The Scot in Morag Stewart was taken aback by the speculation rampant in Dubai.
During a four-year term at the Emirates Academy of Hospitality Management, two of those years as dean, she lived in a bubble of sand, with speculators buying and selling apartments that had not yet been built.
Many of the best and brightest in the Arab world were flocking to the Persian Gulf emirate, and the bankers from London, New York and elsewhere were not far behind.
Now director of Washington State University’s executive MBA program in Spokane, Stewart says the city-state that had not had a hotel before 1990 strained to become a tourist destination on the scale of Las Vegas. The dynamism, the ambition, was as plain as the palm-like developments extended into the gulf, visible from space.
“It was surreal,” Stewart says.
Last month, pending debt payments took the “sur” out of surreal. The state-owned enterprises driving development asked creditors for a six-month reprieve on $26 billion in debt. Lenders were shaken by initial statements from some Dubai officials that the government would not stand behind the debt.
Imagine the panic a year ago if the federal government had not backed the obligations of Fannie Mae and Freddie Mac.
The crisis apparently passed, the markets settled. But much of the construction envisioned when Stewart was in the emirate will be a long time coming.
The numbers never did add up, she says.
As part of a class exercise, Stewart did a market study of Las Vegas. Colleagues did others of Orlando and Macau, which were also considered possible templates for Dubai’s tourism future.
At the time, she says, there were plans for a strip of hotels along a four-mile stretch of road. The scale would dwarf the Las Vegas Strip, with one hotel boasting 6,500 rooms. Demand was extrapolated from the heady early days of Dubai’s hospitality industry, when hotel occupancy some nights exceeded 100 percent: beds vacated by guests leaving in the wee hours were refilled with others checking in.
When she arrived in 2003, hotels were recovering construction costs in two years, not the usual 20 to 30 years.
Las Vegas, with 130,000 rooms in 2006, could attract business from a population of 44.5 million less than a one-hour flight or a half-day drive away. Vegas visitors not only gamble – forbidden in Islamic countries – they shop, attend shows, dine and drink, which is permitted only in hotels in Dubai. Conventions are a major draw.
In contrast, fewer than 40 million people live on the whole Arabian Peninsula. And assumptions about the number of European visitors overlooked how readily they move on to the next hot spot.
The Mideast has a long tradition of hospitality, but not on the industrial scale of a Las Vegas, Stewart says. “You can’t just look and say, ‘I’m going to do this.’ ”
They did anyway, or attempted to. And with abundant help from international bankers who should have known better.
If the impulse is to dismiss the naivete of the Arabian nouveau super-rich, Stewart suggests many in Spokane should check their own credulity.
Remember the $500,000 condos that were going to reshape downtown? The 10-story towers? Kendall Yards, the beta version?
The city is fortunate that few were built, because fewer still were sold.
And how about the wisdom of the Wall Street bankers who speculated the United States into recession? Citibank, not surprisingly, is among the lenders sweating the outcome of Dubai’s debt woes.
In a global economy, what happens in Dubai does not stay in Dubai.
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