Branded residences and condo-hotels, where to next?

Panelists and topic:

The branded residences and condo-hotels – where to next? session featured

Markus Aklin, VP Development, ONYX Hospitality Group; Nevius Glussi, Corporate Director of Development, APAC, Rosewood Hotel Group; Marco Nijhof, CEO, yoo Hotels and Resorts; Norbert Vas, VP Business Development and Operations, Archipelago International.

The panel session was designed to focus on these questions:

Condo-hotels are well established in many parts of south-east Asia but there may be some clouds on the horizon through localised market saturation.

How will this scenario play out in the next few years?

Are there alternative models which may provide solutions in areas of over-supply?

Has the branded residence offering gained traction of late and if so, where are the potential growth markets within the region?

What are the pros and cons of each of these products, as well as their future in south-east Asia?

Condo-hotels

Vas said the market is over-saturated in both Bali and Indonesia with many successful condo-hotels business models, “although the condo-hotel model is not as popular as it used to be.” Archipelago International has fifteen condo-hotel projects within the portfolio, “we’ve had thirteen successes, and two failures based on greedy owners who had interests in spending lots of money in casinos and fast cars” he said.

Vas continued, “we focus on design standards, lobby and meeting room areas, and the developer retains 30% of the inventory and food and beverage operation. “How the developer distributes condo-hotel profits to owners is up to them.”

With South East Asia developer financing costs at between 10 and 15%, the condo-hotel model has enjoyed renewed popularity amongst investors (the majority buying off-plan) and developers not wishing to secure a bank loan. On successful unit sales (sales commissions are around 4-5% APAC) the developer has the ability to complete build transactions and sell-out of the project. Vas felt there are opportunities for growth within the budget hotel sector to be driven using the condo-hotel model, “owners would have to commit to the rental pool, furniture pack purchase, and would receive 30 days free rental themselves – I can see this working.”

Aklin gave a brief overview of the Amari hotel brand, “and we moved into residential attracted by the opportunity to create mixed use developments, and the promise of better returns by operating condominiums in-house in addition to hotels. Amari’s focus is ‘aspiration v investment’, we manage the design on a four star affordable price point. Buyers have confidence and trust with Amari as we’re a successful property developer with 60 years experience in Thailand.” 

Nijhof outlined the early days of yoo Design which were originally focussed on the branded residential market. “We understood the value of branded v non-branded and could achieve 30.1% additional revenue. YOO moved into the condo-hotel market developing in Miami’s Brickell Avenue which is a secondary market – we achieved a 25% uplift.We then moved into hotel design.”

Glussi said Rosewood’s branded residences are focussed on the ultra-luxury market in urban locations – The Carlyle , built in 1929 is the oldest residential and hotel project in the world. “We use Bar Studio design and high-end, well known designers like Tony Chi – you have to differentiate somewhere. Branded design with celebrity is aspirational that not everybody can afford. It’s the ultimate dream, the opportunity to own a slice, with an optional rental pool. We require buyers to take the furniture package and our 2 and 3 bed branded residences are very aspirational – most buyers personalise their residence and this complements the hotel – they are not separate. We are finding the hotel and residential components getting closer together. Owners tend to only use part of the services -a gourmet cook for the evening for example, lots of optional services are offered.”

Fashion brands

Fashion brands and the Bulgari jewellery brand were highlighted as potentially moving into the branded residences space, with Bulgari cited as having rolled out branded hotels managed by Marriott recently. Comparisons to Ritz Carlton, Marriott’s premium luxury brand inevitably followed and a Marriott representative in the audience, stated that Bulgari  has few properties with a clear ultra premium design element for hotel guests verses ultra luxury efficiency streamlining from Ritz Carlton.

“The guests are different types – they believe in style or they don’t. Bulgari has a zero profit objective business currently, whereas Ritz Carlton has a profit motive which differentiates each brand’s execution.” Clearly Bulgari use their hotel business as a sales extension to their core luxury jewellery brand.

Around the world

“Our branded residence project in Jakarta is at a 25% premium and we are introducing the condo-hotel model to Malaysia” said Vas

“The growth areas we see in the future will be South America and Malaysia” said Nijhof, “it’s becoming more popular in Europe and there are purchases motivated by the Golden Visa initiative in countries like Portugal and Spain, which plays its part in helping developer financing.” Nijhof said Brazil’s hotel business has grown to what it is today using the condo-hotels model to build hotels. “Time is money – it is a huge benefit for the hotel owner working to have design, technical services and operations all streamlined under one roof with yoo hotels, citing a recent project in Rio de Janeiro, Brazil which took just 16 weeks to complete. In India we are doing a huge amount of projects already, with purchasers paying a 30% and upwards premium.”

Management and operating agreements

The panel was in general agreement that service delivery is difficult on a consistent basis within emerging markets, and Vas advised his company agreement is for a 10 – 15 year term with a clause to renew (or not), “the HOA has voting rights and if they decide to relinquish with our duties, that’s fine – we are happy to give back. We find it easier to operate a condo-hotel with multiple owners than deal with one egotistical owner.”

Glussi stated Rosewood’s management agreements are considerably longer, and Nijhof outlined yoo Hotels approach and said “once we are contracted, we will review at the agreed times and revamp – no revamp means consequences. We are contracted for the hotel and design concept including the public areas, whether our name is on the door or not.”