Sky Gardens was a prime piece of property by all accounts. Developed by First Dubai Real Estate and built by Arabtec Construction, it was the first residential building to be completed in the thriving Dubai International Financial Centre (DIFC) free zone. Some of its 545 apartments were to be designed by Fendi, the high-end fashion house that is known for its handbags. Tenants of its apartments would have access to high-speed elevators, a sauna and a rooftop swimming pool.
But when the market began to take a turn for the worse in late 2008 and early last year, the building became the centre of a dispute between some of the biggest names in Dubai: the property developer Deyaar Development; the investment scheme National Bonds; and the private school company Taaleem. Last month the dispute spilled into the public eye when Taaleem filed a lawsuit against the other two parties. At stake is the responsibility for paying hundreds of millions of dirhams that are outstanding for the building's purchase.
It all began in April 2008, when Amlak Finance, the Islamic home finance company, created a special purpose company called Amlak Sky Gardens to buy the building. The summer of that year marked the peak of the property market, when quick resales of buildings for a profit, a practice known as flipping, was at its highest rate, analysts said. It also saw the average price of apartments in Dubai rise to Dh1,016 (US$276) a square foot, according to the consultancy Colliers International.
Landmark Properties brokered the deal and received more than Dh16 million in fees, or about 1 per cent of the Dh1.64 billion price tag on the building, Taaleem said in court documents. That put the price at more than Dh3,500 a sq ft. Amlak paid Dh164m, or 10 per cent of the price, to First Dubai by June 2008. First Dubai is a subsidiary of the Kuwaiti developer Al Mazaya, which declined to comment yesterday.
National Bonds, a savings scheme where investors are eligible for monthly lotteries and receive an annual return, funded 33 per cent of these payments, the documents show. Taaleem alleges that National Bonds, which owns an undisclosed minority stake in Taaleem through its educational arm Madaares, then offered to "procure and finance a 33 per cent interest" in the property on behalf of Taaleem to be resold for a profit before the end of its financial year.
As of July 2008, the building was owned equally by Taaleem, Amlak Finance and DIFC Investments. In the months after, the building saw a shift in ownership between a series of companies - all connected by different ownership stakes, the documents show. National Bonds said yesterday in a statement through its law firm, Hikmat Fayad and Associates, that "until so far National Bonds Corporation PJSC is not requested by any lawsuit whatsoever to pay any amounts, debts nor liabilities to Taaleem nor any other entity, and we confirm that our client is not liable toward Taaleem with any liabilities".
Deyaar, the third-largest developer in Dubai, entered discussions to buy Taaleem's stake in the building for a premium on the amount paid by National Bonds through Taaleem. On December 4 2008, Deyaar paid Taaleem Dh72,141,913 of profit for the transaction. But as the "property market started to decline rapidly just as the transaction was concluded between [National Bonds Corporation], Deyaar and Taaleem ? Deyaar started to manoeuvre in an effort to get Taaleem's agreement to reverse the transaction and repay the premium", Taaleem alleged in court documents.
A Deyaar spokeswoman declined to comment on the claims yesterday. In the middle of last year, Markus Giebel, who was then the Deyaar chief executive, wrote in a correspondence with Taaleem his company would sign a "sale and purchase agreement" on July 1 2009. Deyaar would become responsible for a total cost of Dh548,118,977, including the amount paid by National Bonds so far and the remaining share of payments and finance costs for the acquisition, Taaleem alleged.
But those negotiations fell apart in the second half of last year, according to Taaleem's claim, as "Deyaar intensified its efforts to reverse the transaction and recover the premium paid on December 4 2008". Last year, Amlak Finance also acquired DIFC Investments' 33 per cent stake in the building for an undisclosed sum, bringing its ownership of the project to two thirds. It is alleged that National Bonds then "demanded payment of a sum of Dh236,595,031.07" from Taaleem on the basis that Deyaar's board of directors did not approve the sale.
Taaleem said in its claim that, "such an allegation is self-serving, and in the premises is wrong, as a matter of fact and law". Taaleem is seeking the DIFC Courts, which has jurisdiction over properties in the free zone, to declare it is not indebted to National Bonds for the amount and that Taaleem "no longer has any interest" in the property, the court documents show. As for Sky Gardens, a representative of Hamptons International said yesterday the building is all but full, with just 20 of its 545 flats available.
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