Taking Up Residence

21st January 2009 (Last Updated January 21st, 2009 18:30)

Growing numbers of big-name hotel brands are opening managed residences alongside their traditional offering, but what does this mean for the future of the sector? Andrea Ashfield reports.

Taking Up Residence

The hotel industry is constantly evolving and, in recent years, one of its most notable trends has been the rise of the managed residence. Typically found in beach, ski or smart city locations, these upmarket dwellings are usually managed by well-known hotel brands and sold through full or fractional ownership schemes, giving purchasers the opportunity to combine the privacy and comfort of their own home with the high standards of service expected from a luxury hotel.

Managed residences are already well-established in the US and Middle East, and, with a growing number of projects planned or already open in Europe, their success looks set to continue – but what effect is this likely to have on the sector?

The high-end chain Fairmont offers three choices of residential product. The first, Fairmont Heritage Place, is a luxury private club sold in fractions, while the second, Fairmont Residences, are wholly owned.

The third option, Fairmont Estates, tends to be situated on larger plots, often close to a golf course or beach, and owners are able to build their own home.

Barry Landsberg, director of residential marketing at the group, thinks that the developments provide an attractive prospect for all concerned. “For a developer, they offer an opportunity to underwrite some of the development and operating costs,” he explains.

“Branded residences are well suited to cosmopolitan city or idyllic beachside locations.”

“For consumers, there are several reasons that ownership of a residential property within a hotel environment is attractive. Firstly, they receive a bundle of services and amenities that would be cost-prohibitive to deliver in a regular residential environment. These services are frequently shared throughout the hotel, making them affordable and accessible.”

For Fairmont customers, this includes a full-time concierge team, housekeeping, pre-arrival grocery shopping and childcare.

Patrick Smith, vice-president of asset management at IFA Hotels & Resorts, agrees that the financial gain is beneficial to any new development. “It’s now rare to see a standalone hotel being built,” he says.

“They are expensive assets, there is no income until the doors are open and they take three years to become stable.” IFA Hotels & Resorts has been instrumental in developing some of the most exclusive residences in the Middle East and works with several well-known brands, including Fairmont, with which it has collaborated on the forthcoming Kingdom of Sheba resort in Dubai.

The luxury development will include 300 villas, townhouses, penthouses and apartments, with prices ranging from £1.1m to £6m. IFA also has interests in Europe, and in the 1980s it was a key part of the acquisition and development of the Pine Cliffs Resort in the Algarve, Portugal.

Making a statement

Any residence worth its price tag will be designed and laid out to the highest of standards. According to Raj Chandnani, director of strategic planning and consulting at WATG, residence owners are looking for an exclusive experience.

“They want an authentic, residential feel to their stay, with larger units and bathrooms,” he explains. “In these places we’re seeking more of a convergence between indoor and outdoor spaces.”

Chandnani also considers that the line between residential and hotel design is less distinct than in the past. “The design is converging because people want a residential feel in their hotel environment,” he continues.

“The ironic thing is that the hospitality industry is giving cues to the residential market. Hospitality design is no longer just about stain-resistant carpets and furniture. We have elevated its level with unique design environments.”

Ultimate convenience

Horst Schulze, founder of luxury group Capella Hotels & Resorts, is also of the opinion that managed residences are crucial for the development of the industry. “Freestanding hotels cannot be financed under the present economic conditions,” he explains.

He goes on to say that residences offer a sense of reliability.

“If I buy a place in Mexico, I know there is a reliable infrastructure in place to take care of it when I’m not there,” he adds. “It’s about convenience and the purchase of reliable service delivery.”

“It’s about convenience and the purchase of reliable service delivery.”

Capella has ten projects in the pipeline, including developments in Ireland, the US, Mexico and Singapore. Of these, nine will include residential units.

Some hotel groups find that expansion into residential ownership is a useful way to strengthen brand identity. Ritz-Carlton has found that customers purchasing a residence feel assured they will experience the level of satisfaction that they would expect from one of its hotels.

“Our residential projects combine high product quality levels with our legendary service,” says Ken Rehmann, executive vice-president of operations. “Ritz-Carlton is a leading brand in the luxury lifestyle category that has successfully evolved its business to include branded and managed residential communities. This gives residential buyers the confidence that product and service levels will be comparable to their experiences within our hotels around the world.”

Ritz-Carlton is set to open 20 residential developments in the next three years, in locations including Chicago, Mexico City and Toronto. Most will be located within a hotel.

For Rehmann, the success of this initiative in the US can be linked to a demographic shift back into big cities. “Significant wealth has been created in the past few years, which has resulted in strong demand for luxury goods and services,” he continues.

“Affluent consumers want to bring the high levels of service that they receive during their luxury hotel stays into their personal lives.”

Building brands

Marvin Rust, a hospitality expert at Deloitte, agrees that hotels can use the development of residences as an opportunity to build and strengthen their identity. “It’s another type of hotel accommodation that people associate with a brand, and consumers will expect a level of service similar to that of the associated hotel,” he says.

Branded residences are well suited to cosmopolitan city or idyllic beachside locations, and projects of this nature work better in some places than others. “The US market is open to branded residences, as are the fast-growing economies of the Middle East,” says Mark Wynne-Smith of Jones Lang LaSalle.

“This is a trend that will grow within the emerging economies of central Europe, Russia and Turkey. However the UK is further behind.”

In Britain, Wynne-Smith predicts success in key locations such as central London and Edinburgh.

“Residences are definitely not suited to all locations,” adds Rust. “Bigger cities in Europe, such as London and Paris, will do well, as will capital and financial cities around the world. This is a growing trend, not an overnight sensation. European travellers need to be educated about this type of product, and it will evolve and develop over time.”

A number of big-name brands have already moved into the European market, and Marriott now manages a 49-strong development in London’s Mayfair. Opening in 2009, Mandarin Oriental’s One Hyde Park will also provide 80 luxurious dwellings in central London, while Kempinski has recently opened an exclusive complex of residences in central Istanbul and its Prague property opens this autumn.

Whether the marketplace will grow in Europe at a rate comparable to that of the Middle East remains to be seen, but it looks increasingly likely that high-end residences are here to stay.

The artistry of living

Set within the cultural heart of New York, the stunning residences at 40 Bond Street are the result of a fruitful partnership between legendary hotelier and real estate developer Ian Schrager, and the celebrated Swiss architects Herzog and de Meuron. According to Schrager, the aim behind the project was to blur the distinction between residential and hotel dwelling.

The development of 23 apartments and five townhouses is set in a redesigned cast-iron building in New York’s Noho district. Many of 40 Bond’s apartments have a terrace, and all feature large floor-to-ceiling windows and smoked oak floors. Each of the townhouses has a private garden and entrance.

Owners can take advantage of room service, concierge and housekeeping amenities, not to mention grocery shopping, dry cleaning, babysitting, pet care and party planning.

Like most high-end residences, the development is likely to be populated by the very wealthy, with the Corcoran real estate group marketing one of the building’s three-bedroom, four-bathroom apartments for more than $10m.