Mongolia Growth Group’s New CEO Seeks Step Change
Paul J. Byrne has moved from a global financial center with first world comforts and warm weather temperatures during winter months to an infrastructure needy country with winter temperatures that go down to minus 40. As a longtime shareholder of Mongolia Growth Group – a Mongolia real estate investment and development company based in Canada – it is good to have an experienced real estate CEO with Harvard, Los Angeles, New York, Hong Kong, Dubai and Sydney among his pedigree as the company’s new CEO. Mongolia has had few triumphs and major missteps for the last three years. Mr. Byrne believes that Mongolia is ready to turnaround and sees a lot of good real estate work to be done to repaint the urban palette of Mongolia’s capital Ulaanbaatar.
Prior to being appointed as Mongolia Growth Group CEO on March 1st of this year, Mr. Byrne was the Chief Executive Officer of Majid Al Futtaim Properties (MAF) in Dubai. According to the Forbes profile of its eponymous owner, Mr. Majid Al Futtaim – 328th on Forbes’ World Billionaires list – MAF is “the most transparent conglomerate in the UAE.” Assets under Mr. Byrne’s management while at MAF included $6 billion of development and property assets invested in twelve MENA countries, most notably the iconic Mall of the Emirates with its indoor ski slope. Prior to his six year stop in Dubai, Mr. Byrne led a commercial real estate development and investment business across the United States, headed the commercial real estate development of Hong Kong’s New International Airport (35 projects, $3.2 billion), was a Client Representative of the new World Trade Center and Rail Terminal hub now being completed in New York, and served as a Board Member, President and Chief Operating Officer of Red Mountain Retail Group based in Los Angeles where assets nearly tripled ($1.25 to $3 billion) during his tenure.
“There’s two decades of development work and investments here,” Mr. Byrne says of Ulaanbaatar like he intends to do a good chunk of it. He is undeterred by Mongolia’s to-date cyclical welcoming-unwelcoming relationship with foreign investment over the past eight years.
Emerging markets have to do a great deal of tinkering with their model for success. It is not uncommon for the governments to get it wrong a few times. Look at Vietnam in 1995/1996. They were too optimistic. Vietnam became less attractive and they were locked out of capital markets for 5 or 6 years because investors have other choices. Mongolia lost out the last two years, that’s not bad… Bumps in the road are a good sign. The government and citizens have learned from them, give them some time. When I look at Mongolia, I see a stable democracy, a nimble government and a nimble business community working together for a common good.
Mr. Byrne doesn’t mince words about his optimism for Mongolia. He is clear that Mongolia’s mineral wealth is predominantly “Tier 2” quality compared to Western Australia’s “Tier 1.” On the flip-side, he says, Mongolia has all the commodities industrial nations need: “The only other country in the Asia region that comes close to Mongolia for natural resource diversity is Indonesia.”
While most developing countries in Asia must market their economic growth based on a pitch for growing industrial development on the back of low cost labor, Mr. Byrne thinks Mongolia has a stronger sales pitch. He sees Mongolia growing its economy on the back of mineral wealth and then economic diversification pivoting off the development of that mineral wealth. “The only place with equal potential is Qatar: small population, strong resource base and a small GDP base.”
Mr. Byrne has done restructuring at his previous posts going back to his days at Red Mountain Retail. He plans to modify Mongolia Growth Group’s holdings with diversification targets of 60% of properties in a stable investment stream and 40% for development. Among Mongolia Growth Group’s approximately 70 properties, there are a number he plans to dispense with to then pursue organic growth from properties and projects that follow his updated vision and strategy.
He will unload lower yield income properties, industrial properties, residential properties and land bank properties that are outside the Central Business District (CBD) of Ulaanabaatar. He says of land banking, “why sit and watch property simply rise in value when I can redevelop the city?” He is more focused on commercial space, retail, office and “a more efficient high yielding portfolio.” Geographically, he sees that there is enough work to do in the CBD for the next 5 to 10 years and then the company can work backwards toward the periphery of the CBD.
He plans to make the company structure more leveraged and focus it on small to medium scale projects in three areas: new ground up projects, redevelopment and refurbishment. He compares Ulaanbaatar’s current stage of development to Hong Kong in 1965 when rickshaws still ruled Hong Kong’s streets. Mr. Byrne plans to “strategically renew the city, be a good corporate citizen and add value to the city.” He foresees Ulaanbaatar going through its next wave of internationalization with more international brands and retailers entering the market.
Mr. Byrne believes a reasonable fair market value for Mongolia Growth Group shares is between $4 and $5, double the current market value. In the interim, he sees the heavy lifting as the current restructuring and building the company’s value up to half a billion dollars. Then, “from a half a billion to a billion dollar company is easier.” As $1 billion is one tenth of Mongolia’s $10 billion 2012 GDP, Mr. Byrne clearly anticipates Mongolia’s double digit GDP growth to continue.
Until Mr. Byrne’s hire, the Chairman and CEO of Mongolia Growth Group has been former hedge fund manager, Harris Kupperman. Mr. Kupperman’s new role will now be Executive Chairman. Mr. Byrne is clear that Mr. Kupperman remains involved in the company and that Mr. Byrne is leading:
Quite understandably, he doesn’t have my experience in real estate. I’m not a hedge fund guy. His understanding of financials is superb. He has a natural eye for the market. He will do more on company business development, investor relations, financial media outreach and capital markets. He’s solid in North America and I want him to also build up more relationships in Japan, South Korea, Hong Kong, Singapore, and the Gulf Middle East.
Where there is growth is where Mr. Byrne wants to be. He says there’s more interesting work in real estate in Asia and the Middle East than in the U.S. or Europe these days because “they have decades more to run.” He is focused on “step change,” or rapid growth, versus “incremental change.” There is a “sequential logic” Mr. Byrne’s mathematical mind sees in the development of Asia’s markets. He sees Hong Kong, South Korea and Taiwan as places where there is only incremental change now. Mr. Byrne’s view sees Vietnam, Indonesia and Cambodia as already at “phase two” of step change. By comparison, the countries where he can foresee opportunities left to be part of major step change are Myanmar, Laos and Mongolia. “It is too late to get into these markets when there is no longer uncertainty. The window to enter is now, before they are off and running.”
This article is a profile of why Mr. Byrne made the move to Mongolia from Dubai. The author is invested in Mongolia Growth Group but does not advise investors to invest by publishing this profile. The author does not make transactions in companies he writes about for one week before and after any publication. Investors should do further due diligence on Mongolia Growth Group before making any investment decision.