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CRACKS have emerged in the fraud prosecution of two Australian executives in Dubai, raising questions about the claims of their alleged victim, Sunland, the Gold Coast-based developer that alleges it was duped in a property deal.

BusinessDay believes a series of emails will be relied on by the defendants in Dubai and in a civil case in Australia in an attempt to contradict Sunland’s claims that it was kept in the dark and that Matt Joyce and Marcus Lee misled it when they were working for Dubai Waterfront, the world’s biggest waterfront development.

Joyce and Lee spent nine months behind bars in the emirate until they were bailed in October to fight the fraud case, in which Sunland is the key witness for the prosecution. Its claims of being cheated are also central to the civil case it has launched against Joyce and other parties in the Federal Court, where it is trying to recoup millions lost on the venture.

In the Dubai and Federal Court proceedings, Sunland alleges it was misled in two critical ways when it bought Plot D17 in 2007 from the Dubai government-owned master developer Nakheel, parent company of Dubai Waterfront.

First, it says its chief operating officer in Dubai, David Brown, was duped into believing that another Australian company, Prudentia, had rights to buy the plot, so Sunland paid Prudentia a $14 million ”consulting fee” to release the land.

Second, Sunland claims Joyce, as managing director of Dubai Waterfront, failed to disclose a long-term friendship with Prudentia’s director, Angus Reed, with whom he attended Geelong Grammar.

But Brown sent an email to Joyce on August 19, 2007, which is expected to be relied on in Joyce’s defence in the Federal Court. Evidence for the plaintiff and the defence is yet to be heard in the proceedings, where the emails are expected to be presented in their full context.

On its face, Brown appears to acknowledge in the email the status of Plot D17, and that Sunland’s founder and executive director, Soheil Abedian, was informed. At this point, Sunland and Prudentia were negotiating a joint venture on the development plot.

”Thanks Matt,” Brown wrote, ”I got your message and yes Soheil is aware that Prudentia are still in negotiations with Nakheel and have not purchased the site. Jeff [Austin, Nakheel’s director of planning and development] and Anthony [Brearley, a Nakheel lawyer] have also made this clear. The fact they have not purchased D17 yet is better because [it will] allow us and Prudentia to agree to JV terms before we proceed to buy the site.”

In that email, Brown also told Joyce: ”I have informed Soheil of your prior relationship with Prudentia and your desire not to get involved.”

While it did not mention the old-school connection, this email may suggest that Joyce wanted to remain at arm’s length from the deal. Brown wrote that Sunland would instead continue to deal ”with Anthony, Marcus [Lee] and Jeff”.

But 10 days later, on August 29, in a 5.56am email to Joyce, Brown was ”extremely” disappointed to hear that Nakheel was negotiating to sell the plot to a Russian group, ”considering the time and effort that we and our JV partner has put into the purchase of this plot”. Again, this calls into question Sunland’s claim that it did not know Prudentia had secured no rights over the plot.

In Sunland’s statement of claim in the Federal Court, Brown alleges that Joyce told him by phone on the same day as this email that other potential buyers, including Russians, might offer a much bigger price for the plot.

Sunland alleges this was to pressure it to proceed with the purchase.

The time of this alleged call is unclear but in Joyce’s reply email to Brown, at 6.58am, he wrote that he doubted ”our guys would negotiate with another party without at least informing you” – unless it was the work of Nakheel Sales without Dubai Waterfront’s knowledge.

Prudentia and Angus Reed, in their defences lodged in the Federal Court, say they never suggested they owned Plot D17 or had sealed an option to buy it.

And they insist Sunland was fully aware of this.

Rather, they argue, Nakheel had merely regarded Prudentia as a ”preferred negotiator”. On August 10, 2007, Nakheel’s Jeff Austin had confirmed in a letter to Reed that it would be happy ”to grant you preliminary development and planning approval”.

”We also confirm that we would be happy to entertain discussions with your joint venture partner provided [they] are a proven developer like Prudentia,” Austin wrote.

Joyce’s defence in the Federal Court says a draft sale agreement had been sent to Prudentia on August 15 and Dubai Waterfront did not want to appear to be involved in ”gazumping” by dealing directly with the ”secondary developer”, Sunland.

In any event, the joint-venture negotiations collapsed and Sunland decided to buy Plot D17 alone.

A document tendered in court in Dubai, dated September 18, 2007, shows its board agreed on the purchase and to enter a memorandum of understanding with Prudentia.

The next day, David Brown and Angus Reed signed the deal, which included a strict confidentiality clause between the two parties. Sunland agreed to pay the consulting fee.

In return, Prudentia handed over its ”right to negotiate” with the master developer.

It has also been alleged that Marcus Lee, who was Dubai Waterfront’s head of commercial operations, had intervened to lower the price of Plot D17 to push the purchase along. Under this deal, it is alleged, Prudentia would take a ”land uplift” fee – the difference between the lower price and the market price.

But an internal Nakheel email on August 27, 2007, appears to clear Lee on this count. Nakheel’s then director of sales and marketing, Manal Shaheen, sent the email to her CEO, and to Joyce and Lee. Shaheen told them that her team had found the price of 125 UAE dirhams ($A37) a square foot was too high. She wrote that Lee’s ”business report should say market price which is 110 and then give me to sign”.

Lee is expected to rely on this exchange to support his consistent position: that he merely did his job according to instructions of his superiors at Nakheel. When he later recommended a price of 120 UAE dirhams a square foot, he will argue that it was approved by his superiors.

Shaheen’s email suggests that Nakheel was informed. Nakheel has not come to the defence of Lee, who says he never gained nor stood to gain from the land sale.

Nor has Nakheel defended Joyce, who says he was paid nothing in connection with the Sunland deal.

Sunland is yet to develop Plot D17. Prudentia and Reed, in their defence in Australia, claim this means it has lost the opportunity to reduce its alleged loss by about 24 million dirhams ($A7.16 million).

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In a city of huge projects, the Waterfront was to trump them all.

At a ceremony revealing the plans in 2005, executives from Nakheel, the Dubai World subsidiary that created Dubai’s Palm islands and The World archipelago, described the project that would balloon into a 130 square kilometre piece of land that would one day have enough homes and offices for 1.5 million people. It would be a new city that would unify two other massive projects: the reclaimed Palm Jebel Ali and a 75km waterway through the desert called the Arabian Canal. It would cost Dh100 billion (US$27.22bn).

Not only was the Waterfront Nakheel’s largest project, but it also formed the backbone of the company’s multibillion-dollar financing strategy. Waterfront land valued at Dh7.6bn was used to secure three Islamic bonds issued by Nakheel with a total value of $5.25bn. The sprawling project will play a major part in Dubai World’s restructuring proposal to creditors in the next few months as the conglomerate weighs which phases will be built and which should be scaled back or redesigned in the aftermath of the property decline.

“All details concerning Waterfront are currently being determined as part of the restructuring Nakheel is undergoing,” a Nakheel spokeswoman said.

Proposals for the Waterfront showed everything from an underwater hotel to a “city-within-a-city” on a square island designed by Rem Koolhaas, the renowned Dutch architect and theorist. One building would be shaped like a sphere; others were buildings shaped like asymmetrical stacks of paper.

“It was the creme-de-la-creme project,” said one former chief executive of a property developer with a project at the site. “The mock-up plan for the Waterfront was like a new Manhattan on the sea.”

Five years after the project was announced, construction has ground to a halt, and the patch of desert – a full 65 per cent of Nakheel’s land holdings – has become the object of dozens of disputes and even corruption allegations.

The global downturn sparked a domino effect bringing down economies and megaprojects around the world, and one of the last, and perhaps biggest dominoes in this region, to fall was Nakheel’s Waterfront.

“Now it’s all changed,” said the former chief executive, who did not want to be named. “Customers are suing the developer. The developer is suing the master developer. Cheques are bouncing. Contractors haven’t been paid.”

More than Dh10bn is tied up in land and off-plan apartment sales, according to investors and developers. Nakheel is expected to address these investments in its restructuring proposal. A recent visit to the Waterfront showed sand covering construction equipment and no people except for police officers in a patrol car and a pair of security guards at an entry point – in contrast to the 20,000 workers and 3,000 construction vehicles Nakheel said were on the site in February 2008.

The state of the Waterfront project is in some ways emblematic of the delays and disputes that have proliferated amid the decline of the property sector in Dubai during the global downturn, analysts say. It was the biggest project ever announced by one of Dubai’s biggest state-owned developers, an expression of the emirate’s ambitions. As Nakheel rethinks its largest projects and negotiates with banks over how it will repay money borrowed to finance such developments, much of the Waterfront is in a kind of limbo, Nakheel is struggling through its debt load, developers are in turn hesitant to build awaiting Nakheel’s fate, and investors are suing developers with dimming prospects for their investments.

Nakheel has made progress on two areas of the project, Veneto and Badrah, where the company was building villas. It has nearly finished a large canal that would form a central feature of the first phase, the Madinat al Arab. Individual plots of land facing the sea, where developers have said they would build high-rise luxury towers, are mostly undeveloped.

Investors who put their money with Omniyat Properties, a Dubai-based developer that bought land in the Waterfront and planned a project there, tell a common story. Attracted by Omniyat’s marketing machine – the company spent millions of dirhams advertising apartment buildings there – they poured money in during the run-up to the crisis, betting that Dubai’s soaring property market would keep rising. Now they are locked in a battle with the developer over how much construction it is contractually obliged to complete before demanding any more payments from them.

One of Omniyat’s projects, the Beachfront Living tower, sold more than 200 apartments and collected Dh314.7 million, according to an official review of the project’s escrow account by Caliber Middle East, a consultancy that advises Dubai’s Real Estate Regulatory Authority. Of that money and other funds Omniyat invested in the project, Caliber’s review shows, the company spent Dh237m on land payments and Dh101.6m on marketing expenses. Just Dh738,866 was spent on construction. The project has yet to move past the initial stages.

Omniyat declined to comment.

As if that weren’t enough infighting for one project, two former Waterfront executives, MJ and ML, were arrested in Dubai in January last year on suspicion of fraud relating to the project, and both were formally charged in July. A separate court case is under way in Australia in which Sunland Group, a developer based in the state of Queensland, has alleged that MJ helped engineer a deal under which Sunland paid a Dh44.1m consultancy fee in exchange for receiving below-market prices on land in the Waterfront. The cases are still pending, and MJ’s lawyers in Dubai and Australia did not comment.

In the meantime, Nakheel has been in negotiations with land owners at the Waterfront to shift them to other projects in the company’s portfolio such as The World islands and the remaining plots on the Palm Jumeirah.

The issue is simple: without sales or financing, Nakheel will have difficulty completing the Waterfront’s infrastructure in the near future. And yet Nakheel wants a solution that does not involve defaulting on its contractual responsibilities and being forced to pay back investors’ deposits.

But some of the development companies have disappeared altogether, leaving even more problems in their wake. One of the biggest Waterfront developers in the early days of the project was Define Properties, which was established in 2008 just as the property boom was subsiding.

The company bought 12 plots of land at the Waterfront and pledged to spend Dh8bn on residential and commercial projects throughout Dubai, according to statements at the time.

“Most of the money came from Russians,” said James Harrington, who worked for the company as a human resources consultant for several months. “They paid the initial payments on the land. The problems started when they couldn’t get enough money to keep up with the land payments.”

Alternative Capital Invest (ACI), another property developer, took over Define’s Niki Lauda Twin Towers after construction stalled and the future of the project became uncertain. ACI had marketed and sold the units in the building, but Define was responsible for building it. ACI declined to comment.

Henceforth, the Waterfront will probably focus on the same section that it started with, the Madinat al Arab, a stretch of beachfront surrounded by a man-made marina in much the same pattern as the nearby Dubai Marina. The first phase of the beachfront was sold out in five days for more than Dh13bn in 2005. However, construction stopped before any buildings took shape.

Master developer Nakheel on Monday hit back at claims made by Dubai property group ACI Real Estate – and insisted its Waterfront mega-project was going ahead.

Robin Lohmann, managing director of ACI Real Estate, in an interview with Arabian Business this week, blamed the state-owned developer for a lack of progress on his flagship Ferretti Luxury Beach Residence and Pershing Luxury Beach Residence projects, located in the Madinat Al Arab area of the Nakheel’s Waterfront development in Jebel Ali.

“We have invested in several plots in Dubai Waterfront. We need to know from the master developer of Waterfront, which is Nakheel, if they plan to go ahead with the project now or not. Once we have these answers we can give to answers our purchasers,” Lohmann said.

But in an emailed statement to Arabian Business Nakheel said it had handed over ACI’s two plots and the company was free to start construction.

“The two plots which ACI own at Madinat Al Arab have already been handed over,” a spokesman for Nakheel said.

“Waterfront has not been cancelled. Our current focus at Waterfront is on Badrah, Veneto, and Madinat Al Arab. Work continues to make good progress at these sites,” the spokesman added.

The Madinat Al Arab phase of the Waterfront is due for completion in 2015. Other sub-developers such as Plus Properties have started construction at Madinat on its Pixel Tower and Wave Residence projects.

“At Madinat Al Arab, we remain committed to providing infrastructure to third party developers as per their Sales and Purchase Agreements. The majority of plots in this phase have been handed over with some third party developers already mobilised on-site,” the Nakheel spokesman added.

Dubai-based property developer and investment company ACI Real Estate, is a division ACI (Alternative Capital Invest) Group, a German firm with interests in asset management and real estate.

The Waterfront is a planned seaside mega project, twice the size of Hong Kong. It is being built over six phases and completion dates range from 2010 to 2018.

Nakheel said in December the Madinat Al Arab, Veneto, Badra and Canal District phases of the Waterfront were pressing ahead, while other sections would be delayed in the wake of the global crisis.