Eliot Brown (Real Estate Specialist)
Appearances
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
And, you know, then they said, actually, we're going to get $1,866 a night. It fixed the problem because the costs had hurt the IRR and it was down to 7%. And then they added the changes to the hotel rooms and it brought them up to 9.3%. How widespread was this practice? It was common. We've talked to a lot of people who took part in it.
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
We call it a mutual dance of delusion. The crown prince would go to the people running Neom and say, I want completely crazy architecture that defies what we know about how buildings are built, as though it could sort of get done realistically.
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
And then they would, you know, according to this audit and, you know, the former employees we talked to, essentially delude him with how well it was looking on paper.
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
At the end of the document, they have 20 pages of comments sort of highlighting risks and concerns.
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
Will mean NEOM will need to absorb significant building infrastructure cost as sunk investment to attract investment. Another one was like, we're letting design lead use. Use will usually drive design. We are using design to drive use.
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
Because the height and continuous nature of the line will create wind shade when wind comes from the north or south. Many, many birds would die. The large mirrored surface of the walls of the structure would likely cause extensive losses in bird populations due to bird strikes. So were there concerns? There were an enormous number of concerns.
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
The question is more how deeply did those get voiced at the top?
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
It was, by NEOM standards, easy to build. Reporter Elliot Brown again. You know, in reality, it's challenging to build on an island, and it was sort of innovative design. But compared to the line, you know, we're talking structures that are a few stories high. It was supposed to cost a little over a billion dollars as of a couple years ago.
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
But as they actually got along with construction, everything just kept going up. The concrete was expensive. The steel was expensive. Everything was taking a while.
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
The reality is it wasn't even done. Half of the island is still a construction site. The hotels that were theoretically done, a lot of the rooms are shut.
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
Well, he didn't go to the party. MBS had stood up Neil and nodded me. We don't know why, but the Neom employees were quite surprised by that. They took it as a sign of disapproval. And then three weeks later, Saudi decides to shake up Neom.
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
We saw one document that was a draft presentation to the board last year that put the total capital expenditure of the full NEOM build-out at $8.8 trillion.
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
So in 2021, the documents estimate that Trojena was going to cost about $18 billion, and then by 2022, it's jumped up to $27 billion, and then by 2023, toward the end of the year when this presentation's from, it is $39 billion. Wow. And this was happening at projects all across Neom.
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
So there was this measure that the Crown Prince really cared about. It's called IRR, or internal rate of return, that's very commonly used by real estate developers and private equity.
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
They wanted to have these buildings make money, so they said everything needs to get, you know, around 9% IRR.
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
So you can see this with Trojana. In this fall 2023 document we have, you can see that they had a glamping site.
The Journal.
Neom, Pt 2: The Emperor’s New Clothes
Yeah, and they originally were estimating that they'd get $216 a night. Well, after costs went up, they looked at it closer and said, well, actually, we were readjusting that to $704 a night. $704 a night for glamping. Must be really glammed up. Yeah. a boutique hiking hotel. The rooms were originally targeted for $489 a night.
The Journal.
Neom, Pt 1: Skiing in the Desert
I think we're sort of in the rapidly colliding with reality phase.
The Journal.
Neom, Pt 1: Skiing in the Desert
At its full vision, it's absolutely enormous. If you just look at the square footage as envisioned, it would have more square footage than all of New York City.
The Journal.
Neom, Pt 1: Skiing in the Desert
Like, you wouldn't have open air. The middle would essentially be a giant atrium. Some people get a window view looking out. Other people get a window view looking in. And then there's this essentially 600-foot space between the buildings where sometimes it's open air, sometimes it's parks sort of spliced between these buildings.
The Journal.
Neom, Pt 1: Skiing in the Desert
You have some large venues, like you'd have a stadium suspended between the two towers. Right. MBS often would tell people he wanted zero gravity architecture. What does that mean? Like architecture that looks like it defies physics.
The Journal.
Neom, Pt 1: Skiing in the Desert
You know, developers are generally always dreamers. And when I cover real estate, they'd often come up with like crazy ideas for, you know, a building that looks like a corkscrew and goes a thousand feet up. But at the end of the day, they'd have to convince other investors and banks to give them the money to do it.
The Journal.
Neom, Pt 1: Skiing in the Desert
And if you had a thousand foot corkscrew, you wouldn't find enough investors and banks to do it. So they don't never get built. This is a structure where you don't have those guardrails.