The benefit of branded residential is not only the price premium that can come with a brands, but the rhythm of sales, according to a panel of sector experts speaking at the Resort & Residential (R&R) Hospitality Forum in Lisbon today (10 October).
“Most developers see adding a brand as a way to probably reduce their overall marketing budget on a residence project,” explained Jonathan Wingo, global head of residential programs at Hilton. “Without a brand they’d probably have to spend a bit more on marketing to get the same impact and notoriety for the project, especially in the luxury space.”
Alda Filipe, real estate and marketing director of Kronos Homes, agreed that a non-branded product required more marketing investment: “[Brands] really bring this boost of attention into the destination... You could go out tomorrow and you would immediately be able to get some rhythm of sales,” she said.
Hilton is set to open its first Waldorf Astoria standalone residences in Pompano Beach, Florida, and has also signed several residence concepts in Saudi Arabia; while Davidson Kempner, Highgate and Kronos acquired Portuguese investment manager ECS Capital earlier this year, which included 65 hospitality, residential and commercial properties.
Although the brand premium opportunity may sound simple, Philip Bacon, senior director at Horwath HTL Spain, suggested that it was a complicated market that is becoming even more so as it becomes more competitive, with non-hospitality brands entering the space from Bulgari to Porsche and Armani to Missoni.
Vicente Ricciardi Leitão, associate director at Domus RS, said that while real estate committees do comprehend the value a brand can add, it would be even better if brands could show this value in a way such committees can understand.
Meanwhile, Wingo argued that while both traditional hospitality and non-traditional hospitality branded residences have their place in the market, while the latter may provide gorgeous spaces and fantastic locations, they don’t always provide the hospitality services.
“We can bring 100-plus years of hospitality experience into your private home and that is a value that is more than just the look and feel of a building,” he said.
With the brand of course comes a price – typically a percentage of the unit sale price, usually ranging from 3%-6%, and a recurring management fee. Adding a brand to a residence is also likely to add to the build cost to bring the property to brand standards. The requirements for not only the units but also the amenities and public spaces will depend on the brand.
“It’s a nominal increase on their build cost in the big picture of things and then this 20-to-30-plus percent premium on their sale price,” said Wingo. “The economics make a lot of sense and that’s why we see this continue to grow.”
Nicholas Mellis, vice president of acquisitions at hospitality investment and management company Highgate Hotels, said the company tries to come to an agreement as early as possible with the brand team and developers of what is required, “then we run a PIP process very early to make sure we know what we’re going to have to do from an OS&E and FF&E perspective”.
Filipe also stressed the importance of bringing the client into the conversations as early as possible: “Yes, we have the standards of the brand, we’re clear we need this for the destination, but is this what the market is telling us they want? How flexible can we be to say, ‘we have developed this for you?’” she said.
Jaidev Menezes, regional vice president, mixed-use development for Marriott International for Europe, Middle East, and Africa (EMEA), agreed that it was critical to start with the buyer, for example a market feasibility study exploring the price points. Who is the residence being designed for and what will the end use be – a residence to live in year-round, or a second or even third home? Marriott announced the name of its new midscale extended-stay brand StudioRes earlier this year.
Filipe said clients want to spend longer periods in their properties – which the brands are adjusting to accommodate – as evidenced by Kronos’ Algarve property, where nearly 40% of the clients are American, despite the distance.
“It’s no longer that holiday home that you just come [to] for the weekend,” she said. “You can go there and have a certain lifestyle and work from the country... things have changed so we really need to be open to that and adjust.”