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Lebanon 2013 | REAL ESTATE & CONSTRUCTION | INTERVIEW

TBY talks to, on growth and achievements, his company's aspirations for the future, and the real estate sector in Lebanon.

Karim S. El-Hajjar
BIOGRAPHY
After studying Business Management in Canada, Karim S. El-Hajjar moved to California in 2001 and launched Aphrodite, Inc., a retail business offering beauty products and services. While there he began educating himself in architecture and construction. In 2003 he returned to Lebanon to take over the business his father started. Since that time he has led a strategic diversification and expansion that has propelled H.E.C into several new industries.

What have been H.E.C's major milestones over the past two years?

It is a little tricky to specify milestones in just a few words. The real estate business is exotic and in perpetual movement, bridging the past to the present and to the future. However, besides high-tech project developments, H.E.C has embarked on a joint venture with the private banking sector to create a real estate fund portfolio, which will be advantageous for other investors to join the real estate sector from a return-on-investment perspective. In Lebanon, whoever has the necessary funds, as well as the right architects and contractors, can start off in the building business. The fund we are working on setting up is managed by one of the top banks in Lebanon. It will offer a portfolio of various funds for people who are interested in diversification. With this venture, we are trying to control the market, to a certain extent, and avoid the situation similar to the one seen in Dubai, where the private sector and the government have all been engaged in the building process and it turns out to be chaos. Actually, there is a committee for the real estate developers, and most of the major companies acting in Lebanon, including H.E.C, have joined. We hope that through it, we will be able to work out some fundamental regulations for the real estate sector. Of our other business achievements, we have expanded the manufacturing facilities of two H.E.C subsidiaries, one factory for H.E.C Wood and another for H.E.C Aluminum. We have equipped them with new machinery, brought in new architects, a larger workforce, and have even undertaken joint ventures with other architects and interior designers.

What impact has all of this had on your business?

Aside from the benefits of the fund portfolio, that expansion will push us further to have better architectural designs and engineering standards. Locally, Lebanon cannot compete with the world's manufacturing market, as our costs are too high to sustain due to the lack of government support. We, however, can supply a great deal of good quality, value-added products and specialized customizations. This is our added value. Most of us travel a lot, so we are always searching for the latest innovations in manufacturing machines, for example. We are not doing mass production. We import our materials from Germany and Italy, and we are looking into Spain now. We were investigating Turkey, but because of the recent unrest, it is now not a possibility.

As a long-standing expert in the real estate field, how do you perceive it performing in Lebanon? What are the trends in the long run?

It is witnessing tight times and a slowdown recently because of the troubles in Syria, which have tremendously affected its progress, not to mention the worldwide economic crisis. The major problem has been Syria, as most of our business goes there and comes back. There are also restrictions in the banking sector, which means we cannot bring in Syrian money. That has greatly influenced our purchasing power. Despite this, we have two ongoing projects: one at Nabay, near Rabieh, and another at Mansourieh. The Nabay development we have dubbed “Greenville." It is about 200 to 300 apartments, consisting of close to 20 to 30 buildings in one area, with security networks, management, and everything involved. We are also working on a deal with Cablevision cable providers to supply satellite TV and internet access to residents, but this is not closed yet. We are still carrying on our negotiations, and expect to reach an agreement sometime in 2016.

Which buyer segment does H.E.C target its projects at?

They are aimed at middle-income earners, a market currently doing well. We are developing apartments ranging from 80 sqm to 170 sqm; this is the demand now. The Nabay project was supposed to be at Roumieh, but due to municipality issues, we moved it to Nabay. In this project, we are working on kids' playgrounds and common areas. There will be a 300-400 sqm area that residents can book and use for social activities. There are small apartments as well, so it will be necessary to use these spaces for big family dinners. The second project development at Mansourieh we called “Rosewood." Construction has already started, and we will have 59 apartments, of areas 100 sqm to 240 sqm. This residence is the perfect area and it is working for us. We are also good at aiding the financing of homes. We are now offering facilities with only a 10% downpayment, up to 90% financing over 30 years, and a fixed interest rate of 2.5%. This is a first for Lebanon, as it is usually around 6.5%.

How do you assess the building permits situation in Lebanon?

It is a nightmare. The government is too busy playing the role of a “government" that it has forgotten to facilitate people's occupations, whatever business they are involved in. Usually and unfortunately, in Lebanon the more you get to know influential people, the easier you get your work done and not have to deal with the ridiculous and exhausting bureaucracy. This is how it is, and you have to work around these problems. Greenville was supposed to be at Roumieh, but the mayor stopped the project for a very poor reason; one corner of the entire project exceeded a certain height limit. Normally, across the world, a $42 million project like the supposed Roumieh would not be blocked for something so trivial. I had to refund clients' money and apologize, and the mayor did not care about our situation. His main alibi, he has claimed, is that he wants to keep the area green, but where the irony lies in all that, H.E.C Green is the main sponsor of Lebanon Green Again. I assisted in planting more than 2 million sqm of trees, so for me, it is an outrageous excuse.

How is the prefabricated house segment of the business developing?

It is developing well. We started H.E.C HOMES in 2012, and sold our first project to Ricky's restaurant in Faraya. It is not just us engaged in this now. Many are doing a good job, offering high-quality prefabricated projects. In our case, because we can offer a variety of services due to our many business interests, we are in a better position in this market. Ricky's is our main project, a 650-sqm restaurant that has worked out really well. We are now moving toward chalets. The benefits here are that you can have a new house in less than five months, instead of the usual two to three years in Lebanon. You save 60% on energy, and they are eco-friendly and green. We mainly import these from Finland, Russia, Canada, and the US.

What have been the latest advancements that you have accomplished?

Last year was somewhat stagnant because we had had lots of problems, such as with the internet service in the country. We cannot do many things, and our communications infrastructure is extremely inadequate. We cannot proceed with any new technologies related to the internet and applied to the construction business because of this, and all major developments are in this area. Now, we are trying to focus on eco-friendly solutions, instead. We are introducing these standards into many of our new projects.

What are your expectations for the Ducati Brand?

In 2013, we have acquired the Ducati dealership, collaborating and partnering with the Ducati CEO/Partner in Lebanon, Gilbert Khoury, a mechanical engineer and graduate of MIT. He also works with Michelin tires, so this is a good business for us. In the next three years, we will target three or four sub-dealers in Lebanon. It is a completely different business for us, and moving from the construction to the automotive sector has been interesting.

Are you considering getting into new markets?

We are looking into Erbil in Iraq, as well as Georgia. We are studying these markets, but our Georgian operations are a bit more advanced. It is mainly linked to our kitchen manufacturing operations and the Ducati dealership. We are looking into creating franchises there.