As Middle Eastern and North African governments seek more diversity and economic stimuli, including major hotel development projects, government-mandated development organizations look to lure investors from far and wide.
DUBAI, United Arab Emirates—The more hotel markets in the Middle East and North Africa evolve, the more critical it becomes for investors and local governments to cooperate to ensure the success of major hotel developments.
Speakers on the “Mega-projects and master plans” panel during the Arabian Hotel Investment Conference represented diverse business models and finance partners and structures, but each of their hotel projects had the common thread of being the key assets in large-scale economic and diversification initiatives emanating from governments.
Sources said government support for major hotel projects will help transform those budding markets into must-visit tourism destinations.
“Government support allows you to be competitive, and competition is not a negative thing,” said Abdullah Al Abdooli, managing director of Al Marjan Island. “It helps you create a leading destination, with lifestyle, atmosphere and a sustainable community.”
The Ras al-Khaimah, United Arab Emirates, mega-project has a goal of 8,000 hotel guestrooms and 12,000 residences by 2025. Al Abdooli said Al Marjan Island was part of a national plan with Emirati, government and private finance, and all the components complemented one another.
“It is a partnership creating an investment opportunity to attract finance on a global level,” he said. “The target is to be a resort destination where people stay for longer.”
Imad Barrakad, chairman and CEO of the Moroccan Agency for Tourism Development, said government officials and hotel and resort developers need to be on the same page before construction on such projects begin.
“To create a natural product, government has to work to create a master plan in line with developers,” he said.
Abdellah Essonni, chief hospitality officer of Saudi Arabian firm Maad International, said cooperation with regional governments can yield significant hotel development benefits.
“Mecca is a very complex market, one of the densest markets in the world in terms of hotels and population, and it is essential we get support from government entities,” Essonni said. “The correlation of land prices and ROI is a complex one, but it is a constant market, and the more you build, the more will come.”
Essonni acknowledged his development project benefited from government initiatives such as airport expansion and large-scale improvements to metro and rail infrastructure.
“These are all the pieces that make the investment ... make sense,” Essonni said.
In line with its Vision2030, the Saudi government now has changed capital market rules and regulations to allow for real estate investment trusts, Essonni said.
“(In April), the first REIT was launched and subscribed more than 120 times. It shows the extent of appetite and faith in Mecca,” Essonni said.
Barrakad said government initiatives had put in place “all the resources we need to create a profitable ecosystem to encourage private sector investment.”
He cited one mega-project in Morocco, near a now-defunct airport in Casablanca, which has attracted several sovereign wealth funds, including four from Gulf Cooperation Council countries.
He said for development of certain green field sites, his agency sought “investors looking for less (return on investment), so that excludes many investors.”
Zoltan Kali, chief asset management officer of Omran Hospitality, said his company has evolved from a single-asset developer and now works with private-sector players.
It is a model that is necessary to compete in the Middle East and North Africa region, which are increasingly crowded with major hotel projects, he said.
Omran has plans to convert the old port in Muscat with a 100-hectare mixed-use development, as well as a larger site in downtown Muscat by the city’s airport.
“We are to create a new urban fabric for the capital, an organically developed cityscape,” Kali said. “Our portfolio crosses Oman and includes some (joint ventures). The focus will be on certain clusters, not the entire country.”
Kali said all parties should also temper their expectations when developing major hotel projects.
“We need to balance urban development with investment financing,” he said. “Our projects are basically urban projects on steroids, to create the landscape of the future. We must not get carried away with market caps and ROIs.”
Need for independence
Khalid Al Yahmadi, CEO of Muscat National Investment and Development Company, said government-backed projects give those developments “a tick of confidence” and build relationships that allow for “better locations.” But while all of his company’s business interests ultimately were managed by government entities, he said the company does not report to Oman’s minister of finance.
“We need to drive profits for shareholders and complement our airline business,” Al Yahmadi said.
Kali added that for Omran Hospitality, another Omani development body set up by the government, it is important to remain a private-sector company.