Sheikhs, Lies and Real Estate: The Untold Story of Dubai (32 page)

‘When do you think supply will begin to
outstrip demand?’

‘How much of a correction do you think there
will be?’

‘What if I can’t flip before my next payment is
due?’

‘What are your views on the Morgan Stanley report?’

Most of the team were completely unready for
the intense interrogation. I couldn’t help thinking that perhaps if they had
taken the Morgan Stanley report more seriously, as I had suggested, they may
have been better prepared for this somewhat inevitable eventuality.

Then things got even worse: somebody uttered
the dreaded ‘B’ word for the first time causing an uneasiness never felt before.
Up to that moment, everybody had been making far too much money for the thought
to cross their mind. But at Cityscape that day, I heard the word being tossed
around recklessly, and it scared the hell out of me – what if Dubai’s real
estate market really was a bubble? Of course, the most alarming thing about all
bubbles was that they burst, and if the so-called Dubai bubble was to pop, the
fallout would be apocalyptic.

Alarmingly few deal were struck at Cityscape
2008. Although nobody would admit it, the event had been a gigantic failure for
both Milestone and brand Dubai, as immense fear began to take hold. 

Like a stubborn child, Dubai ploughed ahead
with its fingers in its ears. There was only one way the city really knew how
to offset the negative rumours and keep everybody smiling – to throw a party! A
good party was the ultimate distraction and it was needed now more than ever.
But this was not to be any ordinary party. It would be the party to end all
parties, the party of the century!

The launch of the billion-dollar Atlantis hotel
was the most anticipated event of the year which no global economic crisis was
going to dampen. This grand new luxury hotel resort was set to redefine
opulence in Dubai. It was the brainchild of Israeli billionaire Sol Kerzner,
one of the few Jews who had been given the privileged status of openly
partnering in a business venture with a Gulf head of state. Swarovski-studded
invitations were selectively distributed a few weeks in advance to an A-list
group that included Hollywood stars, property CEOs and members of the royal family.
Nearly two tons of lobster and caviar and thousands of bottles of champagne
were flown in for the event, which dominated the front pages of every
publication in the city.

A few days before the party, heavyweight
celebrities and sports stars like Robert De Niro, Michael Jordan, Boris Becker,
Quincy Jones and Charlize Theron jetted into town for the event of the century.
There were rumours that Dubai had paid each of the stars a hefty sum to attend,
with complimentary accommodation at the resort. Even Tariq and his wife Ayesha
received an invitation to attend on behalf of Milestone. Tariq never usually went
to any property launches, so his acceptance was an indication of the gravity of
the event.

On the night of the party, there was an
unusually strong wind for a summer night in the desert. I took a spot on the
beach at the JBR with Hani and his friends in preparation for the firework
display that was promised as the grand finale. We were joined by dozens of
other keen spectators on the shores overlooking the Palm. As the event began,
the muted sound of the live band in the distance could be heard over the waters
as pop diva Kylie Minogue took to the stage. There was a great cheer from the
crowd on the beach as her familiar voice echoed against the night. She was
reportedly paid $4 million for the appearance, which lasted all of an hour.

I didn’t care too much that I wasn’t attending.
On any other night I would have longed to be there, but tonight was not for me.
It was more appropriate that the visionaries, entrepreneurs and pioneers who
had made Dubai’s property boom a reality were in attendance. Tonight was the
city’s thank-you party to these men and women who had taken great risks,
sacrificed their efforts and believed so strongly in the Dubai story. Although
it was officially billed as a launch event, I saw it rather as a farewell bash.
I knew then that the game was over. Tonight was a fitting end to the biggest
party of all. The Dubai property bonanza was tragically approaching a spectacular
crescendo.

The grand finale was more remarkable than
anybody had expected. In twenty breathtaking minutes, over twenty million dollars
went up in smoke in the most magnificent fireworks display I had ever witnessed.
Each colourful blast was bigger and more magnificent than the last as the
darkness of the night’s sky was magically illuminated. Television cameras from Mumbai
to Tokyo broadcast the images, and the extravaganza could even be seen from
space. Finally, as the party reached its spectacular climax, a gradual calm
fell over the beach as the slowly crowd dispersed and made their way home. And
then silence. Although few knew it, we had just witnessed Dubai’s last great
spectacle. The final curtain had fallen and there was to be no encore. Only
darkness.  

The city awoke with a ghastly hangover the morning after
the Atlantis launch party. The very next day, Dubai’s property market drew to a
sudden and abrupt halt, confidence evaporating overnight. Nakheel announced
that it was firing five hundred people, roughly 15 per cent of its global
workforce, sending shockwaves through the market. Building sites stopped and
cranes were motionless. Investors weren’t making calls and transactions dried
up. The market had suffered a devastating stroke and nobody seemed to have an
answer.

By September 2008, most investors were holding
the majority of their net worth in real estate assets, often on deals with 5 per
cent down. Having made quick money in earlier transactions, speculators had
reinvested their profits in an ever-expanding portfolio. In most cases, they
had never intended to pay a second or third instalment, betting instead on
being able to flip their investment in good time. But now that transactions had
ceased, they became increasingly concerned by the lack of a viable exit before
the next payments were due, and many began to panic. 

In the absence of cash, investors and
developers looked to the banks for mortgages and project financing to plug the
gap. But faced with massive overexposure to property on their balance sheets
and the potentially toxic wave of bad debts approaching, the banks shut their
doors. To make matters worse, it emerged that many of the Gulf’s larger finance
houses had significant exposure to Lehman Brothers’ assets via bonds,
derivatives and structured investment products. And so with the banks bleeding,
a lack of liquidity and mounting liabilities, the market went into a state of shock.

At Milestone’s new offices, the phones had
stopped ringing and leads began to evaporate into thin air. The sales team were
left scratching their heads and nobody knew what had caused the breakdown of
their miraculous cash cow, or how to fix it. In the absence of any inbound
calls, the sales team desperately tried to phone everybody in their database to
feed them a pre-rehearsed list of reasons why the property market was still in
good health, and how it was still a good time to buy:

‘My boss had lunch with the CEO of Emaar last
week, who said that prices will start rising again in a month.’

‘One of our properties had seventeen viewings yesterday,
which proves that the market is back to normal. If you don’t buy in the next
two days, you will miss the bottom of the market.’

‘Our CEO is close to Sheikh Mohammed, who told
him personally that it’s a tactic to get rid of the speculators. He said prices
will start rising again next week.’

It’s no surprise that such bullshit fell on
deaf ears. After a few weeks the phones at Milestone did start ringing again,
but instead of a keen investor on the other end it was more likely to be a
former customer hurling abuse for being mis-sold a property in which his money
was now invariably stuck.

For the first time in Milestone’s history, a
customer service department was created to deal with the ever-increasing number
of complaints. Emma was removed from the sales team and appointed as the new
head of investor relations to handle the plethora of grievances. But within a
week she was so inundated with calls and angry customers that she broke down in
tears and resigned. Tariq also appointed a young lawyer from Australia called
Brad to fend off the ever-increasing threats of legal action against the
company. From the day he joined, Brad didn’t leave the office once. He spent
his ays beneath a pile of papers or on the phone. He never took a lunch break,
and even slept under his desk most nights of the week. Within a month he was completely
burned out and also resigned.

Faced with the growing uncertainty, Tariq tried
desperately to calm his troops. We saw more of him around the office, and he
began regularly attending team meetings and morning briefings, where he patted
backs and massaged shoulders to boost morale. Although he didn’t say a great
deal, his presence alone was enough to instil some confidence within the firm. It
wasn’t long before the inevitable happened and a Milestone management meeting to
address the crisis was called. Everybody was ordered to attend.

‘My message to you is don’t worry,’ said Tariq
confidently to his anxious audience. ‘This is just a temporary blip and is
nothing to worry about. The West is going through a recession right now, but we
are in Dubai. We do not share the same problems as the rest of the world, and
it is only a matter of time before things are back to normal.’

His reassuring words and confident tone caused
a sigh of relief across the room. But I wasn’t entirely convinced. Much of what
he said was mere wishful thinking and lacking any firm foundations, although
much of the team failed to see through his words. As Tariq spoke I glanced over
at Wasim, the company accountant, who was standing alone at the back of the
room with his arms folded. He stared at the ground throughout the meeting; a
forlorn figure with the weight of the world on his brittle shoulders.

But things didn’t get back to normal as Tariq
had promised. In fact, they only got worse. Confusion turned to desperation,
desperation turned to anger, and the team began to point fingers at the only
people they could: each other. Salespeople blamed the business development team
for bringing them projects they couldn’t sell. The business development team
blamed the salespeople for not selling their projects. Senior management blamed
the IT department for slow computers. The IT department blamed senior
management for making them a scapegoat for poor sales. And the administration
assistants just kept quiet so they wouldn’t get fired.

As the threat of redundancies loomed, everybody
at Milestone strangely became extremely busy. Salespeople started arriving in
the office an hour earlier and leaving much later to create the impression they
were working hard. In private, many of them began calculating how much they had
earned for the company in commissions since joining, to constitute a benchmark
of their value and to build a case for why they shouldn’t be fired. This
worried the new joiners particularly, who were afraid that if the cuts came,
they would be first in the firing line.

Helpless, I watched my own pipeline dry up one
by one. My prospective investors had stopped answering my calls and emails, and
I spent my days leaving messages on answering machines or with secretaries who
were under strict orders to keep the exact whereabouts of their bosses a
secret. In the few rare cases where I did get replies, I was given awkward
excuses for avoiding meetings, ranging from illnesses to travel plans and in
one case a fabricated death!

I also noticed a marked change in my
relationship with Tariq, and I got the impression he was avoiding me. He never
once came over to my desk to speak to me, and in the rare event our paths
crossed he simply nodded without saying a word. I didn’t take it too personally.
Tariq had poured his blood and guts into building a successful business and he was
now facing the threat of oblivion. Just a couple of weeks after his rallying
speech, his confident facade appeared to wane and he began to look as worried
as the rest of us.

As all business activity drew to a standstill,
an air of foreboding suffused the office and we all feared the worst. Rumours
spread throughout Milestone that rival real estate companies were responding to
the lack of revenues by cutting staff salaries, or in some cases scrapping
salaries completely in favour of a commission-based pay structure. Every
salesperson in the company panicked, fearing that Milestone would follow suit.
In the heyday of the boom, most salespeople had not even noticed their measly
salary come into their account as it was eclipsed by their massive commissions.
But since the market had turned, what was once extra beer money had become a critical
lifeline for survival. To lose it would surely mean the end.

I certainly did not feel immune from what was
to come. In a sharp market downturn, a highly paid investment manager was a
luxury to a small business like Milestone. I was by far the most highly paid
employee and I had still not produced a penny for the firm in commission so
far. If excessive costs needed to be cut to save the company, I would surely be
first in the firing line.

Yet more bad news surfaced. Investigations into
financial irregularities had begun as early as April 2008, but it wasn’t until
after the crisis had hit that the extent of the corruption in Dubai became
apparent. A staggering nine hundred and fifty million dollars had either been stolen
or taken in bribes by executives at real estate and financial services firms
during the property boom. From heads of departments to CEOs and board members
and even former ministers, bribery and embezzlement were rife. One prominent Emirati
businessman was reported to have defrauded investors out of two hundred and
thirty million dollars. The case went all the way to the top, and Sheikh
Mohammed himself ordered the seizure and liquidation of all assets related to the
company. 

And so with the collapse of confidence, absence
of bank financing and allegations of deep-rooted corruption, the market
suffered a heart attack. Although most people were still in a state of denial,
the dream was over and the game had ended. Now it was nothing but a fight for
survival.