Do you remember the Dubai Star project in the upmarket Jumeirah Lakes Towers (JLT) cluster L? Chances are that you don’t.
The 45-storey building was abandoned by its initial developer following the 2009-2010 global economic downturn. After reaching 40 per cent in the construction stage, the Dubai Star came to a grinding halt, putting more than 400 local and international investors at risk.
The building has now been salvaged by the Preatoni Group, which came to its rescue in 2014, with the support of the local authorities, the Dubai Land Department (DLD) and investors.
According to Edoardo Preatoni, CEO of Preatoni Real Estate, the decision to take over the stalled project was aimed at restoring Dubai’s image as a safe investment hub. “The journey has been long,” he says, “but despite the challenges, our investors’ dreams and aspirations are now a reality.”
Reasons to restart
Renamed as Preatoni Tower, the project boasts some 554 units covering 600,000 square feet of prime residential and commercial space.
Talking about the previous developer, Preatoni says, “He had a portfolio of 13 projects when the downturn hit the market, and I believe that due to cash flow impediments they just found themselves unable to keep the sites running in a changed market environment."
"When we took over, the sold value of the project was Dh450 million, so I believe we have done something for our 300-plus buyers. Although we have some big investors who own multiple units, the vast majority of our clients are individuals and families who had put their own savings and hopes in this project, and we are incredibly proud to finally be in a position to deliver them their long-awaited property.”
For the Preatoni Group, completing a project this big in JLT was also a first step to make themselves known in Dubai. “Secondly, the project was at 40 per cent certified construction stage, meaning that there was a good deal of work already done in the structure of the tower. Lastly, it was one of the few projects we had studied where the remaining construction costs were not higher than the receivables from the buyers,” says Preatoni, explaining the reasons to take on the project.
The first two floors of the tower are dedicated to retail units, then there are 299 office units up to the 25th floor, and from there it has 230 residential units. Each residential floor has studio, one- and two-bedroom apartments. The top two floors are dedicated to large penthouses. The building also has a gym and a rooftop pool.
Talking about how the project was rescued, Preatoni says, “The steps to restart the project were a preliminary due diligence and a renegotiation of the construction terms with the contractor. This was done under the supervision of DLD’s Tanmia, a revitalisation programme aimed at restarting stalled projects. After that, we established our back office and Italian project management team, and we restarted the construction site with our own funds.”
Preatoni admits that working on a distressed project proved tougher than he initially imagined. “In regards to our investment, at first we thought that we first needed to restart the site with our own funds, and after that, we could finance the construction with the instalments of the off-plan buyers,” he says.
“In reality, regaining the buyers’ confidence was harder than expected. Maybe we were a little naive thinking that in such a complicated project, which had been on hold for six years, people would immediately be confident enough to restart paying their due instalments. In the end, we ended up investing roughly Dh50 million in the project, which was way more than we initially forecasted.”
So, what can be done to safeguard investors’ money and how can developers be assisted to revive such projects? Mahmoud AlBurai, chairman of the Middle East Sustainable Development Institute, says, “In case of off-plan properties, investors must buy from a registered developer with a registered project that has a trust account. Investors need to deposit their money only in a trust account and are recommended to get off-plan [Oqood] registration to secure their ownership. We advise overseas investors to deal with legal brokers and registered projects and pay from the trust account. Looking for accurate data on market performance from the DLD website is also necessary.”
While protecting investor interest is crucial in any real estate market, Preatoni says developers will also need all the support they can get from the government. “The DLD and Dubai Court will fine tune the tools that will put developers such as ourselves in a position to confidently invest more funds in distressed projects,” he says. “I believe they are already doing it and I am hopeful that a clear framework will emerge, where international investors will find it attractive to put their money and resources in this kind of towers. I am very confident in the authorities’ work, but I also understand their difficulties, since all the distressed projects are different from one another and usually require tailor-made solution, making it hard to just come up with a single rule or law that covers every possible scenario.”
The project has positioned the group as a key player in this niche segment dedicated to the rescue of distressed projects. Says Preatoni, “From where we stand, we hope that we’ll be able to replicate the model on other projects. Despite having had many difficulties, we believe there are still opportunities in the market for us to develop. Of course, to do so you need a specific kind of knowhow and a willingness to put yourself in a very management-intensive, complicated kind of situation. I don’t know how many more we’ll do, but I hope we’ll help deliver other units to the market, thus saving other people’s investments, turning a nice profit for ourselves with little margins of risk, and helping the city of Dubai in further developing its skyline.”