Interesting times for Blue City
The Blue City is an extremely ambitious development. Its project area covers 32 sq kilometres in the neighbourhood of Al Sawadi, on the coast west of Muscat. Scheduled for completion in 15-20 years, its projected total cost is $20 billion. The new city is intended to house 250,000 people, supporting not only a residential and leisure complex but also a whole community with schools, clinics, a hospital and university.
Oxford Business Group, commenting on the Blue City scheme three years ago, stated
some [are] left wondering how sustainable grand projects such as Blue City will prove to be as magnets for foreign investment and jobs. When projects in Dubai, Abu Dhabi, Bahrain, Kuwait and Qatar reach full completion, Oman's tourism agencies will have to have a carefully thought out strategy in place if they are to attract visitors.Work began late last year under new designers, Foster & Partners.
Oman does, however, have much more going for it than many of its neighbours, given its variety of terrain, the length of coastline and its multiple climates and regions. The hope in Muscat is that Blue City will enable more people to notice these benefits and thus make Oman a major tourism destination of choice.
According to Anees Issa Al Zadjali, Chairman of Asit,
"The Blue City’s first phase is one of the most vital components of the entire project due to its value and the unique key tourism related elements it encompasses. It will accommodate 25,000 residents and local, regional and international visitors and is primarily a residential and tourism development with leisure and retail components."The first phase has been financed by a US$925 million bond, which was arranged by the investment bank Bear Stearns, before its collapse in March this year. It doesn't help that the reason the bank had to fold and be taken over by JPMorgan Chase, was that two of its members in particular had been raising funds on the risky subprime market in the USA, which failed during the latter part of 2007.
It took an alert to an article published in The National, an Abu Dhabi newspaper, to decipher that a crisis is brewing for the Blue City Company OneSAOC, after it missed its sales target by almost 50% in May.
The new CEO, Richard Russell, who was appointed as CEO of Blue City Company One on June 1st this year, has come from his position as general manager of QP International, with 'Al Qudra Holding', the joint stock company headquartered in Abu Dhabi. Al Qudrah came into existence in May 2005 with a capital of AED 600 million. It has an impressive lineup of directors and has been involved with various social and sports ventures in UAE as well as unspecified real estate investments. You can glimpse Mr Russell briefly at this YouTube video of QP International at Cityscape Abu Dhabi in 2007.
He replaced Fari Akhlaghi following the missed sales deadline. Professor (or is it Dr?) Akhlaghi is also listed as CEO of Reemoon, a company within AAJ Holdings of Bahrain, with which the Omani partner, Cyclone LLC has been in dispute. Bahrain Tribune, 24th March 2008.
The parent company is actually Ocean Developments, owned 70% by AAJ Holdings of Bahrain, and 30% by Cyclone LLC, the Omani partner. Ocean Developments owns Al Sawadi Investment and Tourism Company (ASIT) and ASIT has a 100% holding in Blue City Company One.
Mr Russell has acted quickly. Within three weeks, he has established agreements with three Omani banks, the Oman International Bank (OIB) BankMuscat and the National Bank of Oman (Oman Observer 23rd June 2008). BankMuscat is offering loans to both nationals and expatriates, while National Bank of Oman's loans are to be offered to all customers.
Mr Russell is being supported by Michael Lawrence who has transferred from Abu Dhabi Investment House, where he was heavily involved in the practical realities of getting projects such as the Bahrain Lagoon and Beirut's Soldiere off the ground.
Mr Russell has been very open about the difficulties that BCC1 is facing, and the effort that is required to turn it round. The National reports him as saying that BCC1
was required to book $101m in revenue by Aug 7 [2008]. So far, the company has recorded $28m, which means that another $63m, or the initial payments from about 1,000 sales, is still needed. “It’s a tight deadline, but we’re confident we can make it.”Mr Russell has already pulled in an extra 2,000 labourers and construction is proceeding 24/7. Villas are being offered at a discounted cost to attract buyers.
Prior to Mr Russell's arrival, Blue City had attempted to attract buyers from both Qatar and Abu Dhabi.
But the problem remains. A Fitch rating announcement on 4th July explained that in addition to the shortfall on property sales, "Fitch has been advised by the borrower's sales agent, Hamptons International, that the shareholder dispute has already caused difficulties in marketing the project as a result of negative media coverage in the Gulf region, and is of the opinion that, unless resolved quickly, the dispute may hamper BCC1's ability to generate the required level of sales going forward."
In other words, speculation about the legal ownership of the company behind the project, puts the whole development at risk. The Omani partners are contesting the Bahraini partner's ownership of the project.
But where has the media coverage been? News of the legal squabbles between the American financiers was published in April 2007 and news of the Omani courts' judgement in favour of AAJ Holdings in March 2008.
Otherwise, the only 'commentary' that I have read has been on Omani blogs, and I would say that it was recognisably open to bias.
What else could be slowing down interest?
Back in April this year, Prof. Akhlaghi, the then CEO of Blue City Company One revealed,
“BCC1 SAOC is an independently financed legal entity established to develop Al Madina A’Zarqa, operating independently of the shareholders.I guess this means that if you buy a property at Blue City, payment to creditors is prioritised rather than paying for your house to be built.
“In other words, when one purchases a property in Al Madina A’Zarqa, payments are directed to bank accounts held in the name of Blue City Company One and supervised by the bondholders’ representative bank, and not to the shareholders of the company,”
It ought to be the customers that matter.
The stakeholders, whom I would describe as those with intensive financial involvement with the project, and I would list the rating company, the shareholders, the Omani management, the real estate agent and members of the government along with anyone else who has put money into the scheme, are understandably perturbed not only that this development should collapse as a result of a whispering campaign but also of the risks they face in meeting creditor demands.
The official view is that this is a tremendous opportunity for Oman to position itself beyond the era of oil, eventually employing 200,000 Omanis in diversified service industries.
I'm not altogether impressed by the rampant speculation and, I'm sorry, greed, endemic in investments in the Gulf, but what is the alternative?
More nationals will be able to make a living, possibly even a comfortable living, rather than just having low-income jobs as cleaners, shop and hotel staff, by working in new real estate developments such as Blue City, providing the concept of the integrated city survives as opposed to a purely tourism and leisure complex. There will be no prospects at all without this kind of investment.
More baldly, there's an awful lot of money and effort to lose.
Ask yourself, would that be a waste, or not? What is the least bad choice?
Comments
agenda wrote:
newsbriefs wrote:
Thank you for your input Agenda. It would be good to have further corroboration of local experience, to gauge just how sales and marketing have been handled at Blue City.
The Omani Blue (Psittacus alsawadii) wrote:
A Pining for the Wadi’s?
This whole wasta-caper (the Blue City) is (at its core) something of a mega showboating scam. It is a classic case of a TOTAL lack of meritocracy and ability gone mad, and such that it has taken an over-blown copy-cat project/stunt like this just to get the 'players' involved out of bed in the morning. Egos, spreadsheets and fees have just totally run-away with themselves. It’s all just a further case of the ‘Emperor’s new clothes’, and is basically fuelled by nothing but greed and childish dreams on a tsunami-like scale. It is indicative of the age. Just about every character formally involved with this project is a chancer ‘par excellence’. Sadly, it is it is a dead parrot.
agenda wrote:
Actually, I had high hopes for the sale process knowing that Emaar had acquired Hamptons (local franchise partner still in place I assume).
For the good of the country I hope they find an acceptable way to patch up the image of the project, and do so quickly but not hastily. Other projects are in competition and the Salam Yeti one is scheduled for first release pretty soon.
Visibility and simplicity are essential. As an "end-user" or "buyer" I do not want to go through layers and layers of companies to know who I am buying the property from - it might work elsewhere but not at the sophistication levels of this market.
The Greek wrote:
‘The Omani Blue’ hits the nail on the head by classifying the Blue City as a scam, fueled by pure greed and ego’s, and set up by chancers with questionable reputations such as the Ahmed Janahi’s, Samuel Grossmann’s, Anees Al Zadjali’s and Fari Akhlaghi’s of this world. Blue City is simply not a feasible mega-project, diligently set up by people who know what developing such project really means (in fact, not even one individual with serious development-experience has been involved in the planning/contract stages of this development…), but a massive scam whereby the (professional?) scammers have already made filthy heaps of money through so called ‘fees’ and where others (lenders, buyers, Oman…?) therefore, sooner rather than later, will have to lose similar heaps of money to bring things back in balance. And there is nothing a handful of new western executives in BCC1 can do about it, no matter what they might say or do (or think).
[ed. Why be Greek when you could be a Dragon?]
Ibrahim wrote:
I'm currently not in Oman, but is there anybody out there who has actually been on the project location and knows what is happening? If this Mr. Russell says they will still be able to complete the first phase on time (2012?), then surely the first building works must have started by now. And what about the previous rumours regarding the project management company pulling out and the contracting company planning to exit the project before they start losing money? Any news available on these issues? Any information/confirmation would be much appreciated.
Loki wrote:
second-rate minds usually condemn everything beyond their grasp.... FDR
newsbriefs wrote:
An article in the UAE's The National, dated 15th September 2008, quotes Mr Russell, CEO of BCC1: '“My job is to build phase one and we are going to do it by the deadline in Dec 2012,” he said. So far, only the most basic work has started at the site. But Mr Russell is preparing for major construction to begin in the coming months.' http://www.thenational.ae/a...
A photo in the article shows Mr Russell on what seems to be a bare beach.
Oo wrote:
When did the French get involved in La Ville Blue? Poor Francois must be rolling over in his grave...his great work abused by someone who thinks he's a first-rate mind. What an arrogance! Yank I presume?
Loki wrote:
No need for harsh insults Oo, surely you would agree that most yanks could never promote let alone comprehend French genius!
Whilst I agree that the project appears to have a troubled past (like many other projects) it is certainly true that many changes are taking place. Most of the sloths commenting above and on other sites however don't seem to have the gumption to investigate before spewing nonsense. This is true second-rate humour!
Oo wrote:
I can indeed unhesitatingly agree with your 1st point (Palin is obviously far easier to comprehend) and shall give you the 2nd point as well, but would argue that changes do not automatically constitute improvements. For example: providing the public with incorrect or incomplete information is not necessarily better than not informing the public at all.
After that 2nd point your comments are unfortunately going downhill very fast...Yankee-style.
Although the majority of the authors on this site are most likely not fully informed (and can not be, since nobody tells them what's really going on), their commentary concerning this project can by no means be regarded as 'nonsense'. In fact, having re-red the views and comments above, I have to conclude that these contain very little nonsense and seem in general rather accurate and valid. So indeed Loki, no need for harsh insults!!
Eli wrote:
Ibrahim, I have talked to a friend working for the contractors and he say that the project management copany is leaving already and that his company (contracors) have an exit-plan ready and also that they can not start works because it do not have yet information of the buildings.
The Greek wrote:
Something new for you Newsbrief: on sales and marketing. A friend in Abu Dhabi told me last week she ran into Mr. Askari, the recently announced new Head of Sales and Marketing for Blue City. Turns out he is no longer working for Blue City and resigned only a few weeks after this official announcement. Sounds like sales and marketing are not being handled at all at Blue City.
newsbriefs wrote:
Indeed yes, the appointment of Tammam Askari as new vice-president for sales and marketing of the Blue City was announced in the Times of Oman only on September 10th 2008. http://www.timesofoman.com/...
The Greek wrote:
Haven't seen anything in the press yet regarding Blue City failing the 3rd sales-test last week. As the sales counts for these test are cumulative, it is highly unlikely that Blue City will ever be able to pass any further sales-tests. So either the investors accept lower-than-expected sales and returns (if any) on their money, or they take their current losses and withdraw.
Also haven't seen anything in the papers regarding the Fitch-guys visiting Blue City earlier this week. Another nail in the coffin of Blue City's coming up?
Willie Dryer wrote:
Its very surprising that given the state of the international bond market etc., etc., that so little is picked up on the matter of the Blue City. I will have to seek out what is happening here.
Willie Dryer
Ibrahim wrote:
It will probably be very difficult to find out what is really happening there, but it can not be good news. Many, many similar projects in the region are currently being suspended, stoppen, cancelled, etc. Most of these projects are far healthier, more realistic and more feasible than Blue City. And many of them do not depend that heavily on the international bonds and financiers. From that point of view, Blue City should really be one of the first projects (if not the first project), in Oman to fall over. This in the end might not be such a bad thing, as the project has been an incredible mess from the start and would have to fail sooner or later anyway.
The Greek wrote:
Given the recent many interesting news items related to Blue City which have not been covered in the local or international press, it might be a good idea for Newsbriefs (or, even better, the local newspapers!) to investigate a little further and dedicate another article to this extraordinary project. The resolution of the court case with AAJ again postponed, failing the 3rd sales test, the Fitch-visit, the resignation of the sales executive, the exit plans by the contractor, the departure of the project management company and the related potential legal actions against Blue City, the lack of new sales launches for many months, etc. etc. What (if anything at all) is going on with Oman's largest development project?
Eli wrote:
Who cares? See above: it's a dead parrot.
Willie Dryer wrote:
I was hoping to get up to Al Sawadi this weekend for a look-see, but I'm just too busy. Anyway, local news is that the project now renamed... the 'Blue Village'.
Willie D.
Eli wrote:
My friends works in Al Sawadi and always says they have nothing to do. They lives in the camp but do not have work to do. They are very boring with the job!
Willie Dryer wrote:
As Bob Dylan sang (see verse 2):
"It's All Over Now, Baby Blue"
http://video.google.com/vid...
You must leave now, take what you need, you think will last.
But whatever you wish to keep, you better grab it fast.
Yonder stands your orphan with his gun,
Crying like a fire in the sun.
Look out the saints are comin' through
And it's all over now, Baby Blue.
The highway is for gamblers, better use your sense.
Take what you have gathered from coincidence.
The empty-handed painter from your streets
Is drawing crazy patterns on your sheets.
This sky, too, is folding under you
And it's all over now, Baby Blue.
All your seasick sailors, they are rowing home.
All your reindeer armies, are all going home.
The lover who just walked out your door
Has taken all his blankets from the floor.
The carpet, too, is moving under you
And it's all over now, Baby Blue.
Leave your stepping stones behind, something calls for you.
Forget the dead you've left, they will not follow you.
The vagabond who's rapping at your door
Is standing in the clothes that you once wore.
Strike another match, go start anew
And it's all over now, Baby Blue.
Willie D.
Oo wrote:
As usual, the yanks will not admit they have failed till it's far too late.
I know many individuals who are withholding 2nd payment due on the first release. Some corporates who had booked their properties didn't even pay the booking fee and withheld. It is a total shambles as far as the buyers are concerned. The way the first release was sold off smacked of cronyism and secrecy to the extent of making prospective buyers feel privileged to just get offered an opportunity to buy. Well, pardon me if I gloat a little bit since I didn't get a chance to buy (no connections you see, and refused to kiss up to their dealers).
Allow me to generalise. From what I am hearing on the streets, there is no confidence in the minds of prospective buyers (the locally based ones at least) in the way this project is being managed. I can think of only three ways to restore some measure of confidence (though I don't see any of them happening):
1- Omani and Bahraini partners come together in front of the media and issue a joint statement that differences have been resolved ... etc.
2- Omani partners to buy the Bahraini partners out and again make a joint song and dance about it in front of the media
3- Buy back at cost value properties from those investors/buyers who want out and have a totally transparent and fair strategy for the selling of future releases
Of course the project could just continue regardless of all this with someone taking a huge risk that when people see units completed they will come forward and purchase them. In the meantime, someone will have to cough up top dollar to do that!