An Egyptian Developer Shifts to the Continent

Egyptian billionaire Samih Sawiris is at ease developing a resort town in the Swiss Alps or a lakeside oasis in Egypt below sea level. In fact, he's doing both. "Sand and snow are the same," he says, explaining the expansion in Europe of his company, Orascom Development Holding. "These are the attractions that bring people to buy a house and bring people to stay at a hotel, and the hotel is the job creator that makes people want to come and live in the town," he says. "Since we provide everything, we make money."

Even as the global real estate crisis has forced many developers to cancel or curtail projects, Orascom is expanding far beyond the Mideast. Sawiris is betting on a model that served him well in the past: building resorts from scratch and expanding them into small towns. Besides profiting from constructing and selling the apartments and owning hotels, Orascom gets continuing revenue by providing everything from power grid maintenance to operating golf courses. It even handles garbage collection.

His first operation, El Gouna on Egypt's Red Sea, started as nothing more than a few houses on the beach and a hotel. It's now a town of about 35,000 permanent residents, 16 hotels, international schools teaching 1,500 students, a winery, and a brewery. It even has a soccer club competing in Egypt's premier league, says Sawiris, a graduate of the Technical University of Berlin, at his office in Cairo overlooking the Nile.

Sawiris moved to replicate the El Gouna model in Jordan and Oman, then decided to go global. In 2009, a year after moving Orascom's headquarters to Switzerland, he started building the Andrematt resort complex in the Alps. This year he announced projects in Montenegro, Britain, and Romania, as well as a plan to raise capital to fund the expansions.

"The fact that we became an international company listed in Switzerland is really to facilitate our expansion program outside Egypt," he says. "There is no doubt that you as a Swiss company are more welcome in Montenegro" than an Egyptian developer would be.

Samih is the second of three brothers who make up Egypt's richest dynasty. Naguib, the eldest, heads Orascom Telecom Holding, the biggest mobile phone operator in the Middle East as measured by users. Nassef, the youngest, is chairman of Orascom Construction Industries, the region's largest publicly traded builder.

For Samih, developing on the Continent means moving slower than normal, says Patrick Gaffney, a real estate analyst at HSBC Securities Egypt. "The regulations are much stricter," he says. "Even just simple things as when can you construct and when you can't. Those things will be a challenge for them, which I think they will be able to overcome, but it definitely raises a risk."

It's an obstacle that Sawiris plays down, saying that having numerous projects in the pipeline will help offset a slowdown at any single development. Orascom's net income rose 20 percent in 2009, to 138.6 million Swiss francs, or $130.2 million, and Sawiris says he expects similar results this year. He's confident Orascom will meet his target of 100 million francs in sales at Andrematt this year, helped by the fact that Switzerland has avoided the brunt of the global real estate slump.

"We have been protected," says Sabine Schofield, managing director of commercial property consultants Schofield & Partners in Geneva, referring to the Swiss property market. "We've had a steady growth rate in consumer spending. There are positive indicators despite persistent uncertainty in surrounding countries."

The Andrematt project will offer up to 30 private villas, 490 apartments, and 6 hotels, as well as a golf course and 35,000 square meters of commercial space. The first apartment will be ready for occupancy in 2014.

Rather than waiting for pre-sales of apartments to provide the equity for all of the hotels Sawiris wants to build, he will accelerate development by raising up to 200 million Swiss francs in additional capital at Orascom Development before the end of 2010; of that, 85 million francs will come from his own money.

Sawiris is betting that will better position Orascom to benefit as Europe's economy strengthens. Still, he says profit isn't his only motive. "Come on, it gives you a kick to be building a town, doesn't it?" he says. "And you know that you're the only one who knows how to do it."

The bottom line: Billionaire Samih Sawiris is expanding resort development to Europe, and keeping his Middle East business model intact.

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