The Dubai International Financial Center (DIFC) started in 2002. A free-zone area based on English law and regulations, the DIFC had ambitions to compete with global financial centers such as New York, London, Singapore and Hong Kong.
Real Estate would obviously be a central part of the financial center’s strategy, requiring commercial office space and residential units for professionals wishing to live close to their place of work. In 2004 land in the DIFC was tendered to private sector developers.
Mr Shehab Gergash , founder and CEO of Daman Investments (an obscure onshore-Dubai investment company at the time which was barely a couple of years old) decided his firm needed to join the party. In 2004, with practically no real estate development experience, Daman submitted a bid of AED 300mn ($82mn) for 220,000 sqft (20,400 sqm) of land within the DIFC, and won.
How hard could it possibly be to develop property? Mr Gargash was soon to find out.
Below is a timeline of Daman’s dismal foray into real estate investing. It also shows how one firm, in an effort to remain solvent, single-handedly managed to damage the integrity of the DIFC as a ‘conduit jurisdiction’ for the enforcement of arbitral awards and foreign court judgments in onshore Dubai.
16th May 2005
In a press release, Mr Gargash announces launch of a 1.6bn AED ($440mn) real estate project named “The Buildings By Daman”. The project is to be financed by $100mn of equity, already raised from investors by the end of 2004 in a vehicle named Daman Real Estate Capital Partners Ltd ( Daman RECP) with each investor committing $5mn on average, including Daman itself. According to DIFC filings, Daman RECP has a total of 14 investors.
The manager of Daman RECP is Daman Asset Management (Daman AM), a Bermuda incorporated company controlled by Mr Gergash. Perkins & Will are appointed as design architects for the project, with detailed design expected to be completed by June 2005 and ground breaking by December 2005.
31st December 2005
Project has not broken ground, as anticipated.
30th January 2007
The project has yet to break ground but Dutch Equity Partners, a 5% owner of Daman RECP, takes the investor group to court on claims of fraud, marking the DIFC’s first ever full trial. Dutch Equity Partners accuses Daman RECP of improper corporate governance whilst adopting and amending the company’s articles of association and in the appointment of Daman AM as the manager of Daman RECP.
9th April 2007
Having still not broken ground (and some 15 months behind schedule) Daman announces Saudi Oger’s Dubai subsidiary, Oger Dubai as the main contractor for The Buildings By Daman. Note that Oger Dubai had only been in existence since 2005, less than 2 years prior. We question the prudence of assigning a contractor with no track record in the country of your first ever (and very large) real estate development.
16th May 2007
A press release is made stating that Rosewood Hotels is to fit out a 200 room hotel at The Buildings by Daman project, and expects to open in the second half of 2009 (just over 2 years away, yet ground had still not broken at the site).
24th July 2007
DIFC Courts Judgement dismisses Dutch Equity Partner’s claims. Firstly, all other shareholders (amounting to 90% of Daman RECP) agree that procedural irregularities took place but confirm their support of the outcome of the amendments to agreements related to Daman RECEP. Secondly, any claims by Dutch Equity Partners have no standing, as any such claims should be made by Daman RECP against Daman AM, or by Dutch Equity Partners against Daman AM.
In reviewing the court documents above, it’s evident Mr Gargash conducts his business and board meetings in a rather unstructured and unprofessional manner.
1st August 2007
Daman RECP finally breaks ground on The Buildings by Daman, nearly 2 years behind schedule and 1 lawsuit under the belt.
11th March 2008
EmiratesNBD the largest UAE bank at the time announces a AED 500mn debt facility for Daman RECP. At this point, the project has AED 367mn of equity, and AED 500mn of debt available to it.
1st June 2009
According to court filings made public later in 2013, at this time Daman RECP notifies unit owners that the project is facing delays but fails to quantify or detail their precise nature or offer an updated timeline.
27th January 2010
According to court filings in 2013 (paragraph 21), Daman RECP fires Oger Dubai as its main contractor.
20th April 2010
According to court filings in 2013 (paragraph 22), Daman RECP appoints Habtoor Leighton as replacement contractor and the completion date is set for 27th December 2011. The project is approximately 35% complete and 2.5 years behind the initial schedule agreed with its initial contractor.
29th November 2010
1st January 2012
According to documents we’ve reviewed, at this point in time, Daman RECP had sold around AED 1.5bn of property, and spent over AED 1.7bn in development, accumulating around AED 200mn in losses whilst Daman AM continued to collect management fees from Daman RECP (the investors). Also evident are various related party transactions, amounting to over AED 150mn which appear to be investments in other Daman affiliates. Making matters worse, AED 400mn of bank debt is due to repayment in Q4.
4th December 2012
The office tower is handed over, amounting to 45% of the total project. The Rosewood Hotel fit-out will now commence, with its handover revised to 2014, some 4 years behind schedule.
11th November 2013
Several investors which had made down payments for units in The Buildings by Daman take Daman RECP to court in light of continued delays and manage to recover their deposits. Paragraph 60 reveals that the project is 33 months behind schedule. Paragraph 61 reveals ongoing mismanagement of Daman RECP by Daman AM whereby it failed to notify unit owners of the delays faced by the project in a suitable time therefore failing to trigger any of its “force majeure” protections.
12th December 2013
MEP contractor Habtoor Leighton Specon announces $70mn of MEP work is 95% complete. Expects to be finished in early 2014.
19th July 2015
Oger Dubai is awarded AED 950mn for Daman RECP’s early termination of its development contract.
29th July 2015
Daman RECP seeks annulment of the judgement citing the tribunal lacked jurisdiction.
26th September 2015
DIFC Courts freezing order issued over Daman RECP’s assets.
27th January 2016
DIFC Court of First Instance dismisses Daman RECP annulment application.
16th June 2016
Daman RECP is ordered to “wind up” i.e stop operating and dissolve through an assigned liquidator.
3rd February 2017
Judicial Tribunal for onshore Dubai Courts and DIFC Courts effectively ends the DIFC Court’s status as a “conduit” jurisdiction. The implications are widely regarded as a setback for the financial center, here, here, here and here.
So where are we today?
Daman RECP investors have yet to receive a single penny from their $100mn investment with Mr Gargash, made over 10 years ago.
Furthermore Daman AM, controlled by Mr Gargash, has been shown to have continued to collect fees from Daman RECP during periods of considerable underperformance. Court documents also reveal several related party transactions including the movement of some Daman RECP assets out of the company, highlighted in the court filing below before Judge Sir Richard Field.
I also think that the concerns that led to the making of the freezing order and the evidence provided on disclosure made under that order that certain valuable villas in Dubai are held in the names of the third parties, subject to letters of undertaking in favour of the Defendant [Daman RECP], indicate that the sooner the present management of the Defendant is displaced in favour of a liquidator who will be an officer of the court, the better.
Why does Daman RECP own villas? What message does it send investors when their investment manager is happy to engage in asset transfers to dodge paying court ordered settlements?
What we do know is Daman AM collected millions of dirhams in fees for its role in this epic case of value destruction.
On that note, we leave you with some quotes from the man himself.
Our financial model has always been structured to conform to international investment standards. But it is no surprise that a bank of the calibre of Emirates NBD has joined a long list of quality partners as the provider of the debt financing.
Q. Looking into the future, if we look at the buildings by Daman, they will be completed by the end of 2008? Then I imagine you’ll have your offices there.
A. Absolutely, top 2 floors.
(As of 2018, Daman Investments continues to be located at the Dubai World Trade Center)
In case you were wondering where the Dubai Rosewood Hotel was?
There isn’t one.