Money, Money, Money… Where is the Money? (II)

by Alvaro HIDALGO

As a follow up to our entry in late January 2011 http://bit.ly/dHQTrc and as usual in a market downturn, the first thing to notice is that the IMF forecasts mentioned  then have -again- proven wrong.

From a global markets’ perspective, August is proving to be an awful month, most markets losing an average 10%, even more in the banking & finance sector. And under this doom & gloom few are ready to think about new operations or investments.

Again, it’s not that there are not funds available…it is the aversion to risk!

With regards of Real Estate and/or Residential & Tourism developments, most funders/ bankers/ investors have been fighting & suffering to reduce their exposure to real estate over the last two years. And those coming out of such ordeal, will now smile -or blatantly laugh- if you meet them and ask for funds for a new project.

So?

Probably the biggest change that happened in the last 8 months is that investors, once achieved the stabilization of their portfolio after 2 years of asset & debt consolidation, are now becoming aware that liquidity needs to be allocated. Indeed, Banks and professional investors see that operational margins have been healthy and –in many cases- sufficient to compensate for all the bad debt losses....up to now. But to continue obtaining those margins they need to invest & fund or finance new operations.

This need to allocate funds applies to individual investors too. In spite of the destruction of wealth that this market crash represents, there is liquidity desperately looking for alternative investments that minimize risk:

ICI estimates $40Bn withdrawn from funds in the last month

Stock markets are not even being considered, Funds & fund managers are not trusted (see chart) any kind of debt /sovereign debt is frowned upon, general commodities are on average suffering from the foreseen economic downturn, main currencies are becoming more volatile...… only the safe havens are sought after. Therefore Gold is skyrocketing and Swiss Franc is steadily gaining strength.

Moreover, individuals have even further concerns and start doubting Banks and Financial Institutions' solvency and wondering whether their deposits are safe.

Thus, under this market environment one should go back to basics: Fixed assets and Real Estate have traditionally been a safe haven to preserve wealth through uncertain economic times.

This may sound almost like a joke after all we have suffered, but we all know now that the 2007-2010 Real Estate crisis was generated by excess of liquidity and indiscriminate access to debt enhanced by mortgage loan packaging and its effects in housing prices. When the scheme ran out of fuel, the whole system collapsed.

Housing prices back to rational levels

In any case, all that is old stuff.

Nowadays, a severe correction (30% - 50%) in Real Estate prices has already been incorporated & absorbed by the market in most countries & regions.

Whether there is room for a further correction or not is arguable, but it is likely that  we are now close to the levels where housing prices should rationally be.

Therefore, it is now time for added value projects, clearly differentiating themselves by targeting specific market niches.

And to assure lenders & investors that sales and revenue will be there and they will get repaid, and simultaneously assure buyers that they will maintain value,
one must go –once more- back to basics and trust in three major truths:

•   Location, Location, Location
•   The power of the brand
•   Productivity and return

…which get us back to Branded Residences.

Indeed, they do attract customers with powerful brands and they run with operational agreements/ condo-hotels that provide a source of revenue. Additionally, the nature of the business requires them to be in the right location.

From a funder point of view, Branded Residences provide a higher level of liquidity (being secured by the brand and the market niche) when compared to standard assets. But, most importantly, they grant additional levels of security by (i) allowing pre-sales and (ii) bringing a built-in source of revenue….even if sales were sluggish in the initial stages, the operation will provide the revenue required to cover payment of at least the interests from day one.   Hence, for Buyers and Investors, the Branded Residences concept provides overall solidity to the project. And, in the same way that the brand serves the final client and the operator, it does also attract the banker/funder as it buffers many of the risk factors.

Does this mean we can find money now?  It is not a risky bet to say that after this month of August -and what still may come-, bankers will put on hold any new operation for a while.

Solidity & Credentials

Nevertheless, we need to go to see our bankers now, being sure not to ask them for money but on the contrary to acknowledge their current predicament, keep them updated of the status of our project, and focus in its solidity and in the duration of the production cycle.

Indeed, projects starting now could be ready to be completed by 2013 -a moment in which the market should be in full recovery.

What’s the objective? The purpose is to be sure that your banker will have your project in mind when his P&L shows him that they may have done too good a job in the management of risk, but that there is no revenue. At that moment, your project must immediately hit his mind for it is solid, profitable, has all the credentials and is ready to go.

And a top brand project, per definition, has the solidity and the credentials.

So, how to attract the money? In the end, if one can bring power, beauty and soul to a branded destination, money will come too.

For more information please contact FIRSTLOGIC Consulting
http://www.first-logic.com

Do brands really add value to real estate developments and travel destinations? ( and III)

by Alvaro HIDALGO

Following our last blog http://bit.ly/n8XRj2 we stirred up quite interesting conversation threads in different LinkedIn forums, and we believe it may be worthy to close the series gathering some of the points raised.  (Quotes are numbered and authors are referred below)

The most expected question “Isn’t it there something to be said about overextending a brand's horizontal expansion? While ultra luxury brands understand quality and value, I hesitate to agree it translates to the hospitality sector” (1) was very clearly answered within the discussions: “if the ‘brand promises’ of the development and the luxury brand complement each other it works….. In the luxury sphere clients are used to getting the best and thus having a famous luxury brand involved in a project is a natural extension of the developments' positioning in the market” (2).

A brand can be regarded  as “a comprehensive set of values that enable the asset to articulate its benefits concisely to its target market”(3) but, instead of being understood as a  whole ,  this very precise definition gets frequently  distorted and is applied only to the short term capacity to attract its target market and make the sale.

Indeed, this short term approach is followed by “many property firms for which branding is little more than project marketing using individual, short-lived marketing and PR measures. But because property branding must be seen in the long term,” “targeted brand positioning, differentiation, authentication, and cultivation should create a lasting genius for your project”(4).

Thus, branding must not be applied to “just a surface-level activity, but the architecture and master-planning should be an integrated part of the brand and the delivery of the community & the facilities management to ensure that the brand promise is delivered on a day-to-day basis to end users.” (5)

It is clear that real estate product identification should always be understood in the long term.

A good example of the importance of the name can be seen in the gated communities & condominiums. Their name becomes an established brand in time and this is only achieved by proving to be capable of maintaining certain standards during a number of years. “Brands may 'tag' products but ultimately it is the individual experience with an induced value that creates that brand” (6).

Branded developments fill this short term - long term gap. By showcasing the brand from the very early stages of development, established brands commit not only to bring in their set of values, but also to maintain them for the long term.

Indeed, top brands' reputation is based in their capacity to produce top-of- the-range products and services and to make them evolve to adapt to -and in many cases to shape- new trends and ways of life.

Bringing these levels of design, quality and service to a final product is something that many try to achieve and very few succeed in the long term –some have been succeeding for almost a century…..    Here lies the brands’ strength and power.

Finally, applying brand standards to the very immaterial sales process does also make the difference.

“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” “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 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” (7).

So, bringing in luxury brands avoids the pitfalls in this final leg and their expertise adds value by setting standards and requiring that the process is handled by professionals.  They do know how to successfully manage the distribution and the retail chain to enhance both the product and the brand itself…. few sectors can surpass established luxury brands in the mastering of this process.

Hence, by incorporating their expertise to the branded destination concept, brands do play in their home court. They are just extending their capacity to provide lifestyle to other niches and by this they create value and maintain it in the long term.  And the implications of this provide a major benefit to all parties involved: brand, developer, funders, lenders &  investors, sales force and clients/owners.

Branding complements and fulfils all parties’ aims and needs…... they come at a price but they generate the returns.

Of course, under the brand umbrella there are many different standards.....And none can compare with the reputed “Coolest brand”: http://bit.ly/mdMAmz

For more information please contact FIRSTLOGIC Consulting
http://www.first-logic.com

Quoted Contributors:

(1)    Kyle Thieme, Social Media Coord at Madplum Creative 

         http://madplumcreative.com/

(2)    Jp Fourie, CEO  Admakers

         http://www.admakers.com
(3)    Jason Barret,Commercial Property Manager with a twist
         Jason Barret's LinkedIn profile
(4)    Lee Valentine, Brand Strategist at Team scope design
         http://www.teamscope.com.au
(5)    Lisa Knight, Founder & Creative Director at The Brand Foundation
         http://www.thebrandfoundation.net
(6)    Jessica Osborne, Project Consultant
        Jessica Osborne LinkedIn profile
(7)    Robert Rann, President & CEO Refined Resort Residences
         http://www.refinedresortresidences.com/
         http://blog.refinedresortresidences.com/

Many thanks to all LinkedIn discussion contributors for all your valuable entries, quoted or not.

Interior garden picture courtesy of  John Glover, leading specialist garden photographer http://www.johnglover.co.uk

Do brands really add value to real estate developments? (II)

by Alvaro HIDALGO

After our first blog entry on this last February (http://bit.ly/qQujFJ), the topic has become hotter and hotter.

More brands are entering into this, some of them with mixed results. The more negative of which is  – as in most cases – not due to the concept itself, but to its faulty application. 

Is it the right brand in the right market?

Introducing a successful brand in a country/region in which it is not known is risky business in itself.

And it is so, even if the objectives are limited to the core brand products, not to mention trying to export a brand and simultaneously enter a non-core sector. 

The second common mistake is branding just an average real estate project in which the brand brings only a stamp. Why should someone pay something for nothing?

  

So, when do brands add value?

Quite simply, when the resulting product becomes a better one by incorporating the qualities and know-how that the brand represents.it is just getting back to basics, and  High-end and Ultra Luxury brands are proving their ability to do this in earnest.

Back to basics

By successfully translating their respective expertise into the real estate and hospitality sectors, quality brands bring to the table what is expected from them, i.e., creating and maintaining value (the latter is proving to be a capital point under this market). 

An excellent cross-comparison on this was published by Sally Howard in Forbes http://onforb.es/lMJGey.

But then, there is the other side of it.  Real Estate is probably the most important statement and expression of lifestyle.

Brands bring similar people together

It is true that in some cities the location of the property provides by itself this flare, but in many other places the results of the location-identification equation are not clear. 

Thus, the incorporation of a well established brand that impersonates the essence of lifestyle to a property investment is the natural step to follow.

Moreover, people identify themselves with a certain image, and since most of us want to live in places surrounded by people with similar interests and values, branded property ensures, in a way, that the owners/users will be in contact and in the vicinity of like-minded people. Brands, In the end, bring similar people together.

This natural market segmentation reduces the buyer’s decision time; besides, there are not so many properties available under a specific brand. Thus, reduced decision time translates into quicker sales and easier cash-flow management, which benefits the developer.

Brands are powerful tools and, as any other tool, when handled with care provide the desired results. 

By creating a valuable product that will keep its value in time, branding properties provides benefits for all parties involved.

Of course, under the brand umbrella there are many different standards.....And none can compare with the reputed “Coolest brand”: http://bit.ly/mdMAmz

For more information please contact  FIRSTLOGIC Consulting www.first-logic.com

 Pictures courtesy of wozcup2011.com ; events.piaget.com ; thedailytruffle.com

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Apple innovates the architectural industry...

Example of Apple architecture, Apple Store, NY

Last week Steve Jobs, CEO of Apple, proposed the landing of a spaceship in Cupertino, USA. Cupertino is, and has always been, the home of Apple Mac’s offices. And so, now that Apple appears to be approaching world domination in terms of the latest (indeed the coolest) I.T. and mobile technology, it seems only apt that its HQ should mirror this brand prowess.

The said “spaceship” is actually one office building that will hold 12,000 employees. No expense has been spared with the curved construction. The existing 150 acres (previously owned by HP) currently features a standard office building, a huge amount of parking and 20% landscaping. This will be transformed into an architectural landmark with 80% of the land dedicated to around 4500 indigenous trees (inc. apricot orchards). Jobs says that they’d like “a shot at building the best office building in the world.” But why would a computer company assume a position of expertise when it comes to architecture?

This architectural egotism does seem to be a phenomenon that is affecting many of our top brand names. But is it justified? Any über successful brand does require an understanding of design versus practicality and ergonomics if they are to succeed – even more so in such economically challenging times. (There is no point in creating a computer that does a million fancy things, for example, if it looks plain ugly or just huge when sat on your desk). And form v function is an ethos well known to any architect.

So, perhaps, when a brand is top of their trade, it is quite a natural progression, after all…

Apple’s iPhone is number 2 on the “UK’s Coolest Brands” list and the iPod is number 3. Therefore, it should be of no surprise that the Number 1 Coolest Brand in the UK is also extending their inherent ability for producing the exquisite for the property industry. 

Aston Martin is the UK’s largest manufacturer of luxury sports cars. Their automobile designs, inspired by a combination of power, beauty and soul, are revered worldwide. The recent announcement of exclusive international destinations states a desire to create resorts with an emphasis on sporting facilities that is not currently available in the property/tourism market. Each resort will maintain the core elements of the Aston Martin brand whilst captivating the influences of the specific locations – a design concept that is similarly seen in the Apple stores that are each unique but consistently use a combination of light, glass and metal to achieve a trademark ambience. 

As Architect, Philip Johnson, states “All architecture is shelter, all great architecture is the design of space that contains, cuddles, exalts, or stimulates the persons in that space.”

Aston Martin developments concept image

In conclusion, whilst construction must, of course, be technically sound, it may also be magical – and in that, the brand genius of our generation may well be able to assist.

For more information on the Aston Martin Branded Developments please contact  FIRSTLOGIC Consulting www.first-logic.com

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A new era for the World's coolest brand

– Aston Martin Branded Developments

Alvaro Hidalgo of First Logic discusses the company’s role in taking one of the World’s coolest brands into the exciting world of property development.

How will First Logic manage the development process for Aston Martin?

First Logic's role with regards to Aston Martin branded developments is to identify projects suitable for the prestigious brand and initiate all of the driving factors (concept, architecture, funding & financing, marketing & sales and subsequent management of the operations) that are required to make the project become a reality.

Where in the world will the Aston Martin developments be located and what are the deciding factors?

We are evaluating and actively seeking proposals of development projects which unite the high calibre characteristics represented by the Aston Martin brand. This includes the location, project configuration and a unique appeal.

Aston Martin will grant licenses to only a limited number of developments, worldwide.

What environmental factors are you seeking for the location of these resorts?

Beautiful environments are being sought (mountain, forest, snow, lake, etc) that can also provide first-class sport and leisure activities such as ski, polo, golf or marina. Each development will be considered on an individual basis with a construction and sales approach that is both effective and in harmony with the Aston Martin brand.

For more information on 

Aston Martin Branded Developments

please visit:
FIRSTLOGIC Consulting

www.first-logic.com

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Aston Martin extends brand prowess to international property developments

Renowned manufacturer of luxury British sports cars, Aston Martin, has extended its brand license agreement to include international property developments. Enthusiasts are attracted to the distinctive Aston Martin style that has become iconic to the world of automotive design – the key elements of which will now be applied to the new property concepts.

Power, beauty and soul are the 3 core elements that lie at the heart of the Aston Martin brand, and these same elements will be significant in placing Aston Martin branded developments at the height of the luxury property industry. “Aston Martin has an inherent beauty that stems from a basic requirement to be streamlined and aerodynamic. It is this design expertise, and an understanding of aesthetics combined with functionality, that will differentiate Aston Martin developments”, says Alvaro Hidalgo of First Logic.

Each Aston Martin property development will be unique, tailored to suit a selection of first class leisure destinations such as Marina, Beach, Ski, Golf and Polo resorts. Key principles will remain present throughout all developments, as will a striking selection of build materials. The classical strength and elegance of the Aston Martin brand will dictate the property framework, which will be united with contemporary innovations to complete truly unique developments. The worldwide portfolio of Aston Martin’s luxury properties will include villas, apartments, residences, hotels, sports clubs and accompanying exclusive leisure facilities.

Those investing in an Aston Martin property development will be proud to be part of a new brand concept that assures absolute quality, care and craftsmanship. And the long term rewards of investments in a top luxury brand include the benefit of faster sales, reduced risk and additional security. 

For more information on Aston Martin branded property developments, 

please contact FIRSTLOGIC Consulting

http://www.first-logic.com

About First Logic:

First Logic is an international property development consultancy that integrates focus and expertise to create one seamlessly driven project. http://www.first-logic.com

*Aston Martin and the Aston Martin logo are trademarks owned and licensed by Aston Martin Lagonda Limited. All rights reserved. Other product and company names mentioned herein may be trademarks or registered trademarks of their respective owners

Do the emerging markets have a future?

Recent worldwide economics have, of course, affected the real estate development industry. But, the problem of lacking liquidity and wary funding entities has been further compounded by the instability of the final consumer who, due to their own personal circumstances, have been incapable of providing sufficient funds to the developer at time of completion.

And it is the property developers focused on the emerging markets who have suffered the most. Whilst the end consumer in an established market may be purchasing for personal use as a family home, the likelihood in an emerging market is that the property is intended for buy-to-let or second home purposes and therefore, is immediately considered “not a priority”.
 

Construction India – PWC

Yet, recent stats hint at a speedy recovery for the developer in emerging markets – perhaps even more so than those taking the “safer” option in the established market. The UNWTO states  “While all regions posted growth in international tourist arrivals, emerging economies remain the main drivers of this recovery. This multi-speed recovery—slower in advanced economies (up 5%) and faster in emerging ones (up 8%)—is a reflection of the broader global economic situation.” It is also thought that the growing requirements for commodities will act as a catalyst for the product-rich regions such as China and India.

Tourism, Spain

Whilst the emerging markets throughout North and Sub-Saharan Africa were relatively unaffected by the world’s economic crisis (with 2010 figures exceeding pre-crisis), the immediate future of the MENA region is now obviously in question.. “Short-haul destinations with a history of tourism demand show the most promise for the 2011-2012 period; Spain or Croatia for Europeans, the Caribbean and Mexican destinations  (Baja or Mexican Riviera) for US and Canada, South Brazil (Santa Catarina) and Uruguay for South Americans” says Alvaro Hidalgo of First Logic Consulting.

Hidalgo continues to state “a real estate investor interested in the emerging markets should seek a destination with the capacity to attract the originating markets. As in any other sector, the key factor in real estate development  is to identify a niche and develop a product that is fitted to that niche.”

Contact  FIRSTLOGIC Consulting for more detailed advice on real estate development in the emerging markets www.first-logic.com




Do brands really add property value? (I)

Brands are not created overnight. It is with forethought, planning and customer loyalty that a brand becomes popular. Obviously, all of this groundwork leads to a consumer bond that is not easy to attain and difficult to compete with. And that bond can be transferred to related products as the brand cannot risk its reputation by producing or endorsing any product that is sub-standard. 

In challenging times every industry faces a mounting pressure for fresh ideas, and one of the solutions to the 2008 crisis brought up by the property market was “property branding”.
As in any other field, the execution of the idea or guideline is as important of the idea itself. And it seems as if some believed that by simply bellowing “branded property” via any medium that would have them, would easily salvage a sorely damaged bank account. Of course, the truth is that it would be difficult to resurrect a failing resort that was constructed with peak costs and copy-cat planning by just adding a brand name above the door.
It should be remembered that it is not the logo of the brand that adds the value, but the strategy that the brand will bring (with equal emphasis on an accurate selection).

The undeniable fact is that branded hotels are more profitable in all economic conditions – most especially during the downturn as customers are more risk adverse and therefore need to be reassured by the familiarity of a known name. A recent example of a brand that has pushed its boundaries is the fashion-house Missoni. The initial Hotel Missoni in Edinburgh proved to be so superbly popular that the bold, dynamic designs have now also been applied in Kuwait with establishments also planned for Oman and Brazil. 

 

This is a clear example of how branding works. It is the brand that links the facts with the emotion. Knowing that a second-home development in an emerging district will have on-site facilities such as a swimming pool and a sauna is one thing. Knowing that it will be inspired, designed and run by a luxury name such as Versace is quite another. http://www.palazzoversace.com/

Branded properties provide added security as the management companies place importance on consistent management and worldwide marketing. This in turn results in higher returns over a longer period of time.

And, of course, we are all human. It would take a quite a stern investor who did not crack a small smile at the mention of his exclusive retreat on the delectable shores of some-such coast… oh, yes, and it just happens to be managed by the World’s Number One Coolest brand…

FIRSTLOGIC Consulting can identify and implement the management agreement of top brands to transform your property development. For more information www.first-logic.com

The role of the project manager

Until the late 80’s, the position of Project Manager did not exist in the construction industry as a distinct occupation.  Their tasks as we know them today were carried out by the Lead Consultant, normally the appointed Architect, as an inherent part of the design and construction process.  As Lead Consultant, the architect’s role during the construction phrase was far more managerial and consequently their knowledge of the Design Team was better informed.  By introducing a new member of the team, the Project Manager, it was possible to focus on the role of project control and make non-bias decisions whilst allowing the architect to concentrate ongoing design and detailing works.  

However as a direct result, statistics indicate that during the 1990’s, there was an increase in both construction delays and cost overruns which can be attributed to the introduction of this alien development style.  The project manager was seen as a glorified accountant or elevated clerk of works, and design team meetings went from the normal slight disarray into complete farce, when members felt the pressure of a new hierarchy and it necessary to showcase their abilities and would expect regular accolades for their achievement of what were typically contracted goals. 

In today’s marketplace, development projects are becoming more and more complex and the role of project management is widely appreciated.  However the role has commonly changed its title to ‘construction management’,  not only to differentiate between other industries who use similar names such as the software industry, but also because in general the project manager (as first referred)  is employed to oversee solely the construction process. Reaching far beyond the realms of construction management, the need for investment, legal and financial considerations, partnering, project branding, market research, feasibility designs, sales campaigns and PR has grown as the industry has grown, as does the competition and conversely the profit margin which has lead to the emergence of another new role:  The development consultant. 

In a difficult and ever changing marketplace, the need for pre-planning is paramount to a project’s success, proven by the frequency of developments failing by not following clear ‘development/business strategies’. An initial outlay to conduct the required feasibility studies and an associated business plan can reap rewards during the construction process as the project will be designed to suit the market enabling it to sell out off-plan,  provide self- investment and be completed on time and on budget.  Each day a construction project is halted on site, the project cost rises exponentially which is simply avoidable by pre-planning.
As my father always says, in order for the prudent man to ‘sit back to reap the rewards of a successful project,  he must ‘measure twice and cut once’ 

Let us measure for you, so that you can sit back and reap the rewards:  www.first-logic.com

Would you risk your money today?

Current owners/investors of distressed projects are desperately looking for an exit, some of them incapable to complete their projects, others seeing how their completed developments lie unoccupied and wondering how to fulfill financial obligations. From their side, banks, lenders and investors are desperate to prove to boards, shareholders and more importantly, supervision and rating agencies that they do not hold bad debt… and they dread the moment in which they will have to cover them with provisions putting additional stress in balance sheet and banking ratios.

It is no news that cash is king nowadays, and everyone with cash (BTW, anyone with cash?)  will do better by keeping it safe. But until when? Aggressive investors are obsessively looking for the forerunners of economic take-off; prudent investors will not risk a penny until the recovery is really up and running and will nonchalantly let the first wave pass and will only enter after.

But, what about remodeling/ regenerating projects?
Restructuring projects can be done with very little investment in remodeling. Basic configurations can be destined for alternative uses capable to generate revenue… And if revenue is predictable, banks and investors will make an effort to extend/modify the conditions. And most importantly, the project can again be reconfigured to its original destination once the economy has recovered

Regenerating projects is a win-win situation. Not much additional cash is needed and all involved will benefit.

First Logic can assist you in regenerating near to completion or recently completed developments: www.first-logic.com