Company Tasked With Redeveloping Beirut Struggles Through Lebanon's Turmoil

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Closed shops are seen in downtown Beirut, Lebanon, November 1, 2017.
Closed shops are seen in downtown Beirut, Lebanon, November 1, 2017.Credit: Mohamed Azakir / Reuters

The company formed to rebuild Beirut after Lebanon’s civil war ended in 1990 is struggling to overcome the latest period of political turmoil roiling the Middle East.

Until the 2011 Arab uprisings and the start of neighboring Syria’s civil war, Solidere’s property business was booming along with Lebanon’s real estate sector.

But political tensions have put a security cordon around Solidere’s glittering central Beirut showcase and scared off investors. Low oil prices also weigh on a market long dependent on petrodollars from the Gulf.

Investors “have to believe Lebanon is going somewhere stable to start to invest .... At the moment people are still in a wait-and-see mode, even though there are some bullish investors negotiating deals to benefit from the long-term value of downtown properties,” Oussama Kabbani, chief operating officer of Solidere International, told Reuters.

Solidere has sold no land this year, recording an unaudited net loss of $18.9 million in the first half of 2017. But the company said some negotiations are in progress.

Its reliance on land sales means the company can swing dramatically between profit and loss, but the peaks are now much lower and the troughs deeper than a decade ago. In response, Solidere is offering new deals to potential land buyers, has focused more on rent revenues, and has cut expenses.

“Solidere is trying to make it easy for people who are serious to buy,” said Kabbani, who was involved in drawing Solidere’s original master plan for Beirut.

Analysts say the scarcity of land in Lebanon and Solidere’s ownership of prime sites mean the company has good value medium- to long-term, but maintaining liquidity in the short term is more of a challenge.

The Lebanese Company for the Development and Reconstruction of Beirut Central District (Solidere) was founded by then-Prime Minister Rafik Hariri in 1994, aiming to finish its work and dissolve by 2019.

But he was assassinated in 2005, prompting a series of political, security and economic crises in Lebanon that also pushed central Beirut into steady decline.

Solidere’s mandate has been extended to 2029, but it still has around 1.7 million square meters (420 acres) of land to sell and shareholders received no dividend this year. Because of the tight security around the showpiece Place d‘Etoile area near Lebanon’s parliament, people cannot access the area freely and most shops and restaurants have closed.

Solidere has sold on most of the buildings there, but the area’s decline has deterred investors. It has also reduced the flow of people to the adjacent Beirut Souks shopping area, where Solidere makes money from rent.

“There was a period where people from the Gulf, their dream was to come and sit ... to do nothing but sit and watch people going by,” Kabbani said, referring to the boom years of 2004 and 2005. “If we didn’t have those security enclaves in Downtown, I‘m sure Downtown could have continued to be the center of attraction.”

Instead, land prices in Downtown have fallen by 1% to 2% annually and by around 15% in the past five to seven years. In response, Solidere plans to start converting unused office space into small apartments and is offering investors better deals.

“Today Solidere might give you more flexible terms to pay [or] to develop, simply because it understands you are taking a country risk with your cash,” Kabbani said.

It is also trying to reduce costs and has cut overheads by 25% to 30%, he said. This included withdrawing from the London Stock Exchange because the low trading volume was not worth the fees.

Solidere’s share price in Beirut, which peaked at around $40 in mid-2008, has declined to around $8 today.

Some of Lebanon’s political problems appeared to abate earlier this year, only to flare up again in November when Prime Minister Saad Hariri, Rafik Hariri’s son, unexpectedly resigned in a shock broadcast from Saudi Arabia — a move linked to conflict between Riyadh and Tehran.

He subsequently withdrew the resignation, with Western states pledging support for Lebanon’s stability.

“There are some big question marks still remaining on the country as well as the region in general,” Kabbani said, citing security, the political divisions in government, low oil prices and the future of Syria.

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