A visit to some of the property developer Nakheel's unfinished projects illustrates the nature of the Dubai World debt trouble.
Getting back on track a priority for Nakheel
Anyone wanting to understand why Nakheel is being offered US$8 billion (Dh29.38bn) of fresh funds should take a ride on the Palm Island monorail. Seen from the road, the Gateway Station could be the terminus of a great transcontinental railway. It is housed in a giant concrete shell rising 12 floors and with 5,000 car parking spaces. Four of them were occupied late Friday morning - the rest roped off behind plastic tape and bollards, unused since the Dh2.5bn project opened almost a year ago. Construction has stopped on the three towers that should have been delivered with it.
Behind the ledgers and spreadsheets scrutinised by the experts in Dubai World's corporate restructuring are projects such as this one. The offer by the conglomerate to its creditors reveals the full extent of Nakheel's role in amassing billions of dollars of Dubai World's debt since construction started on the first Palm Island project. Inside the monorail ticket hall, the affable station manager explains that the weekends can be very busy. But there is nobody else in the vast hall, where a few TV screens show a Nakheel promotional video with images of dazzling island projects to an absent audience. Were it not for the station staff, it could be a scene from the Will Smith film I Am Legend.
In the front carriage of the train, Vinrod, a technician, explains that it makes 28 round trips every day. He assures that it usually carries between 25 and 50 passengers per trip, but the only other people on-board are two Russian women going back to the Atlantis hotel, where the monorail journey ends - 5.5km along a track that cost about $400 million to build. Just a minute into the journey, the train pulls up at the gleaming Trump Tower Station, announced by a calming recorded voice as the carriages slow silently to a halt. But there is no tower to be seen. The builders got as far as starting on the foundations before the cash ran out, and now the station that never opened stands isolated in an empty site, surrounded by tattered hoardings that say: "Ordinary is for other people." The train pulls away without the doors opening and a minute later stops at the Palm Mall.
"It will be one of the biggest in the world," says Vinrod, one of 95 people employed by the monorail. But there is no shopping mall here, either - just a massive circular crater underneath the elevated train tracks. It is at least 50 feet deep and could easily accommodate a large football stadium with space left over. It has looked like this for nearly two years, and construction work has long since stopped.
It takes less than seven minutes to get from the Gateway Station to the Atlantis hotel platform, where on a clear day it is possible to see The World archipelago, also developed by Nakheel - most of which remain empty years after fleets of dredgers sailed from the Netherlands to vacuum thousands of tonnes of sand from the seabed to be sprayed out of their hulls into the shape of continents. Aidan Birkett, the financier leading the Dubai World restructuring, explained last week why the proposal to creditors included billions of dollars in fresh funds for Nakheel.
"If you fix Nakheel, you fix the real estate sector, and you go a long way to fixing the Dubai economy," he said. Among the thousands of column inches of commentary and reporting that have been written about the Dubai World debt restructuring proposals over the past four months, this remark is perhaps the most illuminating. It goes to the very heart of the critical role that Nakheel and the real estate sector play in the economic vitality of the emirate.
The challenge that Nakheel now faces is knowing what needs to be tackled in its portfolio of unfinished developments and what needs to be left for later. Had the developer finished its first Palm Islands project before starting work on all its others, both the company and the wider Dubai property market might have looked very different today. Demand must catch up with the oversupply of homes that have already been delivered before the next development cycle can begin. This will not be a quick fix: indeed, in the current economic climate it is likely to take some time.
In a statement on its website, Nakheel says it will "work closely with the Government to carefully plan and evaluate future projects". But now may not be the time to be talking about future projects. All Nakheel can do is finish its most advanced developments and deliver them with an acceptable level of workmanship. Then, when there is standing room only on the sparkling new Palm monorail and the car park is full, Nakheel may be able to start thinking about resuming the developments of yesteryear.