Armani Insists Dubai Hotel Not At Risk

Concern has emerged that Giorgio Armani’s keystone luxury hotel in the Middle East, to be built in the world’s tallest building, the Burj Dubai, might be endangered by the city-state’s financial convulsions, but the fashion house insists the project is not at risk.

Dubai's ruler, Sheik Mohammed bin Rashid Al Maktoum, attempted to calm markets Tuesday, as stock markets in the Gulf continual to plummet in the fallout of last week’s revelation that Dubai World — the United Arab Emirates' main investment wing – would be unable to meet debt payments on $60 billion of liabilities. Dubai is one of seven highly autonomous statelets that make up the United Arab Emirates (UAE).

Shares in Emaar, the UAE's biggest developer and Armani’s building partner, fell by 10 percent on the Dubai stock market on Monday, the maximum permitted, in the fallout from the debt crisis.

Markets were thrown into convulsion last week when the government of Dubai announced that it would not stand behind its wholly owned subsidiary Dubai World, igniting fears that the creditors could lose billions of dollars.

Armani’s local partner Emaar is the publicly quoted real estate developer and construction company in which the government of Dubai owns a 30 percent stake.

“Of course we are monitoring the situation. We are concerned about the Dubai economy, but we are confident in our partner. Emaar is a company with well-spread risk, and it has always respected its commitments to us. Emaar does not have the same amount of debt As Dubai World,” said Armani’s Deputy Chairman John Hooks in a call from Tokyo.

Originally scheduled to open in 2008, the completion date for the giant needle shaped, 110-story Burj Dubai has been pushed back on three occasions most recently to January, 2010.

Hooks said that the hotel would open in March. The executive described the partnership with Emaar as “a glorified license” and stressed that Armani “as a company is not so exposed.”

Armani’s hotel will have 160 rooms located in the first eight floors, and floors 38 and 39, of the Burj Dubai, while floors 9 to 16 are high-end residential apartments styled by the Italian designer and known as Armani Residences.

According to a glossy prospectus, the apartments are priced from $3.5 million to $9 million per unit. Emaar, Hooks insisted, had “excellent pre-sales” last year when it staged road shows in London, India and Russia.

Under the terms of the deal, unveiled in 2006, Emaar was supposed to build around 10 hotels within a decade. So far, none have begun taking in paying customers, and the Armani hotel above his flagship on via Manzoni in Milan is now due to open next year.

Dubai World said late on Monday night it had begun talks with banks to restructure $26 billion of debt, including liabilities owed by its property company Nakheel, which has asked for all three of its Islamic bonds, or sukuks, worth $5.25 billion, to be suspended from trade.

When the deal with Emaar was first announced, the Gulf partner said they had a billion dollar bond to finance the Armani hotel chain. Asked whether Emaar had used a sukuk to finance their Armani plans, Hooks replied: “That’s nothing to do with us, how they find financing is their own business.”

“Clearly the price of real estate has gone down in Dubai, and the whole Dubai system is in question. So, no wonder people are asking questions,” added Hooks, who noted that Armani has had boutiques in Dubai for 20 years.

“Dubai has had dramatic growth, which we have enjoyed.
It has always been a crossroads for the region, a massive catchment area, even for people from India and Iran. So whatever the problems it’s geographical position won’t change. It will weather this storm,” Hooks insisted.

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