Not only are its projects vast in size, but they are also challenging. Many are being built on reclaimed islands or alongside man-made canals, which require extensive infrastructure planning and investment before the first properties can be built. As a result, Nakheel is not an easy organisation to manage.
The man charged with that task is Chris O’Donnell, who joined the company as CEO in June 2006 from the Investa Property Group in his native Australia.
Value of projects: $110bn
Revenue (2007): $1.28bn
Net income (2007): $690.7m
Since his arrival, he has overseen extensive restructuring, including that of the centralised procurement department, which has been disbanded in favour of individual project managers overseeing each element of specific schemes.
“The organisation is broken up into different project elements, each with its own managing director to manage every part of that project,” says O’Donnell.
As well as restructuring its personnel, the company has reorganised its finances and diversified its funding sources. It has floated convertible sukuk on the Dubai International Financial Exchange (DIFX) and is exploring opportunities for more project-specific financing, and a possible initial public offering.
The new organisational structure and financing model has been tested by a mountainous workload. In the first six months of this year, Nakheel selected contractors for $6.8bn worth of contracts, making it the most active period in its history. “We have a lot of projects, and as their masterplans progress, we are starting to see construction,” says O’Donnell.
At the same times, sales have rocketed. By early September this year, the company’s sales had increased threefold on full-year figures for 2007. In total, it has sold 6,100 units, of which 66 per cent are apartments, 25 per cent are villas, and 5 per cent are land sales.
A further 2,650 units will be released to the market in the fourth quarter of the year, and more will be released in the coming years. “We have only sold a portion of The Waterfront and have not sold anything on Palm Deira yet,” says O’Donnell.
The company predicts its strong performance will continue for at least the next 12 years. It estimates that the UAE’s construction industry can currently deliver about 80,000 homes a year, while at the same time the population continues to rise by 6-7 per cent a year.
If this trend continues, by 2020 there will still not be enough residences to meet demand. “The key to this market is population growth, and given the construction constraints, we are unable to deliver sufficient housing,” says O’Donnell.
In the past, Dubai’s real estate sector has concentrated on luxury residential developments like Palm Jumeirah and The World, but as the population grows and the market matures, there is a growing need for more affordable housing.
To help meet this need, Nakheel has three large-volume projects that have components aimed at this sector in Dubai Waterfront, International City and Al-Furjan. These properties will complement the company’s high-end developments.
Nakheel Retail also has major plans to contribute to the ongoing growth of Dubai as a shopping destination.
Under the guidance of group managing director Graham Dreverman, Nakheel Retail plans to build more than 1 million sq m of retail space across various Nakheel developments. Announced projects so far include an expansion to the existing Ibn Battuta Mall, a new mall on the Palm Jumeirah, two shopping centres at International City, and another mall on Palm Deira.
Hotels and tourism will receive similar levels of investment as Dubai prepares to receive the 15 million tourists it hopes to attract by 2015. Nakheel plans to build up to 250 hotels, which will increase the number in Dubai by 50 per cent.
The Palm Jumeirah will more than double the number of beachfront hotels in the emirate, with more than 30 hotels and 14,000 rooms.
O’Donnell says that experience in Las Vegas, where more than 35 million tourists visit each year, shows that Dubai’s targets are achievable.
“If you look at Las Vegas, there is no reason why Dubai can’t get to those sorts of [visitor] numbers in a short period of time,” he argues.
The company also has international ambitions. In the past, Nakheel has focused on projects in Dubai, but over the past year it has adopted an international outlook.
“We have an overall strategy to be an international real estate company,” says O’Donnell. “But our business focus will remain in the Middle East, and of course Dubai.”
Rather than seeking international alliances, Nakheel has been responding to approaches from overseas companies. “The Nakheel brand is well sought-after,” says O’Donnell. “It is difficult to turn down clients when they want to get involved in projects with us.”
Nakheel inherited the real estate assets of its sister company, Istithmar, last year. The deal gives Nakheel a range of international assets, including One Trafalgar Square in London, and high-profile properties in New York.
In Africa, it is part of a consortium building the Mazagan resort in Morocco, and it is also developing the V&A Waterfront in South Africa, the Kempinski Palace Hotel in Djibouti City, and resorts in Zanzibar and the Comoros islands.
In Asia, it is part of a joint venture building two mixed-use towers in Singapore, and has
an 80 per cent stake in a hotel development in Bangkok.
It now plans to build on this portfolio by pursuing its own projects and acquiring further real estate assets overseas, many of which are currently undervalued because of the market difficulties in North America, Europe, the Far East and Australia.
“The rest of the world is struggling with sub-prime and a reduced ability to make growing profits,” says O’Donnell. “This creates opportunities, but not at this point because there is still a possibility for further downward pressure [on these markets].”
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