Building a new Beirut

By Gareth Smyth BEIRUT
During the Lebanese civil war, a regular break in the fighting allowed garbage trucks into the wrecked no-man's land of Beirut's central district (BCD) to dump their contents into the sea. The garbage accumulated, and today the landfill is a huge, earthed-over eyesore clearly visible from the swish Phoenicia Hotel. It is a sign of the times that planners for Solidere, the company charged with redeveloping BCD, are now turning their attention to the landfill's future.

Angus Gavin, the planning adviser to Solidere chairman Nasser Chamaa, has suggested a 42-story tower on the landfill's northeast tip. Although construction would not start until 2010, the idea is for a convention center - and on a far bigger scale than the Phoenicia, Beirut's most successful conference venue so far. Solidere is also reviving plans to host Formula 1 in Beirut, which would be the only in-city Grand Prix outside Monaco.

Solidere got a shot in the arm when the cabinet passed a revised master plan for BCD in June. This, the company believes, will end a period of over two years in which delayed construction permits have stymied land sales, slowed down development and left Solidere with losses of $31.8 million in 2000, its first year in the red. Solidere claims that blocked building permits prevented $38.6 million in land sales between April 1999 and the end of 2000.

Hard times. Not for the first time, the murkiness of Lebanese politics harmed the country's economy. Solidere paid the price for its close association with Rafik Hariri, its largest shareholder and prime minister when the company was established in 1994 with the power to develop or sell 1.8 million square meters of prime land. For Solidere, all went well until 1998, when Hariri lost power following conflicts with President Emile Lahoud. At the same time, Solidere annoyed Michel Murr, the minister of the interior and a relative by marriage of President Lahoud, by refusing to sell him back the 48,000 square meter Beirut Trade Tower. (Murr had earlier sold it to Solidere in return for shares that subsequently lost value.)
Under the new government, in which Murr was a powerful figure, there were sudden delays in construction permits, especially at the Beirut municipality. Solidere can sell land only for development and not speculation, so sales plummeted. Even Hariri's return as prime minister last November did not immediately put an end to the problem.

But the passage of the master plan, the company believes, clears the way for permits to be granted. "The revisions address all the technical issues raised by the municipality when it objected to construction permits," said Angus Gavin. These included technicalities like parking underneath public space, fire codes and the size of buildings relative to the size of plots.

The good news led Chamaa to claim in July that Solidere will make a profit in 2001 after much improved land sales during the rest of the year. His claim boldly contradicted predictions from analysts - HSBC, for example, has suggested that the company will lose $20 million.

If sales do pick up, Solidere's pricing strategy may face increasing scrutiny. Beirut property prices have fallen about 30 percent since 1996, but Solidere has kept its land prices constant at an average $1,000 per square meter of built-up area. The figures apply regardless of land use. Consultants have criticized this price as unrealistically high and have suggested that Solidere should adopt a more flexible approach that recognizes the role of land use and location in affecting demand.

Solidere has used a variety of arguments to defend its pricing strategy - most strangely the desire to avoid upsetting past buyers. Its bottom line has been that, without construction permits, the question is theoretical, and in May Mounir Douaidy, Solidere's general manager, suggested that the company's board would reconsider its pricing if land sales remained sluggish once the permit situation improved.

Douaidy also admitted that lower prices would produce a lower company valuation - which could affect Solidere's ability to structure financial deals. In spite of declining revenue, Solidere has apparently been able to use its own equity and attract third-party investors to finance its most important single project, the 100,000 square meter retail-leisure Souks. At the center of BCD, the Souks is the most important project that has been delayed by the block on construction permits.

Crown jewels. Solidere is near agreement with potential anchor stores for the Souks. These include Admic, the Lebanese franchisee for Galeries Lafayette, which wants to install the French department store. And the summer saw the downtown opening of a 2,000-plus square meter Virgin Megastore. Richard Branson, the Virgin Group chairman, proclaimed Lebanon "a market worth investing in," as he stood on a rooftop terrace overlooking the Mediterranean. Branson said that Virgin will open in the UAE later this year, and then in Egypt and other Middle East capitals.

The store is operated as a local franchise by Jihad Murr, who obtained a 20-year-lease on the Opera House building on Martyrs Square from the Abdel-Razaa family. Murr described the store as "the most beautiful Virgin in the world."

But other important retailers, including the jewelers, are now refusing to pay prices they agreed to three years ago. "Solidere did not respect the delivery time," said one jeweler.

In the long run, though, Solidere's future appears to be bright. The experience of recent years has made analysts wary, but most believe that Solidere is potentially a good long-term investment as its current market value of about $850 million is less than the supposed value of its land bank.

"We recommend the shares as a hold," said Manal Ezzedine of HSBC Investment Bank. Solidere does, after all, own 1.8 million square meters of prime land. "With land we cannot go wrong," insisted Mounir Douaidy, Solidere's finance director. "The cost for us is constant - around $500 per square meter of BUA [built-up area, the amount of floor space permitted] to buy the land and install the infrastructure. We sell at around $1,000, so that's around $500 profit. But although the cost is constant, in time the land will appreciate in price, especially the land by the sea. So profits can only increase."

If Solidere has passed its low point, then renewed rebuilding will show a subtle shift away from the original post-war plan of making Beirut the region's financial center. The ambitious scheme for a 42-story tower on the landfill reflects, rather, a view of BCD as the playground of the Middle East.

"Our studies show that Lebanon could have tremendous appeal for conventions, both for the Middle East and Europe," said Angus Gavin. "The most successful convention center in North America is Vancouver, which has attractive mountains and sea, plus leisure activities like skiing. Likewise, Beirut has a strong entertainment appeal." Hence the waterfront complex, of which the tower would be part, would give a "new signature" to Beirut, said Gavin, rather as the Sydney Opera House gave Australia's largest city a fresh identity.

A noisier signature would come from Grand Prix racing. The government has commissioned a feasibility study for Formula 1 racing, and Solidere's new master plan includes the possibility of a race-track along dual-use regular streets. "With the infrastructure of the landfill ready by 2004, the first race could be as soon as 2005," said Gavin.

Most of the track would be on the landfill, but there could also be a chicane outside the Phoenicia and a sharp bend round the Hard Rock Café. "We're planning for enough space to allow stands for seating along the new Corniche," said Gavin. "Beirut is in competition with places like Dubai to offer the first Mideast Grand Prix, but Bernie Ecclestone [the Formula One promoter] is keen on Beirut."