Enter branded residences

IT is a beautiful day, and from the deck of a gorgeous, 964-square-metre four-bedroom villa, you overlook an infinity pool and the Gulf of Thailand, with the beach just a stroll away. This brand new abode is one of 17 luxurious three to five-bedroom villas that form part of the W Koh Samui Retreat & Residences, located on a stunning cape with dramatic views of both sunrise and sunset.

And it is for sale.

So yes, borrowing catchphrases from its marketing brochure, it would be very nice to ‘own it’, many will definitely ‘want it’ and think it’s ‘worth it’, even if they live hours away by air. But unless you can scrape together a cool US$4 million, such a branded residence is available only if its eventual purchaser leases it back to the adjacent 75-villa W Retreat Koh Samui for booking by the resort’s guests.

Just launched last month, W Residences on the sunny Thai island is the latest to join a burgeoning list of upmarket, hotel-branded residential homes in South-east Asia that only those with a few spare millions in US dollars can buy.

Luxury hotel and resort brands which have licensed their names to residential developments – usually located next to hotels and resorts which are also licensed to bear the same name – include W, St Regis, Ritz-Carlton, Bulgari, Alila and Six Senses. And the list is set to grow.

S’pore projects

In Singapore alone, a 228-unit W Residences will come up on the Sentosa Quayside site around mid-2012, where a 250-room W Hotel will also be built by City Developments. Units at the 99-year-leasehold residential development will have two, three and four bedrooms, and could be priced from about $2,500 to $3,000 per square foot (psf). It will join the St Regis and Ritz-Carlton residences as the third hotel-branded residential development in the country.

From the hotel brand’s point of view, a luxury residential project bearing its name offers several benefits.

Says Bulgari of its first Bulgari Residences in Bali, which will feature five exclusive villas designed by acclaimed architectural firm Antonio Citterio & Partners, and priced from a whopping US$6 million upwards: ‘We feel confident that this project will actually enhance our good name, as Bulgari will approve all the designs, and the services will be provided by the Bulgari Resort next door.’

It is ‘quite likely’ that future Bulgari Hotels will also feature a residential component, says the Italian luxury company.

A hotel-branded project can also help boost the hotel’s bottom line.

‘The revenue from the additional services provided to the residential owners increases the gross revenue and profitability of the hotel, and thereby increases the fees earned by the hotel operator,’ says Mark Edleson, president and CEO of Alila Hotels and Resorts, which has resorts with residential components at two newly opened resorts in Bali – Alila Villas Uluwatu and Alila Villas Soori.

Both are designed by award-winning Singapore firms. The Uluwatu project, by WOHA, has so far sold 16 out of 25 three-bedroom pool villas where prices start from US$2.5 million. Meanwhile, the 48-villa Soori project, which was designed and developed by SCDA Architects, is sold out. Alila has other properties under development that will also offer residential villas in Thailand, India and Oman.

‘As long as the sales documentation for the residential development is clear, with strong covenants of what the buyers can and cannot do with their units, there shouldn’t be any harm to the brand,’ Mr Edleson believes.

For developers, hotel-branded residences simply make financial sense – it is a cash injection to help offset heavy development costs.

‘Building a hotel is very capital-intensive in the dollar sense,’ explains real estate lecturer Nicholas Mak. ‘It takes a long time to recoup the investment and you have to keep investing to maintain it. So by selling branded residences adjacent to it, it is a way of monetising the hotel.’

Such residences also give the operator more and larger units to let, says Adam Taugwalder, head of Six Senses Private Residences, adding that the branded residence also creates a community of enthusiasts that is ‘very beneficial’ to Six Senses’ resorts. The brand has three luxury residential projects in Thailand and Vietnam. In the pipeline are residences in Maldives, Greece and the Caribbean.

But while there is no shortage of developers who want to put a hotel brand on their residential projects, brand owners will consider several factors before they license their names.

‘We always look for a strong developer, designer and marketing team and we make sure we hire the top names because we want to produce top-notch products,’ says Alexandra Yao, director of residential development (Asia Pacific) for Starwood Hotels & Resorts, which owns the W, St Regis and Westin brands, among others. ‘We do have a lot of requests, but even though some are good developers, one thing we really look at is location. They have to offer a good site first.’

As for buyers, the attractions are clear – the prestige of owning an exclusive luxury home in sometimes stunning locations bearing the name of a premium hotel brand; enjoying the lifestyle the brand offers; gaining priority access to the luxury services and amenities of the hotel or resort it is adjacent to; and in most cases, being able to reap returns by leasing the unit back to the hotel. Being serviced and managed by an internationally acclaimed luxury hotel operator, the idea is that capital appreciation is also ensured.

At the W Residences on Koh Samui, for instance, you can literally move in with just your suitcases – every unit will come fully furnished, right down to the cutlery and tableware. ‘This is the first W Retreat (W’s name for its resort hotels) in South-east Asia and the first non-condominium residences for W worldwide,’ says Sunny Bajaj, managing director of Amburaya, W Koh Samui’s developer. ‘We are giving people who love the brand an opportunity to check in and never have to check out. It’s an investment in a lifestyle. And they can put it back into the rental market, with freedom to tell us how much of the time they want to rent it out. The design is also something different, because with W, everything is done with a twist.’

A branded residence adds to the options of investors who are interested in property, but want to diversify. ‘They could just buy an address, or they could buy something managed by professionals from an established hotel brand, so it’s a bit hedged,’ says Mr Mak.

Of course, buyers pay a premium for such perks. For instance, at the 58-unit Ritz-Carlton Residences on Cairnhill Road, developed by the KOP Group, most units were transacted at an average of $4,000 psf, way above average luxury condominium prices.

‘This trend has continued despite the economic climate, bearing testimony to the fact that buyers acknowledge the long-term investment value of this esteemed project,’ says Leny Suparman, KOP’s chief operating officer. In Ritz-Carlton Residences’ case, not actually being situated next to the hotel brings benefits such as dedicated staff, providing ‘the highest levels of truly personalised service, rather than a ‘transient’ one’, she adds.

And the buyers of these high-priced assets? The cosmopolitan and sophisticated, from wealthy businessmen and entrepreneurs to celebrities and corporations from all over the world. According to Nichlas Maratos, Starwood’s director of sales and marketing operations, city locations such as Singapore tend to attract a mix of locals and foreign investors, while in a resort location, purchasers are often people who travel there for holidays and who might want a second home or an investment.

Caveat emptor

You can expect basic monthly maintenance fees at branded residences to start from at least US$500. And a la carte services from the hotel, such as in-residence housekeeping, laundry, catering, grocery-shopping, fitness training and spa treatments are charged separately.

Buyers must also look into any limitations placed on foreign ownership in overseas projects, as well as the length of the development’s lease and how long it is licensed to use the hotel’s name.

What is more complicated, though, is the sensitive issue of what happens after the licence expires. Because contractual terms between the hotel brand and developer are unique in each development, it is anyone’s guess what will happen in future.

In the worst-case scenario, where owners of the residences fail to renew the licence, the project will lose the hotel name and its associated benefits, and consequently, a large part of its attractiveness. Should this happen, investors might start to view branded residences with cynicism going forward.

Bottom line

More common in the West, hotel-branded residences are still in their infancy in South-east Asia. But the momentum is building up, with lesser-known names also joining the bandwagon now.

‘The sale of branded residences will become a key financial engine for any luxury operator,’ says Six Senses’ Mr Taugwalder. ‘Demand is coming from all corners of the world, from a new generation of buyers who enjoy owning a villa with all the five-star hotel services.’

Mr Bajaj agrees: ‘Indians used to like to buy a second home in London, and Indonesians, in Singapore. But the new generation wants something more lifestyle. Not just another urban apartment.’

And as wealth continues to be created in Asia, property-loving Asians are expected to keep pouring money into homes – all the better if they come branded, with the requisite bells and whistles.

Source: Business Times, 5 Feb 2010