Reach for the Skies

Ray Watt can barely believe his ears. At 89 years of age, with hundreds of creative real estate deals under his belt, one of the greatest residential developers in the U.S. listens attentively to the story of how Emaar Properties sold out what's billed as the world's tallest building, the Burj Dubai, in just two weekends.

Robert Booth, a 39-year-old top executive of Dubai-based Emaar, explains that only 600 carefully culled international prospects were invited to preview the Burj. At 170 stories upon completion, it will feature hundreds of condominiums, offices, and 37 floors of hotel rooms designed, down to the throw rugs, by Giorgio Armani. Each prospect was sent a distinctive boxed invitation.

On the appointed day, guests pulled up in limos at a multi-million-dollar sales center in Dubai. They were escorted over a bridge, complete with running water underneath, into a room that resembles a small museum exhibit. Halogen spots light wall murals that chronicle man's attempt to build to the skies—first the pyramids, then the Empire State Building, then, of course, the Burj Dubai (Tower of Dubai). They finished in a marble-and-glass preview center, with piped-in Euro music and a 20-foot-high replica of the Burj jutting through a cut-out ceiling.

The preview center paid for itself many times over, despite becoming quickly obsolete. By the time the two weekend events were over, Emaar had sold $1.2 billion in real estate, more than enough to build what was estimated to be a $900 million building (estimates are now $1 billion). Moreover, Emaar, as is customary in Dubai, received a 25 percent down payment from buyers, who agreed to make a series of payments during construction. Watt wants to know how escrow works in Dubai.

“There is no escrow,” Booth explains, noting that Emaar can use the deposits for construction. Watt can barely believe his ears. “That's right,” says the Canadian-born Booth, with a look of wonder, smoking an after-dinner cigar. “We built the tallest building in the world without construction financing.” Watt leans back to absorb the enormity of the deal. “I know,” says Booth. “It's incredible.”

Watt, a member of the board of directors of WL Homes, traveled to Dubai earlier this year for a meeting with Emaar Properties, which in June 2006 bought WL, the largest private U.S. home builder by revenue. Thirty-two percent of Emaar Properties, a public company listed on the Dubai Financial Market, is owned by the government of Dubai, the second largest of the eight states within the United Arab Emirates. Emaar boasts that it's the world's largest developer by market cap.

Emaar signs are everywhere in Dubai, the now legendary city/state of only 1,500-square-miles with roughly 1.4 million people (about the size of San Antonio). Huge plasma displays touting Emaar communities greet visitors at airport customs. Blue-and-yellow flags and billboards carry the company's name along the highway. Emaar's name hangs from cranes on its projects throughout town, where an incredible 350 buildings of 30 stories or more are under construction.

Emaar has big—Dubai-big—plans for WL, which does business as John Laing Homes. Officials initially said they wanted to quintuple the company's U.S. subsidiary in five years, though they have since relaxed that goal given the U.S. housing downturn. Emaar paid a ton of money for Laing, $1.1 billion—almost four times book value and the most ever paid for a private home building company. And it did so at a time when the U.S. housing market was in the early throes of its slide.

“Yes, we paid a lot for the company, but we received an awful lot of value,” says Mohamed Ali Alabbar, Emaar's chairman, sitting in the sleek contemporary conference room of his nine-year-old company's new headquarters building. U.S. home builders may not believe in good will, but Alabbar clearly does. “We are a young company, and we bought a company with great people and great operations. We have a lot to learn from John Laing Homes.”

Alabbar is often referred to as the Donald Trump of the Middle East, but the comparison doesn't quite fit. Yes, he's a very large real estate developer, with operations in 14 countries, and he's very publicity oriented. But Alabbar, unlike Trump, wasn't raised in a real estate family—his father was a fisherman. Also, Alabbar's quick success is unrivaled. He intimates that what he paid to buy John Laing is almost immaterial. “We made $1.7 billion, net, last year,” he says, “in U.S. dollars.”

A cultural exchange, which began soon after the deal was inked, culminated in September when Rich Rodriguez, COO for John Laing, took over as CEO of Emaar's Dubai operation. Emaar has also tapped John Laing executives for operations in Morocco and Egypt. In turn, Emaar managers have gone to work at the Newport Beach, Calif.–based company.

The U.S. currently represents a small piece of Emaar's world portfolio. But due to “emerging market” risk—Emaar is developing properties in Egypt, Saudi Arabia, and China, among other countries—Alabbar would like to ramp up its U.S. business to at least 20 percent of overall volume. Emaar views John Laing, with its expertise in a wide range of upscale housing, as an ideal springboard.

“I'm bullish about the United States,” says Alabbar, who has a second home in Southern California. “The United States' economy drives the economy of the world. California alone has an economy equivalent to the eighth largest country in the world.”

Laing might be the most expansion-oriented builder in the country. CEO Larry Webb opened a Phoenix operation earlier this year, with eyes on other Arizona markets. He bought Lindenwood Homes in Houston, which closed 76 homes last year, and retained its founder, Jim Lemming, who will attempt to expand throughout Texas. Webb's considering a Seattle acquisition. He revived a dormant land position in Washington, D.C., shut down several years ago after a leveraged buyout. Eventually, he'd like to extend Laing's reach elsewhere in the Mid-Atlantic and the Southeast. Considering Emaar's incredibly deep pockets, further U.S. acquisitions could be in the cards.

As the success of the Burj demonstrates, generating additional capital for expansion shouldn't be a problem for Emaar. Alabbar says that he left town on the weekends of the Burj previews. “Friends were calling to ask why they hadn't received a box,” he explains.

Many people have heard the story of the world's tallest building, but they don't know that it's part of an even larger development, the $20 billion Downtown Burj Dubai, a new city center. The 500-acre project is so enormous that the Burj represents only about 6 percent of the units. It includes office buildings, residences, an entertainment center, and what's positioned as the world's largest mall, the Dubai Mall.

It will now be up to Rodriguez to finish the project on time. Reached on the way to the airport with his family, Rodriguez admits to being daunted by his task at hand. Though the Burj gets most of the attention, Rodriguez says the mall is actually the most complex project. “There are 30,000 people working at any one time around Downtown Burj Dubai. ... We have an all-star team of international talent. My job will be to get everyone working as a team.”

The specter of living in the shadow of the world's tallest building worked like a magnet, drawing buyers to other projects downtown. Emaar charged view premiums for units facing the Burj, designed by Skidmore, Owings & Merrill in an upward spiraling pattern to look like an abstract desert flower. An engineering marvel, the building was built with reinforced concrete rather than steel. “There's only one Burj,” says Alabbar, explaining the development strategy.

Many of the towers in the downtown project have their own, less-elaborate sales centers. Inside, apartment models feature painted-on skylines to illustrate city views. Merchandising must appeal to a wide spectrum of tastes, with an accent on cosmopolitan styles, since buyers come from throughout the world. Fittings and finishings, though, are decidedly upscale—Bosch appliances, granite countertops, large-tile floors.

Downtown Burj Dubai is off the complexity charts, with a network of passageways, landscaped courtyards, souks, cafés, restaurants, and wayside stalls. At night, residents will stroll lantern-lit alleys. Alabbar, who appears deeply involved in project details, boasts that a central fountain designed by Wet Designs will surpass the one the firm did at the Bellagio in Las Vegas. It will have more fountains, they will spray higher, and there will be more routines. Plus, he's added fire. “We have no room for second-class work,” he says.

The call seemingly came out of nowhere. An investment banker phoned Webb to say a foreign development firm was interested in entering the U.S. through acquisition. Would he be interested in hearing the pitch? Figuring he had nothing to lose, besides perhaps missing his daughter's soccer game, Webb flew to Minneapolis with CFO Wayne Stelmar.

The banker introduced three executives from Emaar. Webb and Stelmar, though active in the Urban Land Institute, had never heard of the company. In addition to Booth, the contingent included CFO Sanjay Baweja, who hails from Singapore, and COO Shashank Vira, who is from India. In building the world's biggest multinational housing company, Alabbar has assembled executives from more than a dozen countries, though his board is almost entirely Arab.

As he launched into a presentation on John Laing Homes, Webb furtively glanced at his watch to see if he could catch an early flight back to California to see his daughter's 4:00 p.m. game. There was an 11:30 a.m. flight that might get him back in time. “I went on for about 45 minutes,” Webb recalls. “My presentation was about our culture at John Laing, how people come first, our passion for customer service. ... My basic message was that the deal wouldn't work.”

During a short break while the Emaar executives set up to do their presentation, Webb searched the Internet to confirm Emaar's existence. Later, Booth went into a full-blown Power-Point describing the company's operations throughout the world. He talked about Emaar's almost evangelistic commitment to housing people; its desire to create neighborhoods where children could grow up peacefully; its charitable work in countries around the world. “It was like they were reading from the Little Laing book,” says Webb, referring to a pamphlet that describes his company's culture.

When Booth was done, the Emaar contingent asked Webb to name a price for his company. Webb asked for a break and huddled with Stelmar in another room.

“What is our price?” Webb asked Stelmar, realizing that no one had ever asked them the question and they had never seriously discussed it. At the time, Laing had a book value of about $300 million. The pair multiplied by four to come up with $1.2 billion. When they returned to the room and presented the number, Emaar countered with $1.1 billion. No problem, Webb replied. They had a deal.

By then, Webb had missed his daughter's soccer game.

Laing officials may not have been familiar with their suitor, but Emaar executives knew about John Laing Homes long before the meeting. Earlier in his career, Booth had built award-winning high-rise condominiums in Canada. Active in the Urban Land Institute, he knew of Laing's reputation for fine design and high customer service. Before the Milwaukee meeting, Emaar's management team had been studying potential U.S. acquisitions for 14 months. Laing was at the top of its list.

Operationally and culturally, Laing is a great fit for Emaar. Though Emaar builds towers in Dubai and elsewhere, it is also a master plan developer and builder of single-family attached and detached housing, using some of the best production architects in the U.S. Laing, like Emaar, has a history of doing charitable work. “It's a good match,” says Alabbar. “John Laing is a company that is known for doing things right. We don't want to do anything that isn't right.”

A year into the marriage, Webb remains impressed with Emaar's managers. They put in long hours. They communicate late into the night and all over the world on Blackberrys and cell phones. They sometimes meet after dinner to plan the next day's events. There's a warm, positive buzz running through their office. “Management is very focused,” Webb says. “They have a vision to help people. They aren't preoccupied with whether they are going to make their year-end bonus.”

Looking out his conference-room window, Alabbar notes that none of the buildings in his view, many of them built by his company, even existed seven years ago. But it's not the signature high-rise towers that give him the most pride. From here to the power lines in the distance, Emaar has built communities with homes for roughly 6,000 neighborhoods with schools, hospitals, parks, shopping, even mosques. “We want to control the entire subdivision,” says Alabbar, not so much to maximize yield but to ensure a quality community. “I believe that when you give children a proper place to live, they become better people.”

Emaar may be better categorized as a developer than a home builder. Seventy-five percent of the company's portfolio is residential, but half of that development is apartments. The remaining 25 percent is commercial. In classic developer fashion, Emaar buys and sells real estate assets. It starts companies in related businesses such as mortgage banking then spins them off to unlock their value. “We are very passionate about returns,” says Alabbar, betraying his background as a portfolio manager.

LONG RIDE: Construction elevators hanging from a concrete frame transport a largely immigrant workforce to the top of the Burj Dubai.

Credit: Emaar Properties

Many Emaar master planned communities could be confused for ones in desert markets of the U.S. They typically include a mix of townhomes, villas, and detached homes at escalating price points. And they almost always include parks, ponds, trails, and open space.

The ride to Emaar's Arabian Ranches master plan takes less than a half hour. Dubai's streets are choked with mid-day traffic. An eight-lane highway, three miles long, bisects the city, with towers lining the road. Planners didn't provide enough highway exits. Drivers often pass their destination, exit, and circle back. Many side roads are difficult to navigate because a much-needed mass transit system is being built.

The route passes the Dubai Emirates Mall, a huge box with a propped up appendage to accommodate an indoor ski slope, the world's third largest. Up ahead, Dubailand looms. With a dinosaur theme park and several stadiums, it will be twice the size of all of the Disneyland/Disney World resorts put together. A small Bedouin community along the side of the road speaks to the region's past.

As the car approaches Arabian Ranches, Booth explains that six years ago, this swath of desert land—which will be home to more than 3,500 homes at build-out—was in the middle of nowhere. The ground was given to Emaar by the government. Emaar then poured tens of millions of dollars into infrastructure and building a luxurious lifestyle before the first buyers arrived, Del Webb–style. The community includes golf courses, a Spanish-style clubhouse designed by American architects, an equestrian center with stables and riding rings, and two huge polo fields.

Today, marketing brochures invite the country's burgeoning upper-middle class to live in a community “steeped in the mystery and beauty of the desert.” Thousands of homes have been built, thus far. Architecture is drawn from throughout the world—Portuguese-influenced villas, Spanish-style detached homes, and even Santa Fe-style villas. Completion is still at least two years away, but the project is already an unqualified success.

“We've already made $2 billion on this community,” says Booth.

If the U.S. economy drives the world, the Dubai economy is fueling Emaar. High-rise towers, each more colossal than the last, spring from the development community's addled imagination. Not a month passes without the announcement of another huge project, the latest a 30-story rotating apartment building. The ruler of Dubai, Sheik Mohammed, wants to grow gross domestic product 11 percent this year. Only 6 percent of the country's revenue is derived from oil, but nearly all of the major banks that deal in the oil trade have offices in Dubai.

The question on everyone's mind is whether such growth can be sustained; whether the market will deflate like the U.S. housing market. Alabbar has a big stake in whether the ambitious growth plans come to pass; he doubles as director general of Dubai's Department of Economic Development.

“I used to worry,” says Alabbar. “But now not so much. This is New York in the making, quickly, very quickly. ... The underground system going in here will be incredible. The whole region is growing. The government does what it says. The ruler is very passionate about getting it done.”

Plus, Dubai, with its beaches, renowned hotels, and great shopping, has turned into a major tourist and business destination with millions of visitors a year. “In the United States,” Alabbar continues, “you can go to New York for financial matters, Florida on vacation, and Las Vegas for entertainment. Dubai is all those things in one city. Two billion people live within a three-hour plane ride of this city.”

Alabbar estimates that 55 percent of his buyers are from the Middle East, 20 percent from Europe, 9 percent from India, and the rest from around the world. A few years ago, the ruler of Dubai decided that when foreigners buy property in Dubai they could receive a residency visa that conveys with the property. That has made owning real estate highly desirable for people living in unstable countries who may need a refuge.

Many buyers come with the companies that have opened operations here. Alabbar points from his window to buildings bearing the names of a bevy of multinationals—Siemens, Microsoft, Sony-Ericsson, IBM. “The quality and quantity of people has really changed here in the last 10 years,” he says.

The Sheik, a minority owner in Emaar, doesn't influence the day-to-day operations, except to urge Alabbar not to delay. “He's very impatient, and so am I,” says Alabbar, adding that the Sheik won't tolerate corruption. A team of eight government auditors works in Emaar's office every day. “He says, ‘Don't put your hand in the cash register.' ... There are very many bad stories coming out of the Middle East. This is a good one.”

The ride in a construction elevator to the top of the Burj is a rite of passage. When the elevator descends to the base of the building, dozens of helmeted workers clad in blue uniforms march out, their long workday over. The Burj is primarily being built by more than 3,000 immigrant workers from India, Pakistan, Bangladesh, and elsewhere, who earn between $106 and $250 monthly. Signs lay claim to hundreds of workdays without an accident.

Booth and his construction foreman lead Webb and Stelmar into the elevator—though high-speed, it resembles a steel cage—attached to the side of the Burj's frame. As it ascends, signs hanging from the side of the huge concrete structure mark each passing floor. The enormity of Downtown Burj, with dozens of towers under construction, becomes apparent. Ten cranes work the Burj alone.

By the time the elevator stops on the 60th floor, the building has narrowed considerably. Taut netting is the only thing standing between visitors and their doom.

A second construction elevator, noisier than the first, takes the group to the 110th floor, higher than any other building in the Middle East or Europe. Looking over the side, the entire economic miracle of Dubai comes into play. The artificial islands of the Palm Jumeirah, home to 4,000 villas and apartments, stretch into the Persian Gulf. In the distance, the iconic Burj Al Arab, the world's tallest hotel, mimics the shape of the sail of a dhow, an Arabian sailing vessel.

Booth asks, rhetorically, “How do you like the view?”

"It's not how big we are; it's what we do that matters.”

Emaar Chairman Mohamed Ali Alabbar clearly remembers his first visit to the U.S. Growing up poor in Dubai, he received a scholarship to attend school in Washington. But when he landed in Washington, D.C., at 16 years of age and asked where he could find the University of Seattle, he learned it was on the other side of the country. “I didn't know there was more than one Washington,” he says.

Alabbar learned a great deal at the Jesuit school, not the least of lessons being how to tolerate people of other beliefs and customs. “I never felt like I was treated differently because I was a Muslim,” he says of his experience.

Credit: Emaar Properties

Alabbar has tried to bring the same egalitarianism to Emaar, whose employees hail from 15 different countries. “We all have the same God,” says Alabbar. “I really don't know anyone's faith, except when I have to ask at Christmastime,” so that he doesn't give a present to someone who might be offended.

After college, Alabbar spent five years working in New York as an auditor for the Federal Reserve Bank. He parlayed that experience at 26 into a job in Singapore, where he managed an investment company that owned real estate and other assets. When he returned to the United Arab Emirates 10 years ago and saw that there were no real estate development firms, he decided to form one, raising $50 million from friends.

Alabbar says that what excites him most about what he does is improving the lives of people who buy his homes or rent his apartments. He has no doubt that children growing up in a decent house with a yard, a park, and a school down the street have a more positive outlook toward life. He prefers to be a master plan developer so that he can control the amenities in his communities.

Alabbar is pretty upfront about selling an American way of life in his subdivisions around the world. He points out that 50 percent of all the people in the Middle East are 20 years old or younger. “They all want to live the life they see on TV,” he says, adding that this includes his daughters. Though they often wear traditional shawls and scarves, he says, “they wear the latest designer clothing underneath.” They would even change the Arab styling of the family's house to a contemporary design, if they could.

Credit: Emaar Properties

The oldest child in a large family, Alabbar, by contrast, spent the early years of his life living in a leaky tent in the desert. When it rained, his father, a fisherman, would read passages of the Koran to the sky, asking for the rain to stop. Then the family moved to a larger government-owned housing unit. His father was ecstatic, and the family became even larger.

As a business leader and government official, Alabbar appreciates the importance of favorable publicity. Emaar is building a community in Sri Lanka, in the area affected by the tsunami. He helped rebuild an earthquake-ravaged village in Indonesia. “It's not how big we are; it's what we do that matters,” he says.

Emaar's moves are watched closely not only by stockholders but also by the citizens of Dubai. More than 4,000 people come to the company's annual shareholders' meeting at the convention center. The event is televised and some business professionals tape it to watch in the evening. Last year's meeting was particularly tough because the company's stock had taken a dive.

As Alabbar was taking questions, a disheveled attendee with a long beard started running toward the podium, his hands waving. Alabbar told him he would have to wait and took a question from someone else. Finally, he turned to the man. “He said, ‘May God be with you and help you make the right decision.' He didn't want to ask a question. He wanted to offer his blessing.'”

Early on, the final height of the Burj Dubai was a closely held secret, partly because Emaar wanted to surround the project with mystery. But with completion expected next year, now Mohamed Ali Alabbar is willing to give away the secret.

Credit: Emaar Properties

“It will be 170 stories tall, 40 percent taller than anything else ever built,” he says, adding that he isn't sure how long the record will stand. “I'm sure that someone else in China or Dubai will [eventually] do something even bigger.”

The largely residential building, rising at an average of one floor every three days, already surpasses Europe's tallest building, Moscow's Naberezhnaya Tower. It was on pace to eclipse the world-record holder, the Taipei 101, this summer. In September, the Burj reached 150 stories, making it the world's tallest free-standing structure, surpassing the CN Tower in Toronto.

The tapering, three-winged tower is built primarily with concrete. The last several floors and spire, though, will be framed with structural steel.

An Armani Hotel, the first of its kind, will occupy the lower 37 floors. Floors 45 through 108 will have 700 private apartments. Corporate offices and suites will fill most of the remaining floors, except for a 123rd-floor lobby and 124th-floor indoor/outdoor observation deck. The spire will hold communications equipment, and an outdoor swimming pool will be located on the 78th floor.

Several times a year, working conditions in Dubai reach a boiling point that spills over into a full-blown protest picked up by the local newspapers and international labor organizations. In March, immigrant workers—who account for more than 90 percent of Dubai's laborers—picked the construction site of the Burj Dubai to protest low wages. In Dubai, non-skilled laborers make as little as $4 a day and skilled carpenters only $7.50.

The workers at the Burj Dubai were angry that they weren't paid for their commute time—they're transported an hour each way from work camps. A Gulf News report added that it also took as long as an hour to punch their time cards—there are only nine machines for 3,000 workers.

As the economy of Dubai has grown at a double-digit rate and attracted international attention, its labor practices—though not much different from other conservative Arab states—have come under fire. Dubai relies on an estimated 10 million foreign laborers, many from India, Pakistan, and Bangladesh, to construct its towers.

Protests erupted in recent years over unsanitary conditions in the temporary housing, unpaid wages, the withholding of employee passports, and non-payment to middlemen who arrange to bring foreign workers to the country. All these conditions are being monitored by the Human Rights Watch, an international organization that has called for a stop to them.

The United Arab Emirates (UAE) government appears responsive at times, though it's hard to say whether much has changed. The government directed its labor minister to set up a special labor court to resolve disputes, increase the number of government inspectors, require employers to provide mandatory health insurance, and develop mechanisms for workers to collect unpaid wages.

But, in March, Human Rights Watch reported that nothing had really come of this. The organization could find no public record of an employer in the construction industry forced to pay a substantial fine or suffer any criminal liability even when found guilty of violating labor law.

The U.S. Department of State, which issues State in Country Reports on Human Rights Practices, says in its 2005 report that while the standard workday in the UAE is eight hours and the standard work-week is six days, the standards are not strictly enforced. It adds that the government doesn't impose minimum wage guidelines.

“Low-skilled employees were often provided with sub-standard living conditions, including overcrowded apartments or lodging in unsafe and unhygienic ‘labor camps,' lack of electricity, lack of potable water, and lack of adequate cooking and bathing facilities,” the report says.