Stalled Middle East
Construction Project Recovery:
Solution to a Crowded Market?

History
Prior to, during and even after the financial crisis of2008, construction across the region was a major
focus. In the majority of cases, these construction
projects were residential units, often high-rise,and/or mixed-use projects.
However, when the financial crisis hit, many ofthese projects simply ran out of money and wereabandoned. Indeed, the Middle East construction
market is almost characterized by the abandonmentof construction projects when money runs out
and legal issues mount up. Across virtually all
GCC Countries, there are projects that fall into
this category, many of which are, to this day, inan advanced state of construction, and to one
degree or another, ready to be completed.

Context
The Middle East has seen a pronounced financial
recovery since the pandemic hit in early 2020,
across various sectors. In particular, the real estate
sector has witnessed values rising sharply due toconsumer demand and short supply of units.
Prior to the pandemic, the real estate sector had
shown a steady decline in unit values and waningconsumer demand, as some of the region’s larger
real estate developers had released multiple
developments onto the market, resulting in
downward pressure on values. The onset of thepandemic saw even further reductions in unit
values, reaching a low point in Q3-Q4 2020.
However, as the pandemic wore on and as we all
became more accepting of the new norm, including
an increased likelihood of home working for
prolonged periods, a fundamental shift in consumer
patterns emerged. A significant proportion of
expatriate residents focused on larger units, andalso sought to buy rather than continue paying rent.
This longer-term outlook has manifested in a heatedmarket with demand outstripping supply, and evenwith new units entering the market this year, thedemand is likely to remain in the short term.

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Government incentives, aimed at attracting andretaining talent across the region, has meant that
populations are at pre-pandemic levels, or evenhigher. Visa reforms has also given rise to a morestable outlook, resulting in demand on real estatethat cannot currently be satisfied with existing stock.

The future
As the economic rebound from the pandemic
continues, it is anticipated that GCC economies
will grow at their fastest pace for some time.
Emirates NBD have projected a 5.1% GDP
growth rate during 2022, whereas other recently
published data by MUFG puts this even higher
at 6.1%. These projections, allied with new ways
of working and increased consumer confidence,
could lead to demand for residential, office,leisure/hospitality and other mixed-use projects.
Knight Frank’s real estate predictions for 2022
further support this, with expected growth inhybrid working models and cross-border realestate investment being particularly strong
growth areas. Capital investment in areas suchas commercial offices are therefore expected
to grow due to underlying demand for offices,
regardless of adjustments to working weeks.
Deloitte’s 2022 Real Estate Predictions Report
anticipates technological innovation in realestate, with fractional ownership supported
blockchain to facilitate due diligence andcapital flows in a secure environment.
Could previously abandoned projects be theanswer? Across the GCC there are examples ofpartially constructed projects that blight the skyline.
These are no doubt the result of economic
conditions at the time of their abandonment, so is
now the time to capitalize on this opportunity
when demand is potentially at its peak? In a
post-Covid world that is driven by sustainability,and acronyms such as ESG (Environmental,Social, and Governance) being bandied around so
freely, does it not make sense to use the raw
ingredients already in place for some of theseabandoned projects and re-purpose them?

Stalled Middle East Construction Project Recovery: Solution to a Crowded Market?

Data Centers and Healthcare Facilities, for example,
are in huge demand and many investors see thesetypes of units as potentially lucrative investments
moving forwards. It is therefore easy to assume
that some of these previously stalled or abandoned
projects could be modified to convert into theseuse types, or perhaps hybrid models that include
live-work spaces too.

The dilemma
Clearly, the recovery of previously abandoned
projects still presents challenges. Arguably,
there are more challenges than commencing
a new project, which include:• Existing legal issues and disputes;• Outstanding payments and unfulfilled scope;• Qualitative / safety issues with the partiallycompleted construction works;• Warranties / work product which may notexist, or may be inadequate;• Insufficient funding capacity due to higher
perceived risk; and• Lack of appetite from the contractor market toassume responsibility for somebody else’s work.
Perhaps a change in Government policy to mandate
the recommencement of these projects would
facilitate an easier path to completion, but it isdifficult to imagine how this would result insatisfaction for all concerned parties due tosome or all of the issues identified above.

The opportunity
Although there are significant challenges inresuming construction on previously abandoned
projects, there are abundant opportunities. Not
only do these abandoned projects allow a refreshin the vision and ultimate outcome of the project,
but they also present opportunities for innovation
and, arguably, potentially higher returns if they
are done correctly.

Initial investment costs may actually be higher
for such projects. Assuming there is a reasonable
degree of integrity remaining in the construction
works done previously, the final construction costs
may be comparable and would encourage a highdegree of value engineering and innovation, e.g.
off-site manufacturing, technology embedment, etc.
Whilst the legal challenges, both in terms ofownerships, claims and other matters, would
be complex they could be addressed througha combination of the right legal and financialadvice. This advice would need to extend totechnical assessments, quantification of attained
progress and cost to complete, legal / claims
advisory, as well as financial advisory in theform of debt raising, restructuring and otherreorganisation services.
In summary, there is a tremendous opportunity forclients, banks and other investors to view stalled
projects through a different lens given the eventsof the past two years. Rather than leave theseprojects idle, accumulating ever more claims,
lost revenues and further dilapidation, there is an
opportunity to turn these stalled projects into arevenue generating asset(s) that satisfies pent-up
demand across a range of usage types.

About Kroll
Kroll offers a one-stop solution in resurrecting
projects that have stalled for one reason or another.
We have a multi-disciplinary team that can address
all of the key issues on stalled projects, fromfeasibility, valuations, funding, procurement,construction execution, disputes and legal (thirdparty). Within Kroll we have both financial and realestate/construction professionals in-house, giving
us a unique opportunity to bring together therequired skills and experience to move things
forward, efficiently and effectively.

3Contact
Ben Hughes
Managing Director, Construction &Infrastructure Advisory, EMEA
+971 52 642 4028
ben.hughes@kroll.com

About Kroll
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