Keeping the La Hoya Bay dream alive

It was conceived as one of the main elements in Ras Al Khaimah's dream real estate development, its first man-made island.

So, when La Hoya Bay on Al Marjan Island figured in the list of projects that never took off, investors had sound reason for concern. The legal wrangling between the developer, Khoie Properties, and master developer Rakia (Ras Al Khaimah Investment Authority) further complicated matters.

But, after bouts of anxiety and uncertainty, there are signs of hope.

A senior Khoie executive who experienced incarceration over bounced cheques has been released and the dispute appears headed for an amicable settlement. Unit purchasers have collectively heaved a sigh of relief now that the developer is back on its feet.

"Seeing is believing for the investors now," says Ashley Merry, a UK-based spokeswoman for a support group ofLa Hoya Bay investors.

"Compared to other developments in the UAE, we are in a far better position. We have a developer who is committed to build and who communicates with his clients," says Merry.

The optimism among the investors is not without reason. While the developer claims to have spent all the money it earned from investors on direct and indirect project costs, it has now secured Dh750 million equity finance to kick-start construction. A debt-free balance sheet and responsible fiscal management have made matters easier. Khoie Properties has even tied-up with international banks to facilitate ten-year mortgages for its overseas clients.

Looking beyond the past

Frank Khoie, the CEO of Khoie Properties, is now keen to look beyond the cheque case and the dispute involving land payments.

"Our cheques were guaranteed cheques which according to the law are considered civil matters and should not even have been presented to the bank. The matter has now been amicably resolved and all our cheques returned to us. We have been given the one-year extension [on payment] which we asked for." says Khoie.

Following the dismissal of all cheque cases and extension of payments for the land, Khoie on his part has withdrawna Dh2-billion lawsuit filed against Rakia over the issue.

It was in 2006 that the developer had purchased six plots on Marjan Island for Dh302 million. It repaid Dh72 million to the authorities and then provided post-dated cheques every six months to cover the outstanding amount.

"In mid 2008, we had applied for Dh950 million project financing which was earmarked to cover construction and land payments with an exit term in the first quarter of 2009, once we had successfully floated the company in Nasdaq Dubai. But, unfortunately, the subprime fiasco in the US and its subsequent ripple effect on the credit market prevented us from getting the project financing and we were unable to make our land payment. The circumstances were completely beyond our control," recalls Khoie.

The developer will repay Rakia the remaining Dh230 million under theone-year extension deal.

Khoie claims that construction has commenced on La Hoya Bay Residences and La Hoya Bay Business village and is expected to be complete by December 2011. This will be followed by La Hoya Bay Regency and La Hoya Bay Bermuda Hotel Apartments, including three marinas and a yacht club.

While the developer was fighting it out in court, around 435 unit buyers had mobilised themselves under the La Hoya Bay Investors' Group, seeking better communication. Merry, of the support group, is justifiably upbeat at the turn of events.

Investors optimistic

"Frank Khoie is back in his office and working round the clock to get the project restarted. There is activity on site, and so the La Hoya Bay dream is still alive. Understandably, some investors are considering legal remedy, but this process will take time and has no certain outcome. Most investors intend to give Khoie Properties a chance to deliver on its promises," says Merry.

Khoie Properties has already received a 30 per cent down payment from most investors, worth about Dh282 million, and the balance was originally due to be paid on completion

Payment plan

"There is no change in this [payment plan], simply because we do not believe in changing the terms and conditions of our contracts just because the market conditions have changed. We honour our contractual commitments to our clients, suppliers and employees and never renege on any of our commitments just to serve our interest. Companies that do that will lose the respect and trust of their clients and suppliers in the long run and that isa great price to pay for a short-term gain," Khoie adds.

The Khoie executive, however, rules out returning deposits to clients, referring to how the delays were fully anticipated and delay penalties clearly stated in theLa Hoya Bay sales contracts.

"Our project is not cancelled, only delayed due to circumstances beyond our control. And, furthermore, the financing banks are against any refunds asa condition of funding. If our project was cancelled, we would have liquidated our assets and refunded the deposits, butthat is not the case with us," he adds.

Khoie estimates the company's assets to be worth Dh966 million, based on an evaluation by Colliers International of the land it purchased from Rakia. He rejects reports of insolvency onthe basis that compared to its assets, the companies liabilities are onlyDh241 million. "The mistake was made by failing to understand the difference between insolvency and lack of liquidity. The credit freeze of 2008 and 2009 caused a liquidity crunch for many companies that are asset-rich like ours. This is a temporary liquidity position which is very normal for large companies."

Infrastructure and utilities

Meanwhile, Rakeen, the engineering arm of Rakia, has announced that it has completed 80 per cent of infrastructure work on Al Marjan Island and is on track for completion in 2012. However, progress on utilities at the site needs to catch up, which interestingly suits most investors in the current situation.

"I visited the island in June and was excited by the long-term potential it offers, but it was also evident that the infrastructure needs serious attention to make it truly habitable. If the La Hoya Bay project had been delivered on time, investors would have faced serious problems due to exceptionally high running costs and limited rental opportunities to recoup some of these costs. Being the ‘first kids on the block' would have been a very expensive luxury. I feel that the delay probably has been a financial blessing in disguise for La Hoya Bay investors," believes Merry.

Investors, especially those based overseas, have been frustrated by the lack of information from authorities. "It has been a real learning curve. The stress levels could have been reduced, had better communication been in place and had we not been forced to rely on rumours to fill voids. Having said that, most investors recognise that there were complex legal issues that needed to be addressed, and this probably made transparency more difficult. We can't forget what has happened or change the past, but we can look forward now and help shape our future," adds Merry. In a property market rife with disputes, such rapprochement stories will go a long way in bringing backinvestor confidence.

Construction finance

"The Ras Al Khaimah American School was built to raise the level of confidence in RAK for the influx of Europeans in La Hoya Bay.

When the matter of land payment was mishandled by the officials and our account was frozen, we had no choice but to repatriate the school staff. But to keep it open, we agreed to rent the school to RAK Free Zone. It was kept open as RAK American Girls School. It just completed its successful first year with 300 students.

On whether to use the school to raise funds for construction, you have to realise that in the scheme of finance where we need Dh950 million just for Phase One and Two of La Hoya Bay, the school with a few million is insignificant to be a part of our construction finance. We have secured Dh750 million equity finance already."

Frank Khoie,CEO, Khoie Properties