Commercial real estate is complicated. In recent months, I’ve discussed many of the concerns CRE investors must consider–local/global economics, politics, market conditions, culture, law, asset types, and so much else–and still I’ve barely scratched the surface. This industry doesn’t exist in a vacuum; when it comes to CRE finance decisions, everything is relevant. So it’s no surprise many developers, fund managers, principals, and others spend untold hours researching a particular opportunity before committing. Something as apparently straightforward as a multifamily or retail property deal can be riddled with what-ifs.
As if this industry weren’t complex enough, Saudi Arabian developer Jabal Omar Development Co. has found a way to make it even more complicated by adding one unlikely element: religion.
Bloomberg reports the developer is planning to construct not one but ten new hotels to accommodate the unrelenting flow of religious pilgrims to Mecca, Islam’s holiest city. Bloomberg’s article explains,
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.
Which makes hospitality investment almost a no-brainer. While other international destinations like Dubai and Las Vegas are susceptible to economic downturns, Mecca isn’t simply a tourist destination. Because this holy city is central to the Muslim faith, its practitioners literally commanded to visit, Mecca benefits from a tourism that transcends economic fluctuation. The Hajj is not viewed as a luxury, the way taking the kids to Disney World is. When real estate serves a necessary function (grocery stores, residential properties, etc.), that’s very assuring to investors.
Not only is Jabal Omar Development planning hotels for an extremely large potential market (about 1/5 of the world’s population practices Islam), the firm is working to accommodate Mecca’s wealthiest visitors with high-end hotels operated by Starwood Hotels & Resorts (NYSE: HOT), Hyatt (NYSE: H), Hilton, and other companies with upscale brands. Also, Bloomberg reports, the multi-phase project will include the construction of a major shopping mall, yet another opportunity to benefit from the great amounts of wealth that travel here annually. Best of all? Mecca’s international and cultural prominence can’t be diverted to other cities with better fundamentals, so the continued performance of these planned hotels is assured.
But before we go so far as to call Mecca the “Mecca of Real Estate” (actually, that’s probably an accurate moniker), let’s think about how complex this project is:
Construction will have to work around certain holy sites throughout the city (such as a particular spring of great significance to the Muslim faith), and provide for the religious needs of tens of thousands of visitors via dedicated spaces for prayer. Moreover, the developers will need to substantially increase the city’s infrastructure in order to sustain this growth. For those able to invest in this opportunity, the generous revenue won’t arrive without a great deal of complex work.
Oh yeah, and there’s a very specific barrier to entry for this market: non-Muslims are prohibited from entering the city.