OMAN - Real Estate & Construction
CEO, the Wave
Michael Lenarduzzi has over 30 years of experience in the real estate development industry in Australia and the Middle East. Prior to joining The Wave, he was CEO of Yenkit Tourism Development, Oman, and Senior Vice-President of Development, Mixed Use Communities within Majid Al Futtaim Properties Group. Before moving to the Middle East, he was Executive General Manager for AV Jennings, a leading Australian property developer. He has also held a number of industry appointments and committee memberships, including the Urban Development Advisory Committee to the Minister for Planning in the South Australian government.
The Wave was first conceived as an Integrated Tourism Complex (ITC) in 2004. It is part of Oman’s Vision 2020, which is about the diversification of the economy away from oil. It was the first of the ITC projects that was envisioned and the original discussions came about in 2004-2005. The government of Oman needed to bring in some development expertise and it chose Majid Al Futtaim, a very well respected developer throughout the region. Majid Al Futtaim was well known for operating shopping malls here in Oman. The first master plan was completed in 2005 and the project was launched in mid to late 2006. It was very fortunate that the Wave was launched at a time when the markets were starting to reach their height, and its early success was measured in terms of its ability to achieve residential sales. Many people mistake projects like the Wave as being purely residential real estate projects. On the contrary, it is about delivering tourism infrastructure. It is about diversifying the economy and providing jobs. The residential real estate side is a crucial element, providing the cash flow to be able to fund tourism infrastructure, but not an end in itself. This is a very good model for the country to be able to attain tourism infrastructure at minimal cost to the taxpayer. It is a self-sustaining model. However, you need to be very careful with this model of over-relying on residential sales.
The Wave was very fortunate to be launched at a time when the market was very active and we were able to make residential sales early. This provided the cash flow to give the project its impetus and momentum. This also gave the project enough build up so it was carried through the tough financial times as well. When the crisis came it gave us a real opportunity to go back to the drawing board and get back to the fundamentals of real estate and focus on who our target markets were; to focus on end-users rather than speculators.
Like every other project we had our share of defaults. People who paid 10% deposits and were half way through made a call that it was better to walk away from the investment. Our response was to sit down with them to come up with a solution. Together with our board we worked very hard on minimizing the number of defaults. That is the strength of having shareholders like the government of Oman and Majid Al Futtaim. They are not in there for the short term and are always intent on finding long-term sustainable solutions.
Around 50%-60% of sales are to Omanis, and the rest are to internationals, particularly non-resident Indians. We have a lot of long-term expatriate Indians who regard Oman as home. The ITC model, where they are allowed to buy the land freehold, gives them the opportunity to stay here. That is a very strong driver for that group. We also have a lot of people, particularly from the UK and the Netherlands from the oil and gas industry. These people have been here for a long time, and they see that this is their home so they want to buy real estate and live here.
The government’s current thinking is that there is a role for ITCs going forward. That model will continue, and the only concern there may be is that there were past instances where ITCs have been founded on unrealistic residential sales projections. This can result in serious cash flow deficits, which means they are unable to provide the tourism infrastructure. Development agreements for ITCs going forward will have far more onerous conditions on the delivery of tourism infrastructure. In short, the ITC model will continue, but it will be a lot more rigorous in terms of insuring that the tourism infrastructure gets delivered.
It is absolutely critical. Tourism is what this project is all about. This is the great thing about mixed-use developments. If you take one element away, it just does not work quite as well. Mixed-use developments are all about maximizing all the various components to work together to provide a very vibrant, dynamic, and sustainable community. A residential community gives vibrancy to all of the hotels, the food and beverage, the golf courses, and the marinas; that community is a very important part of it.
Our first retail/commercial center, which includes 12,000 sqm of retail and commercial space, will be opening in June 2014. The center is currently around 60% pre-leased. Retail lessees tend to take up space and commit early. However, on the commercial side, particularly offices, these tend to follow once completion has taken place.
The reef is one of the largest in the world; two kilometers long with around 20,000 core locks. The reef also has a rock base about 70 meters wide and 20 meters high. Again, the efforts taken with respect to the design and construction of the reef goes to show the strength and the quality of this project, with no corners being cut. If you look at the quality of what we are delivering, it is truly of a world-class standard. Again, we are very fortunate that our shareholders want a long-term sustainable model.
At this stage, the straight answer is no. Having said that there will come a time when the Wave reaches its maximum development period and starts to wind down in a development sense and moves more into an asset management phase. This is likely to occur over the next three years. At that point, I think there will be an opportunity for the government of Oman to capitalize on the huge talent pool we have developed at The Wave. One of the things we are particularly proud of is that this was the first project of its type in Oman; back in 2006 there was no development industry in Oman and all of the expertise was provided by expatriates. Today, the project employs directly close to 200 people. Over 70% of those people are Omanis and a tremendous amount of intellectual property (IP) has been built up in this project. The other good thing is that Omanization is starting to filter through into the senior levels now. Our Deputy CEO is Omani, the last two or three VPs that we have employed are all Omanis, and so there is now less reliance on expatriates like myself. This has been a strong directive from our board and we have been successful on delivering in this regard.
I think it is very strong. As a country, it has got all of the natural ingredients, from the natural beauty of the deserts, sea, beaches, and mountains, to the fascinating history and culture of its people. All the fundamentals are certainly there.
© The Business Year – April 2013
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