawings online, and the project gets rejected or approved within a month or six weeks.”
The overall design of the towers did not change much despite the modifications required by the new building regulations, although they increased the total cost of the projects.
“All of the changes contributed to the cost, but it was the procedure for fireproof-cladding rating that cost us an extra Dh3 million in all the buildings,” says Shaikhani. “Dubai Civil Defence inspects the procedure, which has changed since a major fire that broke out in Jumeirah Lakes Towers.”
The changes to the cladding gave the building a slightly different look in terms of external elevation and layout. This also means that some of the unit numbers may change, but the developer has assured buyers they will get what they invested in.
“Around 80 per cent of our buyers are end users,” he says. “Of course, they weren’t happy having to wait for their investment to materialise since 2007, so we have to deliver. We couldn’t expect all of our customers to understand the technical and crisis issues we faced, so when they came shouting at us, we sat down with them and explained the situation.”
Customer defaults were also a major cause of the delay, as around 50 per cent of buyers stopped paying. Shaikhani blames this on the tumbling market prices.
“Most of the units were sold at around Dh1,000 per square foot during launch, then prices started to spiral down to Dh800, then Dh650 and to its lowest point at Dh400 in 2012. So everyone was scared to pay further instalments after they had paid 30-40 per cent at launch prices. They were just waiting to see what the market would do, that’s why the projects slowed down,” Shaikhani elaborates.
“Instead of paying us, they preferred to buy ready units, which they could get for Dh300 per square foot at that time.” The developer took action and cancelled the sales and purchase agreements of defaulters, according to the rules and regulations of Dubai’s Real Estate Regulatory Agency.
“During the crisis they didn’t want to pay us. But now that Champions Tower I is almost complete and the market is up, buyers who paid 30-50 per cent want to come back.
“We moved them to our new projects to save their investments and start a new instalment plan.” Shaikhani is referring to Memon Investments’ projects at Jumeirah Village Circle (JVC), where the developer owns five plots. Memon Investments launched Gardenia I and II, a Mediterranean flavoured mid-rise apartment compound, in 2008 and broke ground in 2009, but the project was put on hold shortly thereafter. The developer resumed work on the project three months ago, albeit at a much slower pace.
“We sold only 10 per cent of Gardenia. Now we have decided to make four Gardenia towers. We’ll finish 50 per cent of the structure before we start selling again, so people can see the progress. But our focus now is on finishing the projects in DSC.”
Property prices in DSC are now near their launch figures, with Champions Tower I and Frankfurt Sports Tower, which are located at the rear end of the development, going for Dh1,000 a square foot, while the other Champions Towers, which are closer to the stadium and the canal, are selling for Dh1,200. This has left some defaulters wondering if dropping out of the projects was a good decision, according to the company.
“Some of our customers had financial problems and we offered them discounts. For example, if they booked a unit for Dh800 per square foot, they got a discount of between Dh100 and Dh150 per square foot, but we couldn’t give them more than that,” reveals Shaikhani. “The land alone cost us Dh200 a square foot, and if the value of the units went down further to Dh400 per square foot, we wouldn’t have covered the construction costs.”
Revised payment plans
Most investors at Champions Tower I still have to pay 10-15 per cent of their total dues and the developer says it will wait until handover to collect.
“We don’t want to burden those customers now,” he says. “As for the rest of the buildings, buyers are paying according to milestones. We do revise payment plans as per the customers’ convenience if they have financial burdens.”
The developer also injected its own money to keep contractors working on the projects during the downturn.
“We had to pay the contractors, in addition to the running costs, so we could maintain even a few workers and equipment on site,” says Shaikhani.
Despite the developer’s efforts, two contractors had to drop out of the projects because of financial troubles; they were not paid by defaulting developers in other projects. This particularly affected work on Champions Tower I and Champions Tower III, and a development in Dubai Silicon Oasis, the Cambridge Business Centre.
“For the business centre, we found a contracting company interested in taking the balance stock we have. MEP work is slowly in progress, so it won’t get cancelled,” says Shaikhani.
In DSC, Al Sahr Contracting is already working on Champions Tower II and III, and was awarded contracts worth Dh20 million to complete work on Champions Tower I and IV.
“Al Sahr Contracting is one of our oldest partners. We’ve been working together for about eight years and they supported us during the recession. Thanks to their strong financial background, they didn’t immediately demand from us payment of dues worth Dh18 million-Dh20 million, while continuing to work on the projects. Now that the market is going up, we’re getting good receivables and we’re paying them the outstanding dues and the current bills as well.
“Our other long-term partner, OST Constructional Projects, which also supported us during the recession, is still the contractor of Frankfurt Sports Tower,” he says.
To further help the contractors, Memon Investments has also decided to appoint and pay subcontractors. “Through this, we reduce the financial burden on the main contractor.”
As for the construction cost, Shaikhani says they are pretty much where they were during the peak times.
“In 2008, it was Dh250 per square foot, but today we’ve almost reached Dh350. Whenever you ask a developer to give you the construction cost, it is Dh300-Dh400 per square foot these days.”
Around 20 per cent of the total inventory of the five towers remain for sale. These units come with sufficient basement parking, a swimming pool with spa and gym facilities and access to various sports amenities. Some units also have access to a juice bar and games room.
The price of a 500-600-sq-ft studio at Champions Tower I is between Dh400,000 and Dh500,000, while rental prices range from Dh35,000-Dh40,000 per year. For a 700-800-sq-ft one-bedroom apartment, it is expected to cost around Dh600,000 and can be leased out for Dh50,000-Dh60,000.
A 1,100-sq-ft two-bedroom unit sells for around Dh900,000 and is rented out for Dh70,000-Dh75,000.
Memon Investments says it still has plots to develop in areas such as Arjan and Mizin in Dubailand. However, the developer will not start work in these locations until all towers in DSC have been handed over, having learned its lesson from the downturn. The economic crunch has also taught the developer to be more active in charitable activities, as it helps fund shelters for the homeless, schools and mosques and extends help to victims of disasters, through its Shaikhani Foundation.
“We take corporate social responsibility seriously. In 2010, we donated $1 million [Dh3.67 million] in goods to an earthquake relief mission, which I personally attended,” says Shaikhani.
By Nicole Walter, Special to PW
Published: 14:24 April 29, 2014