Youssef Ibrahim: Royal dreamers build castles in the sand

Bio of Mr. Ibrahim: "Served for 18 years as senior regional Middle East correspondent for the New York Times and for 6 years as Energy Editor for the Wall Street Journal. . . Mr. Ibrahim writes weekly and bi-weekly columns in Gulf News and the Daily Star."

Here's what he wrote in the New York Sun this week:

DUBAI, United Arab Emirates - Drive by Media City and into Internet City here and be dazzled at the giant signs above the buildings. There's CNN and MSNBC, and there's Microsoft, Oracle, and Acer.

Not too far away is Financial City, with Merrill Lynch, Goldman Sachs, and more investment-banking muscle. All the elegant signs shimmer under the scorching sun, which bakes the super-modern air-conditioned buildings these international powerhouses inhabit. But wait a minute - are they really there? Is anyone inside?

Nope, this is a bit of trompe l'oeil decor meant to suggest a far greater presence, indeed a headquartering, that is simply not the case.

Once inside, the visitor will quickly discover a few representatives, or perhaps a service person. That's it.

He concludes:

But it's clear the emperor has no clothes. Real estate has stagnated; prices are heading down. The same goes for stock markets in the Arab Gulf region, which last year and this year have dropped by more than 60%. It is, and was, all about speculation on very little. Industry is not the hallmark of the Middle East's desert lands, nor is agriculture, software, or hardware. When investors make nothing, they can only speculate so much before the crash.

"What you see is not what you get" might be a better description of the big oil boom in the Middle East. Meanwhile, the smart sheiks who sold the desert are moving their money out into the real world.

Take Sheik Mohammad Bin Rashed Al Maktoum, the guy from the Dubai Ports episode - as well as the emir of Dubai and the prime minister of the United Arab Emirates. Before and after the Dubai Ports acquisition - itself a $7 billion investment essentially in Britain - Sheik Bin Rashed bought the Tussauds Group for $1.5 billion, the Essex Hotel in New York and other American real estate properties for $1.5 billion, and a group of hotels in Europe and Asia for another $2 billion. In other words, the sheik invested his profits from selling Disneyland desert fantasies in enduring assets outside the Gulf.

It's hard to feel any affection these days for the "Lawrence of Arabia"-style reporters writing about the world's largest artificial ski resorts, tallest buildings, biggest marinas, and hugest shopping malls. They all suggest that a magnificent civilization is rising on the shores of the Persian Gulf. My advice is to look deeper.

Dubai continues to invest in "enduring assets outside the Gulf":

A Dubai government fund has announced the purchase of a landmark building in the heart of New York City for 1.2 billion dollars as the Gulf Arab state blazed ahead with its Big Apple investment binge.

The 32-storey building on 280 Park Avenue in midtown Manhattan, one of the world’s most expensive property locations, was bought by Istithmar from Boston Properties, a publicly listed real estate investment trust.

“We are delighted to work with Istithmar on this transaction and we look forward to a long relationship with them”, Boston Properties chairman Mortimer Zuckerman said in a statement issued by Istithmar.

“Park Avenue is the hub of global operations. Two-Eighty Park Avenue is a particularly attractive corporate location”, said David Jackson, Istithmar chief investment officer. “Within the real estate sector, Istithmar targets projects that are positioned to experience long-term, substantial capital appreciation”.

The 1.2-million-square-foot building, which has a ziggurat type structure reminiscent of ancient Assyrian and Babylonian temples in Iraq, was built in the early 1960s to house the offices of Bankers’ Trust Co.

This is the third New York property deal to be announced by Istithmar since November and a source close to the fund, who spoke on condition of anonymity, said several similar deals have been finalized or were in the process of completion.

The source also said the fund is under the direct supervision and control of the office of Dubai’s ruler, Sheikh Mohammad bin Rashed Al Maktoum, who is also vice president and prime minister of the United Arab Emirates (UAE), a federation of seven emirates including Dubai.

The fund had announced earlier that it paid 300 million dollars for a prime Beaux Arts-style building in Manhattan’s Times Square dating from the 1920s that was once the site of the Knickerbocker Hotel.

In May the fund bought Loehmann’s, a 60-store US chain specializing in designer women’s and men’s apparel at discount prices, for 300 million dollars. It also said it bought another building on 230 Park Avenue without disclosing the price.

According to the Emporis Buildings property database, Istithmar paid 705 million dollars for this building and bought a building on 450 Lexington Avenue for 600 million dollars.

The total real estate investments of Istithmar in New York would be 2.8 billion dollars, according to Emporis.