Bay of plenty

A landmark mega-project on the north coast, Bahrain Bay is setting the standard for development in the Gulf’s smallest nation. MENA Infrastructure speaks to CEO Bob Vincent to find out how the project is set to boost Bahrain’s economy, and how it managed to survive the crash of the Middle East’s property market.

“It's much more important for us in terms of the long-term to demonstrate that we do have the holding power and flexibility to give surety to these investors that they will be successful in the long-term.”
-Bob Vincent

It's fair to say that Bahrain is having a moment. While perhaps not enjoying the same booming success as neighbouring Qatar, the GCC's smallest nation is flourishing in the recovery, playing on its reputation as the 'gateway to the Gulf' in order to develop its tiny oil and finance dependent economy into a diverse and sustainable country with booming sectors in business, tourism and infrastructure. Large-scale mega-projects are shooting up across the country, providing attractive business and residential stations for international investors looking to tap the region's emerging economies.

Among them, reaching out into the crystalline seas of the Persian Gulf north of Manama, lies the reclaimed peninsular of Bahrain Bay, a US$2.5 billion master-planned, mixed-use, super development projected to serve as one of Bahrain's forefront residential and commercial communities. Cited as a paramount factor in the country's 'Economic Vision 2030' development plan, Bahrain Bay is estimated to play host to around 30,000 residents and workers upon completion. In addition to providing the premium accommodation popular in the country, Bahrain Bay will include prime corporate buildings, commercial and retail space, as well as a comprehensive infrastructure to support all the constructions and communities within the project.

As a development, its sheer size and budget echo the extravagant mega-projects that pushed neighbouring UAE onto the world stage last decade, but more importantly, in its tiny 1.5 million populous country, Bahrain Bay is set to stimulate significant yet sustainable economic growth. Already the project has welcomed anchor developments from Arcapita investment bank, who has chosen the site for its new corporate headquarters; global hotel brand Four Seasons; and luxury residential accommodation Raffles City Bahrain, as well as investment from high profile companies across the world.

"The project is still on program and on budget," explains Bob Vincent, CEO of Bahrain Bay, speaking back in June. Following the initial conception and master-planning of the idea in 2005, the project began to take form in 2006, beginning with the 430,000 square metre land reclamation process. To stay on track with this development such as this is in itself no mean feat considering the scale of the project, the number of third parties involved and of course the economic maelstrom that brought a significant proportion of the GCC's booming construction sector to a grinding halt. Bahrain Bay is made up of more than 40 buildings, with each individual project taking up to two years to plan and design, and costing anywhere from US$100 million to US$700 million. With this in mind, the chance of a default somewhere along the line is not unlikely. And indeed a number of Bahrain Bay's project did slow down considerably when the market crashed in 2008. Still, the development remains on track and has managed to keep all of its third party investors on board, facts that are down to a flexible business strategy and a little bit of luck, as Vincent explains.

"We are very fortunate in terms of the timing for that civil contract for the main infrastructure of the site," he says, "because it was locked in prior to the financial downturn and provided a forward projection of works for a two and a half year period, which we are still completing."

The nature of that contract allowed works to continue on the project itself, and all of the utilities and services found within it that are necessary for a development of that size. Similarly, Vincent reveals, the contracts with the third party investors and developers required a certain level of up front payment for the land in Bahrain Bay, and a subsequent programme for on-going payments. "That's been very fortunate for us because we've locked in a commitment of a significant portion of the project in terms of the financial returns," he explains.  "It's also been significant because it's allowed us to negotiate fairly and openly with our third party developers to keep their programs on track.  By that I mean we have been willing over the last 12 to 24 months, during the financially difficult period, to show flexibility with the third party developers in terms of their payment because we've had significant funds already collected. 

"By providing that flexibility we've enabled them to revise their plans in terms of the programme and the design intent and the product within the project, and we've allowed them some opportunities to revisit the programme in terms of construction start dates for their developments."

This approach is now paying dividends as the development begins to mature and the market moves into recovery. Stabilising revenue collections, as well as the civil works and infrastructure development have left Bahrain Bay in a comfortable position to offer its third party developers the opportunity to commence their programmes in a time frame that best suits their business plans ­- and has therefore been able to keep every one of its developers on board with the project.

"We have progressed significantly with the majority of our 13 co-investors or third party developers for the project," says Vincent, "and all of them are progressing with their development programme design submissions.  We have approvals for seven of the 13 developers for their schematic designs and we have building permits for four of the third party developers, two of which have already started construction onsite."

New beginnings

While Bahrain Bay is very much a cutting edge and stylish mega-project for the country, it is still intended to maintain Manama's character, as well as provide a boost to the country's economic growth. Closely linked with old downtown Manama, both geographically and in design terms, Vincent describes the Bay as revitalising the country's capital, situated "in a prime corridor of development".

"The corridor of new development is seen as the future expansion of economic development within the kingdom," explains Vincent. "As an important part of that corridor Bahrain Bay's objective was to ensure that we were sustainable and that we brought investors into the project that had the ability to perform." 

Indeed, Bahrain has long been seen as a gateway to the Gulf region; its relatively liberal culture has traditionally made it an attractive destination for western businesses looking to establish operations in the region. Over the last decade or two however, the advancing economy and flourishing property sector in the UAE, and in Dubai in particular, have made it an attractive prospect in the region, usurping Bahrain's popularity. Still, today the stability of Bahrain's economy is beginning to regenerate interest in the country, and the Economic Vision 2030 aims to turn that spark of interest into a fully-fledged firework, capturing foreign investment back into Bahrain - a goal that the Bahrain Bay is paving the way to achieve.

Vincent reveals that a significant proportion of investment for the development came from overseas. "We wanted to ensure that the third party developers who came into the project had the financial experience and the development experience to deliver on their projects," he highlights, "and to add value to Bahrain Bay and to Bahrain's economy in general. We specifically went out and tried to attract international investors in Asia, in Europe, in India and in the broader region of the Gulf in particular." This was a successful venture; the targeted approach from Vincent and his team resulted in attracting significant investment from India, Europe and within the GCC, as well as Bahrain's own major developers. And this was all part of the long term strategy to establish Bahrain as a major player on the world stage.

"We feel that by bringing that diversity of investors into the project we've been able to first of all demonstrate that there is an interest in investing into Bahrain," offers Vincent. "We've been able to demonstrate that these investors are knowledgeable and capable and are prepared to commit to a market that is in some respects new, but also where they see tremendous expansion opportunities within the Gulf region.  They've done that in the context of knowing that Bahrain Bay is not a short term development."

Vincent is firm in reiterating the merits of Bahrain as business destination in the Gulf region. "While [it] may be a smaller economy than some of its surrounding neighbours," he says, "it's able to focus on making the initial investments from these overseas entities successful and in doing so providing further opportunity for the incoming investor not only in Bahrain but more importantly in the Gulf region.

"Irrespective of the difficulties of the financial market, Bahrain has continued to take that role and has continued to push forward to make sure that it's seen as a valid way of going about introducing investment into the Gulf."

Bumpy road

Of course developing a project such as this is not going to be plain sailing, a fact that Vincent is well aware of. "There are a series of significant risks in any major development," he points out. "The initial risks are in undertaking the market assessment of whether or not a development of this scale is viable and sustainable and will be commercially successful; that risk was assessed in 2005."

Indeed, that risk was assessed when the MENA property market was booming and the future for such developments across the region looked bright; but in 2008, the economic downturn hit, bringing the sector to its knees.

"I think initially the Middle East in general and Bahrain in particular was not as immediately effected as Europe and North America," offers Vincent, "but it very quickly got caught up in the outcomes of overleveraging, cheap debt and rapid overinvestment in real estate and infrastructure." Still, Bahrain's relatively diminutive size meant the recession had a less crippling impact upon the economy, and with his contracts already tied up, Vincent has been able to remain pragmatic about the situation. "We're having to face - as all real estate projects have had to face over the last two years - a reality check in terms of what the investment criteria might be, what the lending criteria might be and what the market absorption has projected to be in the start-up phases of the project. That's a major commercial issue we've had to manage, but as I said, we've been able to manage it because we have a very stable, well funded project with no debt and with significant revenue already collected to support the project going forward." Indeed, Vincent is positive about operating in Bahrain, adding that the size of the economic market in Bahrain has allowed the value of property under construction to remain stable, as the country has not seen the levels of overbuilding that has occurred in a number of other countries in the region.

Following the market assessment, the next major challenge posed by a project of this size is the planning approval, which Vincent explains is becoming increasingly difficult over time as expectations from government and planning authorities become more demanding. Ensuring that the best practices are being introduced, that environmental and sustainability issues are being addressed, and social equity contributions are being addressed are all factors that, Vincent says, became critical to the success of the master plan and also to securing sales for the project. However, he continues, "it's also been fair to say that the government has enthusiastically examined what large master plan developments are and how they can benefit the economy.

"We've been a fore runner of major master planning in Bahrain and we've demonstrated good practice, and the government is being supportive of that."

Looking to the future Vincent upholds the same down to earth attitude. Well versed in the real estate sector, he knows that what goes up must come down, and then inevitably will go back up again. "There's no doubt that lenders, developers, purchasers are more cautious, but that's a normal part of a real estate cycle," he explains. "Real estate works on cycles of five to seven years. Bahrain is no different to anywhere else in the world in this respect."   He is positive that, as the market moves into recovery, sales of units on the development will continue to flow, although emerging from the downturn it may well be slow and steady that wins the race. His ambitious claim that US$70 million worth of sales would be tied up by March did not materialise, and he is prudent in his belief that the next year is likely to throw up as many challenges as it does opportunities. Still, with contracted sales completed on 65 percent of the land so far and no debts to speak of, he can afford some confidence in the way Bahrain Bay has operated, and it's position as it moves towards completion.

"There's no point in forcing developers into situations where they fail. It's much more important for us in terms of the long-term outcomes for the project, and for Bahrain in general, to demonstrate that we do have the holding power and the flexibility in our management and development of the overall project to give surety to these investors that they will be successful in the long term.

"We as a development company were at no time in any danger of not proceeding or having any hold up on the project. We have returned significant revenues on the project ... and we're in a position where we can work with our third party developers to ensure that when they do start they will be successful as well." 

At a glance...Bahrain Bay

Start date: Masterplan 2005, construction 2006

Target completion date: 5-7 years (Phased completion)

Total floor area: 1.450 million square metre

Total land area: 450,000 square metre

Total number of buildings: 40

Anchor developments:

• Arcapita Bank Headquarters
• Raffles City Bahrain
• Four Seasons Hotel
• International investors: Al Baraka Banking Group
• Ajmera Mayfair Group
• Arjaan Rotana
• Coopertation Investment House
• DAMAC
• Kanoo Tower
• KhaleejCapita
• Koheeji
• Salhia Real Estate Company

Green Bahrain

Bahrain currently has an energy consumption rate 10 times higher than that of Japan, a fact that the government is looking to turn around as part of the Economic Vision 2030. "Sustainability issues are at the forefront of good urban design and development," says Bob Vincent. "We have addressed those sorts of issues preliminarily by having our environmental criteria properly assessed by the government, in relation to the possible impacts of reclamation, circulation and water quality assurance."

In addition to this, the master-plan guidelines for the development indicate that all buildings should be at LEED gold certification standard. In addition the utilities and services within the site have been designed such that all grey and waste water within the project is recycled and reused for district cooling or for landscaping in the development.

"We are participating with the Bahrain government in instituting new building guidelines for energy efficient buildings," adds Vincent. "That legislation is currently being drafted; the guidelines are being examined in consultation with overseas experts and we will participate wherever possible to ensure those guidelines are adopted by our third party developers.

"It is a very important emerging field and... I think it's fair to say that the developers within the real estate community in Bahrain are starting to understand the significance and cost savings associated with green energy and will fully embrace these as they move forward in consultation with government."

Quick Facts: 

Last October, the Bahrain Bay project reached the five million accident free man hours milestone.