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| Dominic Nahr/Magnum Photos for The Wall Street Journal |
MOGADISHU, Somalia—Michael Stock sees things
that others don’t. “Imagine this,” he says one recent afternoon,
standing on the sunny second-floor deck of his new oceanside hotel in
Somalia’s war-battered capital. “There are banana trees where there’s
desert now, and there’s this view.”
The banana trees haven’t grown in yet, but International Campus, as
he calls the complex, is the closest thing to a Ritz for many miles. A
fortified compound sprawled across 11 acres of rocky white beach, it
offers 212 rooms including $500-a-night villas, several dining rooms,
coffee and snack shops, and a curving slate-colored pool where
sun-seekers can loll away Somali afternoons.
“It’s going to be ridiculous!” Mr. Stock said, just weeks before residents began arriving for April’s opening.
A few hours later, the jittery sound of gunfire split the warm
February air not far from his new hotel—a reminder that the country is
still muddling through a decades-old conflict and that there are still
bullets flying, bombs detonating.
Mr. Stock isn’t just anyone gambling on a far-fetched idea in a
conflict zone. In an unusual twist of the war business, the 36-year-old
American is deeply involved in the conflict itself. In addition to being
a real estate developer, his company also helps train Somalis in modern
military techniques.
His security company, Bancroft Global Development, has supported
African troops since 2008 as they fought al-Shabaab, the Somali Islamic
group tied to al Qaeda, which the U.S. views as a terrorist threat. The
United Nations and the African Union, with U.S. State Department money,
pay Bancroft to support soldiers in everything from counterinsurgency
tactics to bomb disposal, sniper training, road building and, as Mr.
Stock puts it, “bandaging shot-off thumbs.”
Security companies have, of course, been rushing into war zones
forever, sometimes controversially. A recent congressional study on
wartime contracting estimated that the U.S. spent some $206 billion on
outside contracts and grants in Iraq and Afghanistan between 2002 and
2011.
Most Western countries have stayed out of Somalia. Contractors like
Bancroft partly fill that void. The U.S., which pulled its troops after
American soldiers died in the 1993 Black Hawk Down tragedy, has spent
more than $650 million since 2006 on supporting the
African Union
Mission in Somalia, known as Amisom, and its more than 17,000 soldiers.
Unlike many security contractors, Mr. Stock’s company, based in
Washington, D.C., is a nonprofit not primarily concerned with making
money on military support services. In fact, it actually sustains
stretches of multimillion-dollar losses, Mr. Stock says. Meanwhile its
sister company, Bancroft Global Investment, chases profits by pouring
money into war-zone real estate.
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| Michael Stock develops real estate in Somalia and Afghanistan. |
Mr. Stock’s gamble: The security outfit will help guide the country
toward peace, turning his investments into big money. “It’s like getting
in at the bottom of the stock market,” says Mr. Stock. His unusual war
operation is making him into a kind of ultimate gentrifier, a mini mogul
of Mogadishu, perhaps.
His first properties went up in Afghanistan. But Somalia represents
his latest push. Along with the new place, Mr. Stock says he has
invested more than $25 million in various for-profit ventures, including
a “trailer park” hotel built out of shipping containers at the airport,
a compound of prefabricated buildings fronting the city’s old port and a
cement factory.
Bancroft is the only contractor supplying military training to Amisom
soldiers in the country. Mr. Stock estimates that his team of 100 or so
people in Somalia works with roughly a third of the 17,000 Amisom
forces at any given time.
After more than two decades of violence in Somalia, there are
glimmers of hope. African troops, with Bancroft’s support, have pushed
the insurgents to more rural areas. In January, the U.S. recognized the
Somali government for the first time since 1991 and last month a U.S.
Agency for International Development official urged at a news
conference, “Get in on the ground floor.”
A new president leads Somalia. Expats are returning to rebuild and
there are even people on the beaches. “We swim here all the time,” said a
Russian helicopter operator, as a friend floated on an inner tube along
a bullet-littered stretch of ocean near the airport. “The water’s
good!”
With dwindling war efforts in Iraq and Afghanistan, other American
contractors are moving in, too. A Virginia company, Atlantean, is
setting up an airport hotel in the south. Among its board members,
according to its website, is former Maj. Gen. William Garrison, who led
the mission associated with Black Hawk Down. In the movie version, he
was played by Sam Shepard. Maj. Gen. Garrison couldn’t be reached for
comment.
“There are infinite possibilities in a country that has to be
literally built from the ground up,” said Ken Menkhaus, a Somalia expert
at Davidson College. These possibilities, however, also include the
worst: a return to a hell-ripped Somalia. That reality loomed only weeks
ago when militants bombed the capital’s main courthouse, killing more
than two dozen people.
Contracting out security has its perils. An investigation by the
U.N.’s Monitoring Group on Somalia and Eritrea last summer found
companies “operating in an arguably paramilitary fashion.” The
investigation found a “growing number” of foreign private security
companies working in Somalia with diplomatic missions, international
companies and individuals.
According to one person familiar with the confidential part of the
report and unaffiliated with Bancroft, the report found that Bancroft
was “very transparent about the way they operated,” whereas some other
companies were “more deceptive.”
Mr. Stock has attracted some big-name attention. In November, he flew
in Warren Buffett’s son Howard to look at potential agricultural
projects—part of Mr. Stock’s interest in creating a farming operation to
service his hotels, among other things.
“He was the only one who would bring me into the country,” said Mr.
Buffett, who has been involved in philanthropy around the Horn of
Africa.
Almost monthly, Mr. Stock commutes here from Washington, D.C. This
time his “fast plane,” a 10-seat jet, was in the shop so he borrowed a
five-seater Cessna in Kenya from a friend.
Accompanying him was a new Bancroft recruit. He had been a part of an Army Delta Force squad that chased al Qaeda in Iraq.
“Will we get shot at the first day?” the former soldier asked at one point.
“Probably,” Mr. Stock said, laughing. “I promised you some spice!”
Bancroft says it employs about 200 men around the world. About half
work in Somalia. Some have roots in elite military forces including the
Navy SEALs, French Foreign Legion and British Special Air Service, the
employees say. “It’s like an extreme sport,” says one, Richard Rouget, a
South African resident and former French soldier.
The idea for the business came during a summer job in 1998 with the
U.S. embassy in Morocco, where Mr. Stock visited a refugee camp in the
Sahara ringed by land mines.
“Why hasn’t someone shown them how to
remove the mines?” he recalls thinking.
A year later, after graduating from Princeton, he started a
mine-removal company. “Like a dot-com,” is how Mr. Stock describes the
early days. He had no full-time staffers and spent months meeting people
in the field. There was only sporadic mine-removal work, for little
money, in some of the world’s most unstable places: Mali, Chad, and
Iraq.
His family’s wealth helped. His great-grandfather, Lewis Strauss,
made tens of millions as partner at the investment firm Kuhn, Loeb &
Co. In time, Mr. Stock borrowed some $8 million from different banks
and invested about $2 million of his own money.
As the U.S. military went after the Taliban in 2002, Mr. Stock’s
company landed in Afghanistan and offered services through a local
partner, Mine Pro. He invested in the company and built a group to train
bomb-detecting dogs and do anything from plumbing to car repair.
But his company operated at a loss, he says. It didn’t make money for
about two years, the time it took to get his local Afghan partner up to
speed and wait for it to win contracts.
A more profit-minded security contractor might have called it quits.
Mr. Stock, however, had another idea. “My thinking was that you could
lose money on security to bet on development,” he says.
Afghanistan certainly lacked decent, secure accommodation. Initially
he built an eight-bedroom compound in Kabul and another, bigger
residence in Herat, the country’s third-largest city. He started a car
rental service, too.
Eventually, security began paying off, Mr. Stock says. He started
receiving a share of his partner company’s contracts, with that revenue
peaking at about $1.8 million in 2005.
But the bigger money was in his properties. Today, the original two
have been expanded into protected city blocks of multiple buildings.
They house tenants associated with the World Bank and the International
Development Law Organization, among others.
Over the past eight years, the real estate and other commercial
services like car rental in Afghanistan have brought in about $32
million in net revenue, according to financial documents provided by
Bancroft. Much of that money is now being invested in Somalia.
“It was like Stalingrad in 1942,” Mr. Stock says of the day in late
2007 when he flew into Mogadishu. The city was a smoky battlefield of
bomb explosions and firefights between the Shabaab and the African
troops, who had arrived earlier in the year.
But that was the point, he says. “We wanted get in at the worst time, when it’s really bad.”
The Shabaab, Arabic for “The Youth,” had taken over much of the
capital. They built power over years, though the bloodshed had begun
long before, in 1991, when armed clans forced out Somalia’s military-run
government.
His team set up tents at the airport and struck a deal with the
African troops, he says. “We said we’ll help you, if you keep us from
getting killed.”
Some worry that contractors like Bancroft face little scrutiny—an
issue of “accountability,” as one Western intelligence analyst put it.
“Who works for them?” he said. “What are they doing?”
“The pro side,” he said, “is that they were here when no one else would come.”
A person familiar with the U.S. State Department’s policy on Somalia
said that the company had helped create an “effective fighting force.” A
U.N. official, meanwhile, noted that Bancroft’s training in roadside
bombs had reduced deaths among African soldiers.
Mr. Stock winces at the terms “mercenary” and “hired guns,” which he
considers inaccurate. He calls his men “mentors” who train people rather
than fight.
Even though they don’t carry weapons, working closely with soldiers,
medics and others means that they are in the line of fire. “If the
African forces are overrun, we’re all dead,” he says.
Dressed in body armor and a helmet one morning, Mr. Stock says he had
never considered joining the military himself. “I don’t take orders
well,” he joked, riding along in a convoy of armored carriers in
downtown Mogadishu, gunners manning the roof hatches. It was part of a
sweep Burundi and Somali soldiers for insurgents.
The streets alternated between bombed-out buildings and stretches of
fresh paint. Soon, a sniper was spotted. Later, a gunfight broke out.
Then, an exploded roadside bomb brought the convoy to a halt. By the
end, six suspected militants were detained and Bancroft took the bomb
for analysis.
“Danger comes and goes quickly here,” says Mr. Stock. “It’s like lightning. If it hits, it hits.”
It was nearly three years of free security training in Somalia, and
$6 million out of pocket, according to financial filings, before he
landed his first contract with the U.N. Various U.N. agencies have paid
the company some $15 million since then and the African Union, with the
U.S. State Department money, will have paid Bancroft a total of about
$25 million by the end of the year.
All along, though, he expanded into real estate. In 2011, he created
the for-profit side of the company, Bancroft Global Investment. That
year, he sold an 18% stake, just under $1 million, in the Somali
properties to a Washington, D.C., developer, Michael Darby.
“When you hear Somalia, you think of the most dangerous place on
earth,” says Mr. Darby. “But I’m prone to take more risks than others.”
Making real-estate deals in Somalia wasn’t easy, Mr. Stock says. It
took “dozens” of meetings with government officials, clan leaders and
neighbors of the properties. “You have to spend a lot of time figuring
out who is who,” he says. There is no formal contract for the land, but
rather “consensus building,” he says, that results in a verbal go-ahead
from the collective parties.
Mr. Stock made a similar land deal, a public-private partnership with
the Somali government for some beach property near the port, but didn’t
work out as well.
After constructing a facility there and managing it as a residence
for the United Arab Emirates, the U.A.E. opened talks with the Somali
government about a renewed diplomatic relationship—and sought direct
control over the property.
Bancroft ceded its rights to the property to the U.A.E., according to
a letter describing the handover and making it official. While Mr.
Stock recovered most of his roughly $6 million in construction costs,
the deal didn’t exactly work out to his financial advantage, he says.
“There’s no magic formula.”
International Campus, which he says cost more than $6 million, is now
open for business and mostly booked. Beyond the pool and the ocean
views, there is a bunker, a trauma hospital and something akin to Mad
Max’s version of an auto body shop, where specialized gear heads will
fix “the ballistic glass on your armored vehicle,” as Mr. Stock puts it.
He expects the new place to break even next year. The trailer park,
he says, is grossing about $2 million a year. When his cement-making
business opens up, there is an entire city to patch and restore.
Still, his work in Somalia is far from assured. The Shabaab remains
unpredictable. Weeks ago, militants exploded a car bomb near the
presidential palace and before that they struck a beachside restaurant.
But Mr. Stock says he’s in for the long haul. “We’re betting on
peace,” he says. He is betting on hotels and perhaps houses in the
future.
“Picture this,” he says later, standing near an expanse of mostly
empty beach, stretching as far as the eye can see. “You could have a
development based around a town center, like the golf resorts in the
Midwest.”
Write to Christopher S. Stewart at
christopher.stewart@wsj.com
which is now beginning to evolve around the new government in
Mogadishu. So what you see is not a coordinated process of exporting
arms to Somalia, it is basically a way of networks of Somali warlords
finding sources of arms and this is where Iran becomes one of the major
sources. Iran is facing global sanctions and it naturally looks for
whichever way is available to make a dollar or two in order to keep its
economy soaring ... It's a natural trend by countries facing embargos or
sanctions."
Today,
the al-Shabaab are thought to have been dispersed and rendered more
powerless since they were driven out of the capital as well as the port
of Kismayo and other key towns. Sources in the media claim that the
al-Shabaab are found in a crisis situation and a letter, sent to Ayman
al-Zawahiri, al-Qaeda’s leader, on April 12th 2013, by a member of the
al-Shabaab is circulating on the internet