Business | Property
Blue City faces stiff challenges
On a spit of land one hour's drive from Muscat, Oman's largest real estate development faces a crunch period as it seeks to revitalise slow sales and kick-start a construction programme after planners were forced to redesign the masterplan for the project.
- By Simeon Kerr, Financial Times
- Published: 00:04 August 1, 2008
Al Sawadi, Oman: On a spit of land one hour's drive from Muscat, Oman's largest real estate development faces a crunch period as it seeks to revitalise slow sales and kick-start a construction programme after planners were forced to redesign the masterplan for the project.
The Blue City development, launched in 2005, has faced legal rumblings, management changes and the redesign of the original "substandard" masterplan, but the new chief executive insists it can still meet the 2012 completion date for the first phase.
This is part of a 12-phase development - one of the region's largest urbanisation programmes - to construct a $20 billion city over the next two decades.
As Oman's hydrocarbons revenues continue to rise amid the oil price boom, the country is also preparing for a post-oil era and declining reserves.
The country's diversification efforts, rooted in tourism and manufacturing, include developments such as Blue City, now redubbed through the Arabic translation as Al Madina A'Zarqa.
"Blue City Company 1, an independent legal entity responsible solely for the development of the first phase, needs to book $100 million in sales revenues over the next few months," says Richard Russell, the recently arrived chief executive.
"That's our target," he tells the Financial Times from the company's temporary offices in Al Sawadi. "We have opportunities in excess of twice that if potential investment partners bulk-buy units - if we close a significant proportion of these we will be in good shape," he says.
Ratings agency Fitch last month placed about $526 million of the debt raised by the development on a negative ratings owing to slow sales. But Russell says the warning is premature as the developer is still committed to meeting the completion date.
Below-target sales have been caused by tweaks to the original plan for the development, but the construction finance for phase one is in place from a $925 million bond raised by Bear Stearns in 2006.
Fitch also said a dispute between the shareholders of the development's parent company, Ocean Developments, is causing problems in marketing the property.
Bahrain-based AAJ Holdings, which owns 70 per cent, and influential Omani partner Cyclone, with 30 per cent, are in dispute over ownership of the company that controls rights to develop freehold property on the site. Earlier this year, AAJ Holdings won a court case in Muscat blocking Cyclone's attempt to take over the company. The Manama-based company declined to comment to the Financial Times.
Blue City, which says sales of its first tranche of apartments went well, expects a final decision from the appeal court later this year.
"The announcement by AAJ of winning the case in June was premature - an appeal was filed; it is at this level where the case is currently pending adjudication," the company said in a statement.
Whatever the outcome of the shareholder battle, Russell says his job is to concentrate on building the first phase, with Foster & Partners' new masterplan, along with villas and apartments designed by the same group of architects at the forefront of the sales campaign.
Last December, Blue City sold 400 apartments. Next up is the release of 200 golf-course villas and other properties with a creek view that will bring to 3,200 the number of new units to hit the market over the next few months. That amounts to more than half of the 5,553 units expected to be sold during the project's first phase, which will eventually house 27,000 people.
Good-quality housing - a rarity in the booming Gulf - for up to 7,000 construction workers is in place, with space for an extra 2,000 under way as the developer boosts the level of its workforce to speed up the construction process.
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