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Saudi Arabia’s Jabal Omar Plans to Build 10 Hotels in 2013

Jabal Omar Development Co. plans to open 10 hotel towers in Mecca next year to accommodate Islamic pilgrims, the Saudi Arabian company’s executive general director said.

Jabal Omar is developing 2.2 million square meters (24 million square feet) of land near the Grand Mosque, Sameer Al-Quraishi said in a phone interview last week. The site was designed to include 38 hotel towers and the country’s largest shopping mall, he said.

“Saudi Arabia is aiming to increase the number of people who are allowed to perform the annual pilgrimage,” Al-Quraishi said. “It’s also mostly trying to accommodate more religious visitors and that will surely increase demand for hotels.”

The government’s goal to allow more pilgrims to Mecca coupled with rising wealth in Islamic countries is fueling demand for higher-end accommodation in the holy city. More than 10 million people descend on Mecca throughout the year and about 3 million pilgrims attend the annual Hajj, the Islamic journey every able-bodied Muslim is obligated to make.

Marriott International Inc., Hyatt Hotels Corp., Blackstone Group Inc.’s Hilton Hotels and Starwood Hotels & Resorts Worldwide Inc.’s Sheraton unit will manage properties there, Al-Quraishi said. The 38 hotels under construction will be managed by 28 companies and will add 13,500 rooms to Mecca’s hospitality industry when they’re completed in five years, he said.

The project is being developed in five phases at a cost of 20 billion riyals ($5.3 billion). Jabal Omar, based in Mecca, is looking at ways to finance the final two stages of development after it funded previous phases through bank and government loans in addition to a capital increase, Al-Quraishi said.

Bonds Preferred

“We will either issue bonds or borrow from banks, but we definitely prefer bonds,” he said. “When we complete the designs for the final two stages in about six months, we will have a clearer idea of our best financing option and the amount needed.”

Jabal Omar shares have risen 57 percent this year. The country’s Tadawul All Share Index has gained 8.5 percent during the same period. Saudi Arabia’s largest home developer, Dar Al Arkan Real Estate Development Co., have increased 28 percent this year. Jabal Omar, which reports earnings according to the Islamic calendar, has suffered losses in the past two years, Bloomberg data shows.

Repay Debts

“Returns won’t be immediate because we have debt to banks and the government so we have huge financial commitments right now,” Al-Quraishi said. “Once we repay debt, the returns would be enormous.”

Jabal Omar said last month it signed an agreement for a 5 billion-riyal Islamic financing with a group of local banks. The developer in December got a 3 billion-riyal loan from the finance ministry. The company raised 2.5 billion riyals from its shareholders for the project, and it has 4.6 billion riyals of debt due in 2049, according to data compiled by Bloomberg.

The contract for construction of the Mecca project’s third phase, which includes two towers, known as Mecca Gate and a mall, will be awarded soon, he said. About 17 companies, mostly from the United Arab Emirates, are bidding for the work, he said.

The first phase of the project, which includes 10 towers, is being built by Nesma & Partners, a closely held Saudi Arabian firm. Baytur Construction Co. and Azmeel Contracting & Construction Corp. won the contract for the second phase, which includes four towers. Designs for the fourth and five phases are being drawn and are expected to be complete in six months, Al-Quraishi said.

Prayer Area

The development, about 300 meters from the Grand Mosque, will include a prayer area to host 65,000 worshipers, complete with parking spaces, Al-Quraishi said. Jabal Omar is also building a power plant and water-treatment system, he said.

The project’s location in Mecca meant the developer had to ensure that construction didn’t harm a well that Muslims believe started miraculously when Ismail, the infant son of Abraham, started crying from thirst.

“Zamzam well’s waterways under the project were fortified to ensure we don’t disturb the flow of water and that it isn’t contaminated,” he said.

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