Branded residences help hoteliers diversify portfolios
Branded residences help hoteliers diversify portfolios
24 JANUARY 2020 8:46 AM

Branded residences are being seen by upscale and luxury developers as a marketing and revenue engine, as owners find value in the ability to feed more into guests’ aspirational lifestyles.

LONDON—Hotel firms, especially high-end ones, will move into or expand their portfolios of branded residences as guests increasingly look to link their lifestyles with travel, sources said.

Matt Pohlman, partner at Goodwin Law’s real-estate industry group, said “six to eight years ago, 50% or so of new upper-upscale and luxury hotel projects were standalone, but today 80% to 90% of upper-upscale luxury hotel projects feature both a hotel and some form of a residential component.”

He said the move is largely due to hoteliers looking to “effectively monetize a building to elevate overall investment returns through increasing and diversifying the number of revenue generators.”

High net-worth individuals are leading the charge to invest in this segment, with the rise in branded residences expected to correlate with where people want to travel, he said.

“Those projects built in more developed markets are likely to show less of a price premium,” Pohlman said, hinting at the move of the niche into emerging and developing markets.

Bart Stone, group director of residences at Mandarin Oriental Hotel Group, said luxury hotel operators such as his firm are increasingly operating and partnering in the development of standalone branded residences that are not connected to or not developed at the same time as the hotel component.

Developers perceive that management from a luxury five-star hotel would bring in higher premiums in their residential sales, he added.

Rosewood Hotels & Resorts is another luxury hotel firm with a residences component. Currently it has 15 residence properties, with a further 14 in the pipeline.

Fifty percent of its pipeline hotels will have a residences component, and this is set to increase.*

New players
Projects in urban centers are more often conversions and adaptive re-use, Goodwin Law’s Pohlman said.

“Developers frequently finance these projects through a combination of their own equity, traditional, secured-debt financing and/or joint ventures with other equity sources,” he said.

Branded residences also are expanding to new destinations outside of traditional sites such as the U.S. and Dubai.

“We are working with stakeholders across the (Europe, Middle East and Africa) region on these projects, including London, Rome, Athens, Rotterdam, Manchester, Belgrade … and Saudi Arabia,” Pohlman said.

The advantages to developers include offsetting equity risk and realizing price premiums, as well as more visibility on projects, and access to designers and loyalty programs, sources said. For owners, this property type offers premium amenities with hotel-quality services and management and a high return on investment.

Hoteliers with this property type in their portfolios benefit from diversification of their products and revenue streams, additional income from licensing, management and apartment sales, and increased interaction with guests and potential guests.

Marriott International already is a major player in the space, especially via its Ritz-Carlton and W brands, with branded residences that target millennials.

Mandarin Oriental Hotel Group also is growing its branded residences offerings, and non-hotel industry players, including automobile companies Porsche and Aston Martin and fashion house Missoni, are joining in.

Sources said more of these firms are expected to move into the hotel space, as with the December 2018 buy of Belmond by LMVH.

“Residences are a natural extension to our hotels given our credibility in delivering first-class service. With (Mandarin Oriental) Residences, it is about reaching out and having that deeper connection to the guests who value and understand our brand,” Stone said.

He added that as his hotel firm is renowned for its dedication to service and anticipating guests’ needs, “now we also provide this on a daily basis for our residents in our seven operating properties.”

Alexander Lewis, partner of residential development at real estate consultancy Knight Frank, said his firm recently published the “Branded Residences Report 2019,” which backs up the notion that the buying pool for branded residences is expanding demographically.

The report added the outlook for the sector is positive, but “there is a danger that in democratizing the concept of branded residences, developers also risk devaluing it.”

“The market will undoubtedly get more competitive, and there will be a few developers and brands squeezed out as a result, but that is unlikely to stop them trying to capitalize on a market which still offers substantial benefits,” the report states.

*Correction, 31 January 2020: This story has been updated to correct Rosewood's share of residences in its pipeline.

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