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BRANDED developments sit at the most competitive and innovative edge of the market, according to real estate consultancy Knight Frank's Branded Developments report in November last year. "This is the sector where developers are attempting to reinvent the concept of the residential development by fusing the best of hotel and other services into a residential template — this innovation attracts buyers who are looking to buy into the latest trends," it says.

In Hotel Yearbook 2012, HVS' Madrid managing director Phillip A Bacon and Ecole hôtelière de Lausanne professor of strategic management Demian Hodari describe hotel-branded residences as "the archetypal example of blending hard-nosed real estate investment with that elusive concept, 'lifestyle'."

"If 'lifestyle' means simply 'the way that a person lives', then branded residences reflect a new way of living for cash-rich and time-poor high net worth individuals (HNWI), the main target market for these properties across the globe," they say.

They add that merging hotel brands and management with the most upscale of homes results in a "three-way win — developers with cash in the bank more quickly and more profitably; branded operators with a new source of management revenue and, perhaps more appealing, royalties from the use of their good name; and owners with a gilt-edged investment in branded residential real estate with the promise of long-term investment protection and, for some, the possibility of rental revenue from periods when they are not in residence".

This is the perfect proposition, in theory. In reality, formulating that perfectly balanced product to satisfy all three — especially the fussy 5% of the world's wealthy — is no walk in the park.

Nevertheless, branded properties have achieved significant price uplift vis-à-vis unbranded properties in certain locations. In its report, Knight Frank says the Palazzo Versace on Dubai Creek achieved a price that was 120% higher than neighbouring non-branded development D1. In Puerto Rico, the Ritz-Carlton Dorado Beach luxury resort saw asking prices of £777 (RM3,651) psf, a whopping 250% more than non-branded resorts (£218 psf) in the same development. Other comparable non-branded residences at places such as Azure Beach and Aquamarina averaged £258 and £504 respectively.

In London, Knight Frank estimates that branded properties such as One Hyde Park, which is serviced by the Mandarin Oriental, The Shard (serviced by Shangri-La) and The Knightsbridge (Hyatt) all command an average 11% premium.

In Kuala Lumpur, the average price uplift achieved by branded properties over non-branded properties is 35.7%, says the report.

That brands would imbue homes with new unique selling propositions and consequently a price premium is even more relevant in Kuala Lumpur city centre and outlying areas such as Mont'Kiara, due to the glut of non-branded condominiums, with cumulative stock estimated at 31,851 units in 1Q, according to Knight Frank Malaysia. This excludes another 4,917 units expected to come onstream by year-end.

Currently, hotel-branded luxury homes dominate this nascent market in KL, most notably St Regis and Four Seasons.

One IFC Sdn Bhd is developing the St Regis Kuala Lumpur while Venus Assets Sdn Bhd is developing the Four Seasons Place Kuala Lumpur.

The St Regis brand boasts an inimitable pedigree. Started in 1904 in New York by John Jacob Astor IV, the star of the Starwood Group redefined luxury through its use of the latest technologies of its time — such as a central vacuum system, telephones in every room, individual room air-cooling systems and mail chutes on each floor — as well its legendary butlers that personified its bespoke service. But arguably the biggest influence on the brand was John's mother, Caroline, known as "The Mrs Astor". Her steel hand in silk gloves shaped the hotel's institutions — namely diamond motifs inspired by her love of jewellery, afternoon teas and midnight suppers.

Meanwhile, the Four Seasons was founded by an accidental hotelier. A twenty-something architect and builder named Isadore Sharp helped his father Max to build their first hotel in downtown Toronto, Canada. From its humble origins, the hotel brand has now achieved a five-star rating and operates 50 properties on all continents except Antartica. Premised on the very simple philosophy of mutual respect delivered with kindness, the brand's main focus is on down-to-earth, friendly and personalised service.

The next biggest development in the market is the Harrods integrated development next to Pavilion Kuala Lumpur in Bukit Bintang, which will comprise a 300-room hotel, two residential towers and a mall. This project will be developed jointly by Tradewinds Bhd, the Pavilion Group and sovereign wealth fund vehicle Qatar Holding LLC, which owns Harrods.

Knight Frank Malaysia associate director Herbert Leong notes that buyers can typically expect the following from luxury hotel-branded residences — concierge, security, room service and business facilities that enhance property values. "Clearly the more exclusive the brand, the higher the price and bigger the premium purchasers have to pay.

"There is no specific set of guidelines that provides a checklist of the minimum services for branded residences, but expectations have risen in recent years and the level of service demanded nowadays includes bars, restaurants, private cinemas, wine cellars, swimming pools, saunas and spa services," he says.

Besides in-house facilities, the more upscale brands will be able to help guests secure tickets to exclusive sporting and entertainment events.

There are also developer-branded residences such as Dijaya Corp Bhd's The Residences by Tropicana, which rests atop the W Hotel coming up on a 1.28-acre tract along Jalan Ampang and Pavilion Couture Suites, which carries the namesake of its award-winning retail component, says Leong.

Ireka Bhd's The RuMa Hotel & Residences will have Urban Resorts Concepts run the hotel component. Urban Resorts Concepts runs the PuLi Hotel and Spa in Shanghai, China. "However, the residents may opt to engage the hospitality services provided by the hotel operator," says a spokesperson. Facilities include an exlusive lobby separated from the hotel, swimming pool, pool deck, gymnasium and outdoor terrace. "They may also dine in the restaurants within the hotel without going too far away from home," she adds.

DTZ Malaysia executive director and head of residential marketing Eddy Wong notes that branded residences also encompass "branded" or reputable international architects such as Foster + Partners (Platinum Park), Ole Scheeren (Angkasa Raya), Skidmore Owings & Merill (W Kuala Lumpur & The Residences) and Jean Nouvel (Le Nouvel).

Given the relative newness of the market, awareness must be raised about distinctions between the different brands' class, services and facilities, says CMY Capital Sdn Bhd executive chairman Tan Sri Chua Ma Yu. CMY Capital owns a 60% stake in One IFC, the company building the St Regis KL at KL Sentral. In addition to its 160 residences, the development with a RM1.2 billion capital investment comprises a hotel with 208 all-suite rooms, five food and beverage outlets and 200,000 sq ft of convention facilities.

"There is still differentiation across different hotel brands and operators, ranging from three-star brands to five-star brands, which in turn gives varying specifications and design standards," he tells City & Country.

Besides the brand's status and level of service, the size of the adjoining hotel and subsequently its staff — what he calls the "hardware and software" of the mixed-use development — is also a huge factor that differentiates each branded hotel residence.

Brand standards

Brand standards are also what sets branded residences apart from non-branded residences, says Chua.

"A branded residence is regulated by the brand's standards. The brand standard specifies the quality of fit-outs, sanitary ware, kitchens, stone, and even design, such as minimum heights and corridor widths, compared with non-branded residences that sell their units bare or with the minimum fit-outs.

"These brand standards offer a consistent standard and quality across all branded properties in various cities. For instance, a St Regis in Bali would have consistent quality standards as a St Regis in Singapore and St Regis in New York. Non-branded residences are subject to huge variation in quality across different developers due to non-standardisation of design standards."

However, CBRE Malaysia's senior vice-president of research and consultancy Nabeel Hussain cautions against banking too much on the brand.

"It's important to keep in mind that the hotel operator or brand are not the ones developing the properties. At the end of the day, the potential purchaser has to be comfortable with the product that is being offered, the same as with any other residential property purchase. This being said, the operators or brands may have certain brand standards or criteria that they feel are necessary to maintain their brand image," he says.

Nevertheless, as Zerin Properties CEO Previndran Singhe puts it: "I don't think any brand trumps any brand. At the end of the day, it all depends on the product, location and quality of developer. Most branded residences will have its own separate facilities. Most people don't want to share facilities with a 200-room hotel and transient guests."

Performance and take-ups

Branded residences have far outpaced their non-branded peers in terms of prices psf. St Regis Residences and The Four Seasons Place Kuala Lumpur have set benchmark prices of RM2,500 to RM2,7000 psf, with the best units on the highest floors of the latter probably hitting RM3,000 psf.

The take-up of these products have been described as commendable by property consultants. About 65% of St Regis Residences' 160 serviced apartments with built-ups of 820 to 18,000 sq ft have been sold since this development was launched last May.

The Four Seasons Place KL residences, with built-ups from 1,300 to 12,000 sq ft have received "strong interest", says a company spokesperson. The Four Seasons will also feature a 231-room hotel and an upscale 300,000 sq ft retail mall.

Other players such as Banyan Tree Signatures Pavilion Kuala Lumpur command RM2,000 psf, with all 441 private suites taken up since it was launched in mid-2011. The Banyan Tree has a 50-room hotel, private lounge, reception area, boardroom, pool, gallery, spa, restaurant and bars.

Meanwhile, Berjaya Land Bhd's Ritz Carlton Residences at Jalan Sultan Ismail will comprise one 48-storey tower housing 296 residences. Built-ups range from 1,045 to 4,210 sq ft while facilities include swimming pools, wading pools, a gymnasium and fitness centre, games room, squash court, sun deck garden, guest lounge, function room and business centre.

Scratching below the surface

As with all investment choices, it is important to weigh the risks. In Hotel Yearbook 2012, hotel-branded residences portal HotelHomes founder Dan August Cordeiro points out a number of factors that potential buyers should look into before making the big splurge.

After determining whether the product and management are truly as top-notch as claimed, owners should find out about the terms of sales and if their price premiums are achievable upon resale. Cordeiro says: "Buyers of hotel-branded residences often state, 'If it's good enough for [the brand], it's good enough for me'. But in reality, the brands have few controls over the offering terms of the third-party developers. Thus, buyers who purchase a hotel-branded residence have many of the same risks as unbranded properties.

"These can include brand-damaging instances of operational deficits, bankrupt developers, or construction delays and defects. Agreeing to pay a premium does not always ensure that homebuyers' interests are more protected than those of non-branded properties. To achieve a certain standard, it is important that reputable developers strictly adhere to the brand standards of the hotel operator."

Cordeiro also notes that it is not always possible to take advantage of the hotel brand when it comes to the secondary market.

"The implication of stronger resale values is one of the oft-cited reasons buyers choose branded residences in the first place. Yet the hotel brands often disallow homeowners from using the name of the brand when reselling, and the potential risk of termination or replacement of the hotel brand could undermine the premium value that the brand offers the residences.

"This may be the trickiest obstacle, given the brands' intellectual property and the developers' insistence on termination clauses, but if large premiums that underlie the entire business model erode, it could force some changes in this area."

So it is worth asking the developers how they plan to deal with such a scenario before making that big splurge.

In the case of St Regis homes, One IFC CEO Carmen Chua says buyers are allowed to use the St Regis name when selling their property on the secondary market. On concerns about any possibility of a change in hotel operations, she assures buyers that the hotel operator will continue to manage the residences as long as the hotel is in operation.

"Starwood has not terminated any management of residences nor of hotels. The only instance where Starwood will terminate is if a hotel does not maintain brand standards, which is an unlikely scenario as Starwood itself is managing and operating the St Regis hotel."

On top of that, Carmen says, "For a branded residence, the developer is required to pay 5% to 7% of sales revenue to the brand owner, who will advise on design standards and provide the branded residences with hotel support and services.

"Branded residence owners are assured of a consistently high standard of service and have peace of mind about maintenance, service levels and security, an assurance that is hard to match in a non-branded residential environment."

Going forward, will branded properties offer better value retention in the face of another global financial meltdown?

The jury is still out on this as it is early days yet. Knight Frank Malaysia's Leong says: "Malaysia is still in the very early stages of branding in the residential sector so it's hard to give a definitive answer to this question without the price and transaction data from one, two or even three property cycles. As with the luxury goods market, branded residences will always attract the wealthy so long as the quality of product is maintained."

This story first appeared in The Edge weekly edition of Mar04-10, 2013.

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