It just does not seem to stop, the brands, developers, products and characters piling into the branded residential space and its perceived promise of an easy 20% to 40% sales premium.
Indeed the very definition of “branded residence” keeps morphing — more like getting watered down in meaning. What once was the play of the luxury hotel brands steeped with experience in lifestyle living has (d)evolved to fashion, jewelry, automotive, golf brands and more.
This past week while taxiing down the main Dubai highway, I saw three English Premier League football club branded residence offerings! Really?
What do these brands know about or have experience with refined sophisticated residential living? Other than some association with the brand cache, what is the long-term “promise” for residential service and lifestyle delivery once you move in?
Case in point: I recently was involved in projects considering automotive and sports brands. When I asked what they had after the residential marketing and sales license for selling the residences — e.g., brand standards, management SOPs, etc., all those things a residence buyer may reasonably assume will be delivered at the move in stage — they were a bit surprised. Their response was “Oh, we will hire a third party hotel operator to develop these for us.” So much for well-curated brand DNA!
And the dilution of the branded residence segment definition goes further. Many developers are just coming up with a trendy name as you would often do for any unbranded development project and then labelling and marketing these as “branded residences” projects.
All of this is indeed a long way from where it all began with established hospitality brands. Or, as one experienced player in the market has commented, there are a lot of “fake designer handbags” on the market now.
To paraphrase the UK Dogs Trust slogan “A pet is for life, not just for Christmas.” Aligning the participants — developer, brand and residence buyer — from the sale and then retaining that alignment over the project lifespan requires significant foresight, upfront planning and ongoing commitment, which I am not sure is well-appreciated by many of the new brand and developer players today.
Whilst I am no fan of the major hotel brands in my many hotel and franchise negotiations, there are a handful of hotel brands with the experience and understanding of the essential upfront planning elements required and who can valuably contribute input to devising a successful branded residential project. Consider it “project structuring” technical services.
These experienced brands will insist on a project due diligence study setting out the local jointly owned property or strata legislation, if any, which varies greatly amongst jurisdictions and will determine the structure of the legal documentation required. For example, in the United Arab Emirates, a branded residence project in Dubai, Abu Dhabi or Ras al Khaimah will each require different structures and documentation to make the operational governance work. Not understanding this upfront wastes time and money for all.
They will insist on a market study of who are the potential buyers, their demographic, their motivations for purchase — as a full time residence or investment product as a holiday home with rental pool revenue option the remainder — which will make a big difference in the residence’s operational structuring and whether to have a rental pool, in tailoring the right level of amenities such as pools, gyms etc.
On standalone residential projects, a knowledgeable brand might suggest scaling down the developer’s enthusiasm for certain amenities — such as an in-house spa, cryo chamber, etc. — that sound good in the sales brochure, but become service-charge albatrosses post-opening where they cannot be open to outside guests.
They will want to review the project’s governance regulations to ensure that residence buyers are bound to the commitment to a branded residential product and in their use of their unit, its resale and limiting short-term rentals to long-term or established channels rather than a free for all Airbnb, etc. and will set other rules designed to retain the community element of the project.
An experienced brand will also want to review the sales purchase SPA and make there is a clear buyer's acknowledgement of what the residence buyer is and is not getting. This includes that the brand is not a project investor and may be removed from the project and that no guaranteed returns or other sales inducements are offered that might characterize the sales as investment products under any relevant securities legislation.
In the absence of statutory requirements, the brand will insist on there being some form of segregated escrow accounts for residence buyer deposits to ensure that their funds are properly applied to the project and not used to leverage or fund previous unrelated projects.
And they will want the developer to “stay in” the project by retaining some retail or other element, so that when construction defects or other issues there is someone to call on other than the brand who was not a project investor. This comes as a surprise to many developers and their business models of building, selling and moving on, but where there is a brand attached, an extended developer commitment is required.
To an inexperienced developer, it may seem that the experienced brand is not on their side, but the residence buyer’s side with all of these requirements as a condition for branding. To some degree that is indeed the case, but not out of altruism. For these brands know that when a branded-residence project goes wrong, the word on the street and what the disgruntled residence buyer tells his friends is “I got shafted on a Brand x residence” and not on a “Dodgy Developer’s” residence.
It is in the enlightened brand’s and developer’s interest to structure and design a market a project that is for the life of the project and not just the sale premium. That arguably is true of the enlightened developer who if they bring to market a quality project can achieve the reputation kudos that will help them move on to the next with a potentially enhanced branding sales premium.
Scott Antel is a hospitality lawyer with more than 25 years of experience specializing advising owners, developers and international operators in the Middle East, Russia/CIS, Africa, Turkey, Eastern Europe and the Caribbean on hotels, resorts, branded residential and mixed-use developments. He was formerly a senior partner in DLA Piper and Bryan Cave Leighton Paisner. He established his own boutique hospitality practice, Scott’s FZ, in 2020.
This column is part of ISHC Global Insights, a partnership between CoStar News and the International Society of Hospitality Consultants.
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