It was December 2005 when a contract was awarded by developer MAG PDD, Moafaq Al Gaddah (Group) Property Development Department, to Arabian Forasol. The local/Swiss joint-venture firm was to carry out piling and excavation works for the MAG 218 tower. That announcement brought about a welcome sigh of relief from investors like myself and Abdul Rahim, who had been keeping abreast of developments with great anticipation. Still, the commencement of construction work on the project was by now 6 months late.
Considerable attention at this point would be directed toward Arabian Forasol. What kind of company was it? How was their record on other jobs? Who worked for them and what were their qualifications? These were among the numerous questions that could be raised. To be of any real value, however, questions such as these would have to be fashioned in some way so as to illicit objective or measurable data. An enthusiastic investor though I was, I regrettably knew little about how to pursue the answers to such questions with any measure of skill.
What I would find, however, was that the story of Arabian Forasol and its contract with MAG PDD was typical of the Dubai Marina and the Dubai construction scene at-large. What was at play was a complex set of variables by which a developer needed to secure consultants and contractors to go about the job of turning blueprints into formidable concrete, glass and steel structures. While this would be nothing new in terms of any locality involved in large-scale construction works, what was taking place in Dubai was of a level which had little precedence in history.
To appreciate the scale and audacity of the current construction drive, it might help to imagine oneself in the midst of the building boom in Manhattan of the late 1920's. City towers, then, were being built to unprecedented heights at unprecedented density. The New York city skyline that is visible today is largely the city skyline that was crafted in the teens, twenties and thirties of the 20th century. Similarly, the phenomenal level of construction in Hong Kong during the 1960's and 70's might also provide a precedent. What Dubai brings newly to the equation, however, is not only the simultaneous construction of a series of city skylines, but also other massive works, including land reclamation at sea, the creation of numerous water-themed communities inland, and extensive road and rail works.
The impact that all of this has on a deal such as the MAG PDD-Arabian Forasol partnership is considerable. What essentially has emerged is an extremely tight market where the builder-developer, consultant, contractor and supplier all struggle to meet ever-demanding objectives. The builder-developer, first of all, must strive to be innovative enough to design a product that stands out among the crowd. He is pushed to stretch the limits on what can be achieved, whether that be to design a one of a kind or a property that is top in its class in any number of categories. Once the blueprints are finalized, one is likely, then, to have a project which demands a considerable amount of sophistication and expertise to construct.
Next, the contractors who bid on the various projects on offer are faced with two significant challenges. One is to be able to exercise enough discipline to take on no more projects than they can comfortably handle. The sheer volume of orders being put out and human tendency being what it is, the typical contractor will over-commit itself. This inevitably leads to a range of problems during the construction phase. The second challenge the contractors face is that of delivering on the high level of sophistication required for projects often designed with the extreme in mind. The problems these challenges engender are further complicated by the fact that Dubai's construction industry is a relatively nascent one.
When, later, the suppliers are brought into the equation, they may find themselves in positions similar to that of the contractors. The demand for materials of all kinds being at a premium, it would take the most astute among them to resist the temptation to over-commit, especially knowing that developers may be willing to pay almost any price to get the job done. The bottlenecks that would inevitably result would be further worsened by the ever-increasing need for more materials--a cycle fueled by still more projects being pushed through the pipeline.
Finally, the glue that holds together this complex mix of players are the consultants, who presumably have the expertise to oversee and guide the project from one stage to the next. Their role is, in effect, to mediate the transition between the blueprint and the emerging structure, a job that requires experienced eyes on the ground, at the drafting table and in the boardroom. Like the contractors and suppliers, these key players may well lack the experience to execute the complex tasks, as well as the discipline required to restrict the number of jobs they take on.
In short, good contractors, suppliers and consultants are a hard-to-get commodity in a market that has grown to the extent of Dubai's. It was within such a climate that MAG PDD launched its Dubai Marina tower project.
Other developers, large and small, will have face the same issues. Delays at every important stage in the process will be the rule as opposed to the exception. May 2006 was the original date given for commencement of construction on the MAG 218, which was announced in November of the preceding year and launched the following April. That date quickly slipped into July, then August. December 2006 finally saw the selection of the project's first major contractor, yet the question of when construction work would actually begin was still an open one.
Arabian Forasol, like many companies in the UAE, had ties to a larger, more established foreign entity. While not referred to as a parent company Swiss Forasol is the larger entity with its domestic base in Switzerland and international divisions operating across Europe. Numerous companies in the UAE are structured in such a way in order to satisfy the requirement that majority ownership in companies outside of freezone designated areas be held by a UAE national or national entity. As an added value, the local entity has the opportunity to learn and benefit from the experience and expertise of its parent enterprise. With so much activity having emerged in the construction industry in just the past few years, the shortage of established and experienced firms to meet the great demand has resulted in a preponderance of start-up firms, albeit under the parentage, or with at least some affiliation, to larger, overseas entities.
This does not come without problems, primarily with regard to the lack of size and experience of the local entity, even with the support of its parent. The basic element of time--to grow and develop in the field--is lacking. The new firms gain experience on the job while forming themselves from within. The critical notion of a company culture is lacking and needs to evolve bit by bit through a process of trial and error. It is against this backdrop that foundations get built and towers rise. Needless to say, snags, delays and other perhaps more unfortunate mishaps occur. Some euphemistically refer to these issues as teething problems. Such might be the case in a normal and mature business environment where every new start-up requires an initial period to, as it were, learn the ropes.
In Dubai, however, nearly the entire construction industry is learning the ropes. One firm's teething problems compound that of another. The developer building its first tower will learn and discover how to set-up and manage various arrangements with its contractors, and the contractors, also new to the task, will learn to reciprocate and work out the same arrangements with their suppliers. And so the process will play itself out with, in some instances, teething problems for all involved. Such is the reality of the construction industry in the UAE. It is at once characterized by an enviable degree of daring but a corresponding level of inexperience.
It is surprising that so many investors are taken aback by the numerous delays, in not only project deliveries, but at every stage along the way. Announcements and warnings of delays make eye-catching headlines, but they should hardly be taken as news. It is all par for the course in Dubai and will be for some time to come, as in all likelihood, delays on average will grow even longer.
Abdul Rahim wrote me excitedly with the news that the piling contract had been awarded, something I was already aware of. This was, nonetheless news, and good news, for MAG 218 investors. In the months that passed since I began my journey into the world of construction and property development, I came to appreciate that the good stories were not limited to announcements of new and taller towers, exercises in groundbreaking or the awarding of contracts; nor were the good storeis always about good things. I came to appreciate more the human face of the building process in, if not the largest, then certainly the tallest and most built-up marina in the world.
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Chapter 6: Pyramid Builders
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