It is easy to understand why there is such a boom in Asia for Hotel Residence projects the past few years… Post Lehman Shock, the double dip recession, Europe’s debt crisis and all the other woes of the world’s economies it has been next to impossible for most developers to raise the kind of financing they need to developer the type of stunning resort projects that their development calls for.

So how have the successful ones been able to continue to develop…? Hotel Residences to the rescue! The nice thing about developing Hotel Residences is that the developer gets to share the risk with lots of different Residence Owners and thus have the benefit of being able to develop twice the hotel for a fraction of the price.

For example, let’s say you have a gorgeous piece of property where you could build a stunning 150-key 5 Star resort hotel for approximately US$100 million but how do you raise the $100 million in this economy? It starts like this… You match the perfect ultra-luxury brand to the project and consider adding on a 20% to 50% premium to the value of the project and you convert the 150 keys to ultra-luxury branded Hotel Residences that you Pre-Sell into the market to prefund your cost of construction.

This project now generates US$180 million in Hotel Residence investor raised funds or commitments of which can be used to develop your new ultra-luxury branded Hotel Resort. Depending on the jurisdiction you are in, makes a difference on how those newly raised funds can be used to develop the project. Some jurisdictions like in the US require the developer to obtain a Completion Bond before he can tap into those funds and other jurisdictions like many countries in Asia pass the funds on directly to the developer to be use to develop the project. Initially most Hotel Residence buyers will only pay a portion of the purchase price upon execution of the purchase agreement; the balance will be paid in varying different installment plans.

In either case, the developer can then either use those funds to develop the new resort or can use those commitments to make it easier to convince their lender that the project will be a successful one… thus easing the burden of fund raising for the project.

At the end of the day, the developer winds up owning a “Branded” ultra-luxury US$210 million resort instead of a US$100 resort. The developer owns all of the resort common areas, including F&B, wedding space, etc. and shares only the room rental income with all of the new Hotel Residence owners. This winds up netting the developer about the same as it would have as if he had developed a straight hotel but the risk and cost of funds have been shared with 150 new Hotel Residence owners. The benefit to the Hotel Residence owners is that they now can also participate in the ownership in an ultra-luxury branded Hotel Residence which they can use and enjoy at their leisure and when they aren’t using their Residence they can receive rental income to help offset the cost of ownership creating a win-win for everyone.

Now granted this is the very short version of how this works. But the good news is that it does work quite well when done properly. There is a lot of due diligence that is required to bring the right brand, structure the right title and develop the right product to put these types of projects together but; If this could make the difference between developing an incredible ultra-luxury branded resort project versus holding a fantastic land parcel waiting to be developed, would you be interested?

One of the biggest benefits our firm brings to a developer is the advantage of “Pre-Selling”.   Meaning when we are retained early in the development stage of a project we have the ability to pre-sell the project abroad much earlier than the developer can domestically due to typical domestic regulations.

What that means is we are often able to pre-sell a large portion of the project abroad so that when the project is ready sell domestically we have already created such momentum for the project that it enables the project to sell out in a fraction of the time it usually takes thus netting a much higher ROI to the developer.   In addition, we are often able to judge the pace at which sales will occur domestically by what is taking place abroad.  This allows us to effectively manage the inventory and maximize the sales prices to the developer and increase project value for the buyers.

Pre-Selling is a valuable tool and when done properly can make the difference between a successful project sellout versus costly unsold inventory.

As many of you know, the boom in Asia and in many parts of the world is for developers to add one of the hottest brands to a residential or hotel residence project and off they go to market. It is understandable when you consider the potential 20% to 50% increased margins that the right brand can add to a projects value.

The real question however is to brand or not to brand. There are a few specific factors to consider when branding real estate. First of all, are you in a market where clients are “brand conscious”? If you are in an area where your targeted buyer could care less about buying branded merchandise then the chances of them buying branded real estate is probably even less.

However, if you are in a region where brand is everything like in Japan or Asia or it is likely that many of your buyers will be foreign buyers like in Asia where it is only a few hours from country to country, then it is important to understand the potential mix of buyers that would buy in your project so that you can select the brand that interests the most potential buyers. For example there are several major US brands that have never been heard of in Japan or many that are very popular in Japan that have little impact in China and so on. The key is to pick a brand that is very ‘hot” in the areas where your buyers will be coming from.

Secondly, there is quite a difference between branding the “average condo project” versus branding an ultra-luxury residential or hotel residence project. The average condo buyer is searching for the biggest bang for the buck, (pardon the American expression) meaning they want the largest space for the cheapest price. Adding a brand to that type of project may help in the “salability” but this type of buyer won’t necessarily pay a premium for the brand and will shy away from the project if they feel it is overpriced due to the added brand.

On the other hand, the brand conscious buyer of an ultra-luxury branded residence or ultra-luxury branded hotel residence will appreciate the value, the luxury, and the exclusivity that the brand adds to the project, and is less price conscious than the average condo buyer. By all means this doesn’t eliminate what I call the “middle brands” or the “fun brands” like Diesel, Audi, Fiat, etc. all who have branched into branded Cafes and likely looking at branded residential projects next.

The key is understanding your market and the brand options that are available. This can make the difference between a winning project and one that can’t get past the critical sales mass required to complete the project.

Ultra-luxury Branded Residences & Hotel Residences are the boom in Asia the past couple of years but I am surprised how many projects are failing due to basic mistakes the developers make.

It seems that most of the large developers in Asia are jumping into the ultra-luxury branded residence or hotel residence business thinking that they can market these properties the same way they do their high rise condos or commercial office space. You CAN’T!

First of all the benefit to developers for adding an ultra-luxury brand to their project is of course the 20% to 50% premium the brand adds to the project. The challenge is that the average condo buyer isn’t going to pay that premium because they are looking for the biggest place for the cheapest price and have little interest in owning branded real estate.

The three biggest mistakes developers are making is failing to hire an exclusive sales & marketing firm that specializes in the sales & marketing of ultra-luxury branded residences or hotel residences; secondly, using a shot-gun approach to marketing (meaning using every broker under the sun or an internet blast) that creates no exclusivity and ultimately dilutes the brand image; and lastly failing to properly fund the sales & marketing efforts to achieve a successful project sell out thereby further diminishing the value of the brand and project causing it to stall or fail. After all there is already a huge premium for the brand; investing a minimum of 2% to 4% for the marketing budget is only prudent to achieve the increased margins.

If you want to reach the buyers who buy ultra-luxury branded real estate, you need to reach the same kind of buyers who buy the ultra-luxury brands, i.e. Louis Vuitton, Hermès, Bulgari, Ritz-Carlton, Four Seasons, etc.

It requires an understanding of how to market branded luxury to the elite, creating an exclusive invitation only type offering and keeping the brand integrity of the project sound to maintain value for the project and the for the buyers.

It requires managing the inventory so the initial buyers enjoy greater benefits then the buyers who come in last and the exclusivity of the offering builds a backlog of those that wish they could have bought.

With the development phase really hitting the market at just the right time in Asia, understanding how to pre-sell your ultra-luxury branded residences & hotel residences into these markets can really minimize the risk and increase the ROI to the developers and the ownership to the buyers.

Make sure you are prepared to make your next ultra-luxury branded residence & hotel residence project a successful one.