(The following article is an example of executive interviews by Alliance News journalists.)
24 May 2016, 14:34:15 BST
LONDON (Alliance News) – “There are a tonne of cities in the world that would love to have an infrastructure project like this,” the Challenger Acquisitions Ltd Chief Executive Mark Gustafson said in an interview with Alliance News, as he outlined the group’s plans to build observation wheels around the world.
Gustafson was speaking about giant observation wheels, which his firm designs and builds though Dutch engineering company Starneth, acquired by Challenger in 2015.
Unlike its little sister the ferris wheel, the GOW is at least 100 metres in height and costs at least GBP100 million to build. The most famous current example of which is the London Eye. Challenger listed in London in February 2015 and recently completed its first full year as an established company.
Gustafson is suitably excited about GOWs and views the industry as one with huge business potential, after seeing the success London-listed theme parks and attractions operator Merlin Entertainments PLC has experienced with the now iconic London Eye. There are only four GOWs in the world so far – in London, Singapore, Melbourne and Las Vegas – and Gustafson sees potential for at least a further 10 to 15 wheels globally.
Challenger actually has a pipeline of 25 wheels and plans to deliver at least one major project per year, with the majority of those 25 to be built over the next eight to ten years. It is currently constructing a GOW in Dubai and one in New York, both of which are expected to be completed in 2017. It has also secured a contract to build one in Jakarta, Indonesia, for which it is waiting for the developer to secure the financing.
“There is certainly demand for more [than 10 to 15 wheels], but they all need to be commercially viable. The conditions need to be right and the return needs to be there. There are certain areas where we would never agree to build a wheel. We don’t want to be associated with commercial projects that don’t succeed,” Gustafson said.
Gustafson says there are three key components to building GOWs, namely location, traffic and marketing.
Importantly, the location is central to the amount of traffic generated, which doesn’t just apply to the area of the world being targeted – with areas of “geopolitical risk” to be avoided – but also the immediate surroundings of the space.
If you look at the London Eye, for instance, within a few metres you will stumble across the London Dungeons, Shrek’s Adventure and SeaWorld, as well as a number of restaurants, bars and cafes along London’s South Bank. This, Gustafson said, places the London Eye as part of an overall entertainment complex where visitors can spend the whole day, and is something Challenger aims to achieve with each of the wheels it plans to construct.
Interestingly, like the London Eye, 80% of Challenger’s pipeline is also based near some form of water, because “people like water”, the CEO said.
But why did Challenger decide to target GOWs in particular? “People love heights, they love views, they love being thrilled,” Gustafson said.
“People thought the building of the London Eye was crazy. They saw it as a temporary structure, a millennium project that would never be successful. But look at it now,” he added.
Gustafson has a point. The London Eye has become part of the London skyline since it was built in 2000 and it’s difficult to imagine the skyline without that iconic infrastructure. It attracts 3 to 4 million visitors a year and generates millions in profit and revenue.
Gustafson wouldn’t disclose the locations of the other GOWs in Challenger’s pipeline due to “confidentiality reasons”, but said that while there is certainly potential for wheels to be built in other European cities, there is no more room in the UK. They would be overshadowed by the London Eye, he said.
Gustafson is particularly complimentary of the London Eye because the project manager responsible for its design and construction was led by the chief executive of Dutch engineering firm Starneth, which Challenger bought last year.
Starneth also worked on the Singapore Flyer and Las Vegas High Roller, and has now teamed with Challenger so the latter can help with the funding of future projects.
Gustafson sees huge potential for Challenger’s USD500 million New York Wheel, which is located on Staten Island and is expected to cater for 3.5 million visitors a year. The island is attractive, Gustafson said, due to its view of New York harbour, and as it is being built alongside the planned Empire Outlets retail complex.
Challenger will also take stakes in projects for which it sees a “healthy rate of return”. It has already purchased a 3% stake in the New York Wheel and plans to purchase at least a 10% stake in the Jakarta project.
Gustafson said owning stakes will give excellent long-term prospects for the group, providing dividends and profit sharing, on top of the short-term benefits of cash flow and revenue. The CEO said if Challenger can build the lion’s share of the wheels in its pipeline, it will achieve “tremendous cash flow and revenue for the company”.
Five years from now, Gustafson said the company will start to receive dividends and profit-sharing from the New York Wheel, while the Jakarta project and hopefully one more will be operational. Each project will be cash flow positive in the first month of operation, Gustafson said, adding that Challenger will make its first annual profit this year.
The CEO is most excited about the company’s prospects in Southeast Asia, given the huge level of tourist traffic the region receives.
“I wouldn’t have thought this a couple of years ago, but Southeast Asia has surprisingly good potential,” Gustafson said, adding that he thinks the region will probably be the most active area in the next five years.
“Ultimately we think we’re going to make really good money as a project manager of GOW projects, while the long-term prospects will provide a return for many, many decades,” Gustafson said.
“As long as the wheel is turning, we’ll be making money,” the CEO concluded.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
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