Bahrain Bay Development Bahrain Waterfront Development

Mr. Vincent, Bahrain’s real estate market is starting to feel the effect of the global financial crisis but its more modest growth rate should prevent it from seeing a sharp decline. How would you describe the current climate of the Bahrain real estate market and how does it compare to other countries in the GCC?

Bahrain Bay Development – bahrain’s leading project development: The risks in the current real estate market in Bahrain are not that different from the real estate risks being faced throughout the GCC- we have all been impacted in some way by what is happening in the greater region and internationally.  In a relative context, the market hasn’t been as severely impacted. Part of the reasons are that Bahrain has evolved over many years (30-40 years) as the gateway for business development and opportunities in the Middle East. That long term evolution and the growth and diversification of interests has developed a sustainable economic footprint which the real estate market has responded to aggressively in the last five years up until the middle of 2008.  However, Bahrain didn’t over stretch because it’s been driven by its own sense of economic scale. The scale of the Bahrain economy precludes an overly aggressive approach to economic development.

What is the outlook for the real estate sector for 2009-2010?

Bahrain Bay Development – bahrain’s leading project development: I think its going to be, to a certain extent, a “wait and see” outlook for the next six months from the first quarter in 2009 to the start of the fourth quarter 2009.  However, we are starting to see some light at the end of the tunnel.  We are seeing revisitations from investors and we are starting to have a more meaningful conversation with our current investors who are starting to put in place their business plans and programs going forward.  I see Bahrain as a market that is constantly evaluating it’s self, specifically now in the context with its relationship with lenders, banking institutions, third party developers, and investors that are international.  That evaluation is being done on a much more diligent and careful basis than possibly would have occurred ten months ago.  Now is that a bad thing? Probably not.  What does it mean in practice? It means that you’re evolving to a more sensible sustainable commercial practice that’s not driven unilaterally by one particular agenda of growth or iconic design or single market.  But what you are forced to do, is evaluate your business plans against the new conservative impacts that are driving business in Bahrain and the region.  There will be a period where Bahrain has to go through this evaluation, you can’t ignore it.  We see that period being the rest of 2009.  We are optimistic that the latter half of 2009 and 2010 will reinitiate new business opportunities.

The problem of Dubai was too much speculation. To what extent has this impacted the Bahraini market or has it been demand driven?

Bahrain Bay Development – bahrain’s leading project development: I think there are two components to any market.  There is a speculative market and a conservative demand driven market.  Bahrain has been influenced significantly by its near neighbors, Saudi Arabia in particular and less significantly by Qatar but because of those near neighbor influences it has been able to look at itself and say “where are our neighbors going?” as well as “where are we going?” and there is a direct link into the eastern province of Saudi Arabia which is a tremendous rapidly growing market with a young demographic, cultural opportunities, changing investment goals,  and changing choices and directions by the people within Saudi Arabia wanting to be part of the broader region.  Similarly with Qatar the friendship bridge is planned for development between Qatar and Bahrain.  When you look at Bahrain and the relationships it has to consider, its not just the local market. So the speculative side of Bahrain, while it may have been driven internally by small markets on speculation, the broader agenda of Bahrain has a very good understanding of the importance of the relationship with its neighbors Saudi Arabia and Qatar. I don’t think the speculator, over the next growth period, will be as prominent in Bahrain as they were in 2007-2008.  I also think there’s a change of attitude with developers now as well.  Not just developers but investors, partners, and banks are requiring a more conservative and stringent commercial practice in relation to big developments like Bahrain Bay (a master planned community in an urban context).  They want to make sure that they understand the commercial management structure of those developments; how investors are brought into the development, how the master planner ensures that the investors are successful, how they approach the relationships between the third party investor in Bahrain Bay and how that is managed.  Its becoming much more of a community focused agenda to make economic success the prime outcome rather than the single-minded, stand alone, development approach which was part of the past; and that is just an evolutionary process that all major cities go through and that all development cycles go through.  I think Bahrain is leading that process and that it will continue to lead it over the next period of time.

You said “In just 18 months since the marketing of Bahrain Bay begun, the majority of land parcels were sold to developers across the world,” as a result of a global economic downturn, do you see a more stringent approach to investing, how has the behavior changed and have you seen less interest from developers in Bahrain Bay?

Bahrain Bay Development – bahrain’s leading project development: I think there has been a backing off and Bahrain is not immune from overseas or local/regional influences.  But more importantly, those people who have already committed to Bahrain Bay have remained committed.  I think that it means Bahrain Bay and the economy of Bahrain are in good standing and it speaks highly of the confidence in Bahrain.  We have investors from Europe, India, Southeast Asia, the US, and of course, our sub-regional investors from Saudi Arabia, Kuwait, Qatar, Dubai, UAE, and a very strong contingent of local investors.  That is a very good mix and we can see the influence of those investors coming into Bahrain Bay and we see them also being affected differently because of their local impacts.  All investors have an impact from their own region. We’re seeing them being more cautious and in many ways that is being driven by the banks in their home countries because the financial institutions have adopted a minimal cross-border lending policy which is aimed at making sure they know their own market best and understand their local conditions before putting funds offshore into new investments. That’s affecting third-party international investors and the way they move forward; time frames have been extended and we are working with them to encourage them to understand that this is a normal reaction in a big project. There is nothing different in terms of this real estate cycle as opposed to the past cycles.  The numbers might be bigger but the impacts and the influences are not significantly different.  Booms and different cycles that occur will continue to occur in the future.

What is the percentage of your investors coming from Europe, Asia, the GCC, ect.  Can you give us an idea of where they are coming from?

Bahrain Bay Development – bahrain’s leading project development: The large majority of our investors (about 60%) are local and sub-regional investors and the remaining 40% are split between Europe, Asia, and the Indian markets.  We have been very fortunate and we deliberately went down the path of attracting a diversified investor base and we did that for a couple of reasons.  First of all, it gives Bahrain Bay a lot of credibility and a point of difference in the market.  That’s a project specific agenda, driven by commercial expectations of our own but there is also another important agenda to us and that is creating new investment in the economy and making Bahrain Bay a sustainable economic development.  That investment coming into Bahrain builds a stronger economic base here, diversifies the economic community here, and also gives the Bahrain community the opportunity to look into other markets.  It’s a reverse window relationship.  Investors come in and we follow them back out again and that’s part of normal international economic development, trade, and business.

How does Bahrain Bay compare to other similar locations overseas like Dubai or Kuwait and are you offering long-term investment opportunities for investors and developers? Also, in your personal opinion, what is the potential for Bahrain Bay?

Bahrain Bay Development – bahrain’s leading project development: In terms of how we differ, Bahrain Bay has been designed to be specific, in terms of its economic footprint, its commercial scale, its urban design, its physical shape. All of those criteria have been driven by economic sustainability or relationships within Bahrain Bay that make Bahrain Bay sustainable.  Investors can relate to the scale, to the pedestrian experience, to the kinds of uses within the project; it’s a diversified project which incorporates residential, commercial, hotel, tourism, corporate headquarters, as well as community facilities and public amenities within its uses.  All of those things make Bahrain Bay the best practice of urban design and economic opportunity associated with that form of development.  Many other developments are constrained.  They are constrained by either land, neighbors, government infrastructure, or land ownership problems.  Bahrain Bay has been fortunate to have a clean sheet to carry forward the development.  We are not trying to pretend we are better than everyone else but we do have a very clear and concise commercial agenda that we manage.  We don’t allow many practices that other developments allow; we don’t allow, for example, land speculation in Bahrain Bay. You have to buy into Bahrain Bay with the intent to develop.  If you decide not to develop then you are penalized when you leave and you have to offer the land back to us first before re-sale.  It stops the speculators from coming to Bahrain Bay.  We also have constraints on urban design; the design intent is attached to your contract.  It ensures each neighbor has a very clear understanding of knowing what’s going on next door.  We also don’t allow selling off the plan, while a lot of other developments are driven by off-plan sales where developers might finance a component of their equity by the placement of pre-sales. In Bahrain Bay you have to be strong enough to carry forward your own equity and be prepared to risk it- you have to believe in your own business plan and in the Bahrain market; you have to believe you want to be part of what is being created and you have to become part of the community.  It’s a much more shared vision and responsibility between all parties engaged in the project and that gives everyone a more level playing field and a sense of belonging and fulfillment as well as shared success.

How would you characterize your major challenge and your major needs?

Bahrain Bay Development – bahrain’s leading project development: There are significant challenges. There is no pretending things are going on absolutely the way people would like them. The challenges relate to things such as ensuring all of the infrastructure and utilities are delivered on-time and to budget.  Shareholders expect us to manage the budget efficiently. There are challenges in relation to the quality and the vision of Bahrain Bay being maintained. One of the easiest things to do in a downturn is to give up. Bahrain Bay, in support of the Bahraini government have stuck to their intent to ensure that Bahrain is maintained as a quality investment opportunity and recognized through all of the best practice initiatives that it is creating. We don’t want to lessen our goal and we are committed to fulfilling our goal of a shared vision of economic development of the Kingdom.  That, in itself, accepting that challenge, is something we have to continue to address.  We have to remind our third-party developers that they are a part of that challenge and because of their contracts with us they have responsibilities to perform.  There are also other challenges we face in the market, including, absorption rates, financing and construction lending- all of those things are big challenges, particularly at the moment, and will be very significant challenges for all of the developers, including ourselves over the next 12-24 months and we are all very hopeful and believe quite strongly that in that time we will see a positive return to the markets.

We are going to deliver an award for the “Greenest” company that we have interviewed and by “Greenest” I mean oriented toward sustainable development and environment and by award we mean to put this company in front of the others. What is your policy towards the environment and sustainable development?

Bahrain Bay Development – bahrain’s leading project development: Sustainability has three agendas: economic sustainability, social sustainability, and environmental sustainability. We have a very clear vision that we want to be sustainable across all of those platforms. We have discussed our economic agenda. Socially we have an undertaking within our planning context and within our relationships with third party developers that there is a recognition of the cultural expectations of the Islamic communities- for example we have three mosques being built within Bahrain Bay .  We have a policy of ensuring the waterfront precincts are all publicly available and that we don’t in any way privatize the water fronts and that there is equitable access to all of the main amenities within Bahrain Bay . We encourage community facilities to be a part of the development mix  and we are committed to the re-invigoration and redesign of landscaping and development of the public interface between our project and the mainland.  In relation to environmental awareness we are basing Bahrain Bay on a user-pays development rather than traditionally taking from the public purse and the public infrastructure. What we have done is offloaded that commitment or requirement of government and built it all ourselves up front. We are designing, building, operating, and managing all of our main utilities- the district cooling, the sewers, the water, and the landscaping- all of that will be maintained by a utilities company which has been set up to service all of the developers in Bahrain Bay.  We also have a site-wide facilities management agreement with an internationally recognized facilities management company, Dalkia.  Their job is to make sure that site-wide, everything is properly maintained at the highest level possible.  Normally these types of services are performed by the government but we are providing those and all of the developers who participate pay at a pro-rated basis so its a sustainable, user-pays model.  At a more specific environmental level we are beginning to examine things like the identification of sustainable planting regimes for landscaping to minimize the amount of water needed to pump back into the landscaping. Also, we’ve just contracted with some of the worlds leading botanical experts on desert plants, tree regeneration, and replanting and revegetation programs so that the landscape itself is sustainable. We are also looking at systems where we can actually use saltwater for landscape maintenance which is a new innovation for landscape maintenance practices and we’re examining the opportunity for agriculture within the Bay.  No-one can claim that as a reclamation project we don’t have a significant environmental impact and we aren’t saying that we don’t have one, because we do.  However, when we designed Bahrain Bay we made sure that there was enough water circulation around Bahrain Bay and through the project to ensure that the water is regenerated, refreshed on a tidal basis and that the marine life can co-exist with our development and we are looking at the reestablishment of reefs and breeding and fish hatchlings off the shore and educational programs associated with that.  One of the traditions of Bahrain has been things like pearling, fishing, and other marine industries and sea-life in general. We want to bring that back not only as a business opportunity but also as a reminder of the cultural heritage of the place.

Which stage are you in terms of finding and selling the developments? Which level are you in?

Bahrain Bay Development – bahrain’s leading project development: Bahrain Bay began its sales process in early 2007 and since then we have been successful in selling about 65% of the land.  We have letters of intent for another 15% and of that 65% we believe that by the end of this year four of the developers will have started development on top of the two already underway on site.  We estimate that the remaining 35% of the land will be sold over the next two years.  The financial performance of Bahrain Bay has been quite frankly outstanding not only in relation to the boom time but where we are today.  We are running ahead of ourselves in projections and we are ahead of the investor IRR curve in terms of returning dividends to the shareholders. Bahrain Bay is on time, our infrastructure is within budget, and we’ve collected 70% of the revenue for Bahrain Bay . We have no debt, no loans, and we have enough money in the bank to finish Bahrain Bay . For a 2.5 billion dollar development anywhere in the world today that is quite a statement.

To finalize the interview, what is your long term vision for the economic and social development in Bahrain?

Bahrain Bay Development – bahrain’s leading project development: The main potential benefit is to demonstrate that the next wave of economic development in Bahrain is, in fact, occurring.  Bahrain is not standing still, it is not resting on its laurels, and it is not dwelling on its past successes. Bahrain is continuing to emerge as an opportunity for new investment. The Government has demonstrated a continued commitment to its people but also the region as a gateway.  Bahrain Bay is assisting with this initiative by bringing in foreign investors, making them successful, and committing to a shared vision with the existing community and the future community. I think that the legacy is its most important goal and will be its most important benefit for the Kingdom of Bahrain.

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