Thursday, December 09, 2010

Farook: Fall from Zenith, Part I

As I mentioned recently, I met Farook at the zenith of his career. I do not think of Farook as a great salesman: a great salesman can sell someone something they don't want, don't need, and can't afford.

In his prime, Farook was like the sausage millionaire in the very old movie, 'Palm Beach Story.' The sausage millionaire saw a sad young man and offered to help. The millionaire said he'd give the young man the answer to any question except where to buy sausage. Apparently, the sausage millionaire had found a supplier who sold sausages of better quality at lower prices than his competitors, so the sausage millionaire didn't need to be a great salesman, his sausages sold themselves.

Farook found flats renting for half of market rents, partly because of laid back landlords, and partly because there were informal rent controls. Then Farook would sublease the flats for 85% of market rates, then lease them for half of market rates (always in that order, so Farook wouldn't be risking any of his own money). It was a win-win-win situation, with the landlord, without doing any promotion or anything else, getting money for a formerly empty flat, the tenant getting a flat for 85% of market, and Farook getting 75% more from subleasing the flat than he'd paid to lease it, for quite a nice commission.

Then two things happened: the first was freehold. This hurt Farook, who blamed his father: 'My father tell me, if you must drive nail and you have big hammer and little hammer, always use big hammer and drive nail with one blow, no little hammer and must make many blows.'

So Farook hoped to find a freehold villa he could sell for $1.85 million and then buy for $1 million, making a quick $850,000, or about 8 ½ year's income from leasing. I tried, without success, to explain that the market, marketing, pricing, and everything else is completely different between leasing and selling. But he never listened. 'What you know? I selling for 15 years, you never work as salesman.' But he never sold a villa.

Farook tried to sell a school in Sharjah, but without success. The owner wanted $10 million; Farook was asking $4 million. I have no idea what he had in mind, since he tells me he never cheated anyone.

In Dubai, it was once common to find people who would lease a posh villa and a posh office and pay for three months, then sublease the villa from the office. These con-men would sublease the villa for 70% of the actual rental, but to 20 people, demanding a full year in advance in order to qualify for the 30% discount. Once they'd leased the villa twenty times, they'd leave Dubai, and the renters would be out their entire payment. Farook never did anything like that, so I'd say he was more than 75% honest.

Of course, had anyone given Farook $4 million to buy that $10 million school, he would have either explained that foreigners can't buy, the $4 million was just for a three year lease, or he would have sold the buyer a different, $2 million school. But no one bought, and Farook wasted a lot of time.

I tried to help: a lady from the UK said she represented some investors who wanted to buy a school, but she needed the contract, blueprints, and all the other stuff that goes with a $10 million property. 'You think Britania. This Dubai. Dubai not like Britania, here we no need paper. I take you to see school.'

I tried to tell Farook, 'Just give her the papers,' but he told me just what he told the British lady.

Farook had found tenants for his apartments, given them the details to sign, they'd taken the details home, then gone directly to the landlord and gotten the flat for what the owner was asking, cutting Farook out completely. So he stopped giving any documents to prospective tenants. But tenants are not like buyers. And Farook hadn't bothered to get copies of the paperwork, because he wanted someone to hand him $4 million in cash without anything in writing.

But no one ever did. The British lady eventually gave up on Farook and stopped answering his calls. And he never managed to sell a school.

So the freehold caused Farook to waste a lot of time trying to sell freehold, without having any idea about how to do it, since it is not at all like leasing. And his business began to decline.

And soon he had another problem.