Real Madrid is at the center of a $1 billion bid to make a soccer-themed resort succeed in a Middle East country where race cars and golf failed.
The world’s richest soccer club is lending its name to a project in the United Arab Emirates with a 10,000-seat stadium and a target of 1 million visitors a year. The attendance goal exceeds the number of people who last year travelled to the emirate of Ras al Khaimah, where the project will be based.
Branded real-estate developments ranging from the Ferrari World amusement park in Abu Dhabi to a planned Tiger Woods golf resort in Dubai stumbled after the global financial crisis in 2008 caused investors and visitors to retreat. Securing financing for the park will be easier than attracting enough paying customers to make the investment pay off, according to Saud Masud, chief executive officer of SM Advisory Group LLC, a New York based investment firm.
“There is enough money sloshing around this part of the world that they can build anything they want,” Masud said. “It’s a question of whether you can get it to work so you can pay the money back with returns, and that’s very unlikely.”
The 40-hectare (99-acre) project on the artificial Marjan Island is like many that evaporated after the U.A.E.’s property market slumped. It will include a marina, yacht club and interactive museum as well as homes, a shopping mall, a football training academy and a 450-room five-star hotel. The centerpiece of the resort, to be completed in 2015, will be a soccer stadium in a half circle facing the sea.
In Dubai’s Shadow
Ras al Khaimah, which has little infrastructure compared with Dubai and Abu Dhabi, brought in 835,000 visitors last year, according to its tourism authority. Dubai drew 9.3 million with attractions such as the world’s tallest tower, palm-shaped islands and indoor skiing.
The visitor target is “very aggressive,” according to Emad Mostaque, a U.K.-based analyst at emerging markets investment adviser Religare Capital Markets. He estimated that only about 600,000 people a year visit Ras al Khamiah, the northernmost emirate about an hour’s drive from Dubai. Census data from 2005 put the emirate’s population at about 198,000.
Developments linked to global brands proliferated in Dubai and Abu Dhabi in the years before the property market crashed in 2008. Projects valued at about $500 billion were halted or cancelled across the U.A.E., Arqaam Capital analyst Mohammad Kamal said in January.
The builders of a $1.1 billion Tiger Woods-branded golf resort said at the end of 2011 that they had halted work. Developer Aldar Properties PJSC (ALDAR) sold its Ferrari World amusement park to the Abu Dhabi government last year as part of a 36 billion-dirham ($9.8 billion) bailout. DreamWorks Animation SKG Inc., Universal Studios and Legoland all planned attractions in the Dubailand resort, most of which was put on hold in 2008.
Ras al Khaimah’s own development plans were hit by the global credit crisis. RAK Properties PJSC (RAKPROP) halted work on parts of Mina Al Arab, a beach resort that included homes and offices, after demand evaporated.
Still, Real Madrid Resort Island has advantages that may help it avoid the fate of past projects, according to Mostaque of Religare. Construction costs, land prices and interest rates are “nicely depressed,” making it easier for the company to reach its target for return on investment, he said.
Real Madrid was global soccer’s highest-earning team in 2011, with revenue of 479.5 million euros ($627 million), according to an annual report published by Deloitte LLP. Forbes Magazine ranked English Premier League champion Manchester United as the world’s most valuable team at $2.24 billion. Real Madrid was second at $1.87 billion.
Florentino Perez, the club’s president, is no stranger to property development and innovative ways to boost Real Madrid’s revenue.
The chairman and CEO of Spain’s biggest builder, Actividades de Construccion y Servicios SA, or ACS, sold the team’s training ground for 500 million euros, in 2001, helping bankroll signings of so-called Galactico players such as Zinedine Zidane of France and England’s David Beckham, boosting marketing income and making the team soccer’s top earner.
Real Madrid officials weren’t made available by the team’s media office to comment about the viability of the project or whether the club is investing any money.
Millions of Fans
“This is more of a tourist and entertainment project, not a housing one,” said RAK Properties CEO Mohammed Sultan Al Qadi. “It has the name and will have the customers. There are millions of people who are loyal to” Real Madrid.
RAK slid 5 percent to close at 0.38 dirhams in Abu Dhabi trading today, the lowest since Feb. 23. The shares have declined 10 percent in the past 12 months.
The resilience of Dubai’s tourism and retail industries and a revival in investment and development is also likely to benefit new projects. Dubai’s malls and hotels benefited as political upheaval across the Middle East drove visitors away from more established destinations such as Egypt.
“If it’s built as specified, it will be a success given the tourist demand in Dubai and the U.A.E.,” said Alex Gemici, a Dubai-based managing partner at investment company Greenstone Equity Partners. “They would still have to fight to draw tourists away from Dubai and Abu Dhabi.”
Sovereign wealth funds and large private investors are eager to take part in the project, according to Louis-Armand de Rouge, CEO of RAK Marjan Island Football, the Luxembourg-based fund backing the development.
Before joining the Real Madrid project, de Rouge, 53, was a managing director at London and Singapore-based investment firm Milltrust International Group. He was accompanied by Zidane, a World Cup winner and Real Madrid’s director of football, on a visit to Ras al Khaimah on March 29 ahead of a “roadshow” to attract investors.
Investor interest is so strong that “the only problem will be how to say ‘no’ to people,” said Khater Massaad, the CEO of Ras al Khaimah Investment Authority. The government organization known as RAKIA built the island where the Real Madrid project will be located and sold plots to investors. Massaad said the government isn’t investing in the project.
Gemici of Greenstone is less optimistic. “In the current market environment, it will be very difficult to finance a project of this nature without government help,” he said.
Nakheel PJSC may provide a gauge of investor appetite for U.A.E. development. The builder of palm-shaped islands off Dubai’s coast is trying to raise at least 300 million dirhams to build a retail and entertainment project called The Pointe at Palm Jumeirah. It’s the company’s first retail development since it received a government bailout in 2009.
Masud said he sees parallels between the Real Madrid project and Ferrari World Abu Dhabi. The world’s largest covered theme park opened in November 2010, only to be sold the following year by developer Aldar to the government as a part of the bailout. The theme park cut jobs and shortened opening hours last November. Aldar fell 3.5 percent to about 1.09 dirhams in Abu Dhabi trading today. That’s the lowest since Feb. 22.
Ferrari World is “an absolutely failed project and Aldar was struggling. It had to sell it to the government as building it cost way too much,” Masud said. “It’s ludicrous to think that just because a stadium was built in RAK and has Real Madrid logo, that the world will start descending on it,” Masud said.
Jon Barber, a spokesman for Ferrari World Abu Dhabi, said the company doesn’t disclose visitor numbers.
Marjan Island itself is a microcosm of the U.A.E.’s property woes. Land reclamation at the 2.7 million square meter island was completed in January 2009 as part of the emirate’s plan to increase its waterfront. About 70 percent of the $1.8 billion project was sold to private developers who planned to build hotels and homes on the island.
Khoie Properties was one of them. The developer became insolvent in 2009 and its 2.3 billion-dirham residential and leisure complex, La Hoya Bay, was taken over by RAKIA. A year later, the developer reached a settlement with RAKIA after agreeing to complete the project.
A previous attempt to link Marjan Island with international sports ended in disappointment in 2009. The government agreed to build facilities for America’s Cup teams and sponsors on the island in return for the publicity the world’s oldest and most prestigious sailing race would generate for the emirate.
Swiss billionaire Ernesto Bertarelli based his Alinghi team on the island for three months and rival billionaire Larry Ellison was laying foundations for his BMW-Oracle team’s base before a New York judge upheld a rule stating that races held from November to May must take place in the southern hemisphere. The event was planned for February 2010.
De Rouge said he’s banking on Real Madrid’s 300 million strong global fan base and the growing popularity of soccer to draw a steady stream of customers.
Qatar, a one-hour plane ride from Dubai, will spend about $65 billion preparing to host the soccer World Cup in 2022. The country of 1.6 million plans to double the number of hotel and apartment rooms, build a new rail network, construct nine stadiums and refurbish three existing ones after becoming the first middle eastern country to be awarded the tournament.
“Football is the largest sport in the world and Asia is the place where you have the biggest growth both in terms of sports and middle class spending for travel and leisure,” de Rouge said. “The region is just crazy about football and we have seen it when we are around Zinedine Zidane.”
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