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As soldiers in Iraq packed up their camouflaged backpacks and hopped on flights back to the U.S., eager hotel executives were flying in the opposite direction toward the war-stricken land, scouring the desert terrain to stake out the best spot to plop their next big resort.
Hoteliers are eyeing Erbil, the capital city in the Kurdistan region in northeast Iraq, some 300 miles from Baghdad. The city’s newly finished airport renovations have attracted major international carriers, including Lufthansa and Fly Dubai, making it a gateway to the region.
“Erbil is an encouraging destination with a lot of economic and commercial opportunity,” said Ed Fuller, president of international lodging for Marriott (NYSE:MAR). He said the city serves as a gateway to a region with vast deposits of oil and gas, fertile soil for agriculture and antiquities.
The city’s proponents say it is safe, and hoteliers say the demand is there. To give some perspective, Erbil earned a spot on National Geographic’s list of "20 Best Trips of 2011," and the New York Times travel section listed Kurdistan in its 41 places to visit for 2011.
However, in a land with lingering political and economic instability, including coordinated bombs this week that killed dozens of people in Baghdad and violent protests in Sunni Muslim strongholds against Shiite Prime Minister Nouri al-Maliki, there’s a looming question as to whether the investment is wise.
If You Build It, They Will Come
Stephen Lari, principal of New York-based real estate developer The Claremont Group that has projects in Erbil, said travel to the region has grown considerably over the past couple of years, noting that continued development in roads, retail and lodging are needed to support the growth.
“If that trend is going to continue then further infrastructure is required to support the industry,” he said.
Marriott, Hilton Worldwide and Best Western have recently inked deals to manage brand new hotels in Erbil, which already has development projects underway for residential towers, private villas, office towers and retail and leisure space.
Best Western recently agreed to manage two of its branded hotels there, including the Premier Erbil Hotel, which will have 160 rooms and 20 suites and is slated to open in mid-2014, and the Best Western Premier Erbil Airport, which will have 82 rooms and a tentative opening date in late 2013.
The Phoenix, Ariz.-based hotel chain operator says it hopes to have three hotels in operation by the end of 2015 in Iraq. It’s eyeing Sulaimaniyah and Dohuk in addition to Erbil, all in Iraq's Kurdistan.
Marriott, meanwhile, will manage a hotel for Empire Iraq, a private real estate company, that calls for a 200-room upscale Marriott Hotels & Resorts-branded hotel and a $100 million 75-unit deluxe Marriott Executive Apartments property, both are planned to open in 2014. The 200-room Marriott is expected to provide a range of amenities to support business travelers, including connectivity, Empire Iraq said in a statement.
Hilton's DoubleTree, which it is managing through a partnership with The Claremont Group, will have 200 suites, a business center, health club, two restaurants and a lobby lounge and bar. It is slated to open in 2013.
Best Western CEO David Kong cited Erbil’s “promising economy, the influx of foreign investment, an increase in international business arrival,” and little supply in the marketplace as reasons why Western hotels are investing their resources in Iraq.
“Generally we see [Erbil] as a great opportunity for development, it’s a stable part of the region and has been for a number of years,” said Ian Carter, president of global operations and development at Hilton Worldwide.
Most of the Western hotel chains won’t be investing the capital necessary to build these hotels, rather they’ll just be paying fees to manage the hotel after it’s built. Still, their participation offers a positive sign for Kurdistan.
The Next Abu Dhabi?
The sudden interest in Erbil bears a likening to the recent economic explosion in Abu Dhabi, the second biggest city and capital of the United Arab Emirates, which has transformed into a towering modern metropolis over the last five years.
With many multinational corporations setting up Middle Eastern headquarters there, it is now one of the world’s richest cities.
However, Iraq is still reeling from Saddam Hussein’s reign and the decade-long war with the U.S. There’s no telling what could happen after American soldiers fully pullout.
Coordinated suicide bombs in Baghdad on Thursday, which killed more than 70 people, coupled with political rivalries and sectarian animosities shed light on how volatile the country still is and how vulnerable it may be to terrorist group al Qaeda.
And while the success of Abu Dhabi’s development as a business hub has proven there is a market for business in the Middle East, it is too soon to tell whether Iraq, located just north of Saudi Arabia and situated in between Europe and Asia, will be as attractive to multinationals.
“I think it’s too premature to say with confidence that Iraq can be a hub for business travelers, though Erbil certainly has potential to help provide the country a lift given its head start in the Kurdish region,” Kong said.
Promisingly, the International Monetary Fund recently predicted that Iraq’s economy would grow faster than China’s in 2012, at a whopping 11.4% rate.
“For business travelers, there’s an influx of investment happening at this time, as the real estate along with gas and oil industries are booming,” Kong said.
Abu Dhabi’s success story started with a $3 billion luxury resort called the Emirates Palace in that sparked a chain reaction of new construction for hotels, homes and corporate space that all complemented its already robust oil market.
Carter says Erbil and Kurdistan could develop in the same way as Abu Dhabi, as they are both oil and gas rich, and the interest in Iraq’s natural resources is only slated to grow with its development.
“I think it’ll start with business and inevitably turn into tourism,” he said, calling Erbil a “lovely area.”
There are already Americans and Europeans settled there to help with investment in the oil and gas and agricultural industries, including ex-patriots from the West who are living there for the long haul.
With the development of hotels and offices that inevitably brings travelers comes other essential infrastructure such as roads, highways and public transportation, as well as retail shops, restaurants and schools.
As in a sign of what's to come, Carter says a massive university is already underway in Erbil.