Phuket's real estate mogul, Bill Barnett 4th May 2006 Back   Philippe Starck, Allan Zeman, Gulu Lalvani – the rich, the famous and the canny have been lining up to invest in property in Thailand’s holiday island of Phuket for years. Trillions of Thai Baht and millions of US dollars are being poured into the rapidly vanishing tracts of empty land in this hospitable, beautiful place, where the living is cheap and the lifestyle is easy. Bill Barnett is one of the canny ones, who got in before prices soared, and whose company C9 Hotelworks is an asset management and hospitality consultant to the local and international hopefuls who knock on his door with fistfuls of money and an eye for a profitable purchase. “I’d seen boom markets before,” he tells me over a drink at Allan Zeman’s high end restaurant Silk near the huge complex of Laguna Phuket. “I was in Vietnam in the 90s in the hotel business and kicked my heels. I didn’t want that to happen twice.” So the former Deputy Managing Director for Laguna Resorts & Hotels wasted no time in diving into the property market. Now he is the proud investor in East Coast Ocean Villas, which has finished construction, and Ocean Breeze, still a picture on a drawing board, 30 units out of 32 of which have already sold, and the Crowne Plaza Residences. His investments, spanning high end and economy tourists, are slated to become a phenomenal success, a testament to the intelligence that Bill’s company has collated on the island’s property climate. But then Bill is a hotelier/businessman to be reckoned with, having rocketed his way up the hospitality ladder to set his feet firmly on the rung of GM at the tender age of just 29. “I’m a corporate hotelier and went from front office clerk to general manager to CEO of a multinational hotel chain,” he summerises. In fact initially he got into the hospitality business through a very strong case of itchy feet. “I saw hospitality as a great career and an opportunity to travel. I started doing seasonal work while I was at university, working in a ski resort. I quickly realised that I could work and live in exotic places people only dream of visiting, and it span off into a career.” The job took him here and there in the US and Canada, and then the idea of Asia dawned. “I saw a documentary and thought, I’ve got to move there. So I moved there,” he says with characteristic forthrightness. “I sold everything I owned in Hawaii and came to Asia Pacific. It was a good opportunity coming to Asia during the boom. It was the late 80s and early 90s, and it was undergoing rapid expansion: it was the land of milk and honey. And just like coming to the US was in the old days, here whatever you could remake yourself you could be. Achievements were based on what you could do not how many years experience you had.” From Asset Manager (Four Seasons in New York, the Regent Beverly Hills in LA, the Ritz-Carlton in Hong Kong) to various senior roles for Century International Hotels in Hong Kong, he rose fast through the ranks of hotelier-dom. At the start Century was a new chain with one hotel in Hong Kong. While Barnett was at the helm the company exploded from one hotel to forty hotels. And then just when no one could put a foot wrong, the Asian financial crisis hit. “It was a blood bath,” Barnett remembers grimly. “We spent two years down-sizing. Then the currency crisis hit. We were in survival mode, just trying to keep the business functioning by consolidating.” Finally Accor stepped in and snapped them up. The hotel chain survived but under a different guise. “I have mixed feelings about it,” he says. “We were taken over by a conglomerate.” He pauses. “Five years ago most industry niche operations were swallowed up. But five years later there are many new ones taking their place.” This was when he came to Phuket, to get away from it all, to relax and regroup. After a brief digression to Singapore for Millennium & Copthorne Hotels Asia Pacific, Asia’s biggest hotel group, on the occasion of 9/11 he found himself on the holiday isle once more and working for Laguna Phuket. Five years later he has no intentions of leaving again. “Phuket has a distinct advantage over other markets like Bali or Koh Samui. For a start Koh Samui doesn’t have a public airport, it is privately owned by Bangkok Airways. And people will always move to new markets – any tourist destination – especially if it has an international airport, international hospital, international schools. They are all here. Plus the door-to-door travel time is just six hours for half the world’s population - China and India.” The charms of a holiday in Phuket are no secret to the rest of the world, and this fact is born out by the figures, says Barnett. “In Chiang Mai, for example, the average length of stay is two days. Here there are golf courses, marinas, a huge range of activities, and the average length of stay is 3.5 days. It’s a premier island, it’s desirable, it’s exotic, it gives great value for money, has spas, golf, great nightlife. And the Thai food – people get excited by it. It’s an explosion of taste, just like the country. Thailand Inc is a great brand.” While Bill is clearly living, working and investing in a destination he loves, when it comes to the subject of the tsunami he is fiercely protective of Phuket’s reputation, and exceedingly angry with the sensationalist reporting that he says made a bigger dent in the island then the actual wave. “I have a tremendously negative feeling towards CNN – they did Phuket a huge disservice,” he says. “The first two things I saw on the TV was that the luxury Laguna Resort had been destroyed, but the pictures actually showed Khao Lak, and then reports that the luxury island of Phuket had been destroyed, which was clearly a lie. Of 32,000 hotel rooms 28,000 were not affected. Phuket is 30 miles wide – the tsunami came in 1000 metres. It was incredibly irresponsible.” I can hear the rancour in his voice as he relives the surreal day. He was sitting in the calm comfort of Starbucks in Phuket Town, hearing that the island he was sipping his coffee on was decimated. “Germans have always been huge supporters of Phuket and afterwards they were all asking, “Is there anything left?” That’s the absurd reality of the power of the media.” It was a huge tragedy, but not one that broke the island, even though it came hard on the heels of the ‘97 financial crisis, SARS, and 9/11. “In the old days we worked to annual business plans, but these days we work to CNN,” Barnett says begrudgingly. But brightens as he tells me that “People always come back,” and “Phuket remains a number 1 tourist destination,” and especially “Phuket doesn’t rely on the US” and “High end tourism will come back, but it’s cream on the top. It is the economy flights and economy tourists that are the most important.” While Phuket is becoming internationally known for it’s high end properties dotted along the popular west coast, with Amanpuri a long-term exclusive hideaway, with Trisara independently cashing in on the Aman’s former GM Anthony Lark’s great vision, with the Banyan Trees and JW Marriotts and Sheratons of the island, Barnett is putting his money in the economy tourists, and therefore investing in the “other side” of Phuket both literally and figuratively. Construction on East Coast Ocean Villas is now complete, and with just two units left according to the website, the 32 two bedroom resort apartments and townhouses have been happily snapped up. Just 20 minutes from the airport and with views over Phang Nga Bay and interiors with sleek furnishings and dark wood details the property offers just what today’s buyers are looking for. And with prices for the apartment at 6.5millionBaht and the townhouse at 15millionBaht, it’s a reasonable investment. Ocean Breeze Resort & Suites is still a picture on a drawing board, with units selling for as little as 3.5million Baht, and this is on the valuable west side of the island too. Just inland, two minutes drive from the Andaman Sea and close to Laguna Phuket, the 50 resort apartments span one and two bedroom units and suites circling round a central lake and pool, with a spa, children’s playground, restaurant and bar all included. The property will be operated by internationally known CB Richard Ellis. “There is an east coast versus west coast feeling here. Land costs are prohibitive on the west now and there are 12 new projects on the east. And high end too. You can buy Philippe Starck, which costs millions, or you can buy an apartment for a few hundred thousand.” “Every island goes through cycles – for example in Bali, Kura and Sanur are old now, Jimbaran is the area. Here there has recently been a shift north of Phuket,” he says, citing Trisara and Phuket Pavilions. “And east,” he adds. “Year round, living on the east coast is prime.” Phang Nga Bay, Cape Yama, Mission Hills Golf Course and the Royal Phuket Marina. “Infrastructure is all important. In Bangkok the airport is moving, so there is a huge demand now in the eastern seaboard, Pattaya onwards. In Bali everything is shifting. Jimbaran was tertiary, now it’s major. In Phuket right now there is more land in the north of the island and it’s becoming a mini market. Different things appeal to different people and up here and on the east coast too there’s golf, marinas, and other demand drivers.” Talking about demand drivers, trends come and go in the property market, just like any other, and in Phuket it’s all about the villa. “The villa vacation is very much in vogue – the get naked and swim thing,” says Barnett. “Phuket Pavilions uses this as its tag line – no tan lines. It’s all about intimacy and privacy, the ultimate luxury. Five years ago only the Banyan Tree offered this, but now there are twenty similar properties. Trisara, Phuket Pavilions, Sri Panwa – they’re all new, all pool villas. It’s the new accommodation trend.” Another strong trend is to buy residential units that are part of a major five star branded hotel complex. “Branded property is a wonderful investment,” advises Barnett. “There are only 32,000 hotel rooms in Phuket and of those, branded properties more successful. The Sheraton, Banyan Tree, have done extremely well. Banyan Tree’s villa resort has 80% of guests come back. The Crowne Plaza is managed by InterContinental. A branded property gives you sales opportunities internationally, and it’s easy to attract overseas guests when the unit is part of an integrated resort. And from the mid 90s onwards Banyan Tree, Sheraton, have had a good track record. Year after year you see returns over 10%. This kind of investment attracts the international market primarily. It’s the nature of the beast.” In this respect it seems that Phuket is following a global trend, one that has already made its mark in major cities all over the world, and according to Barnett there is a very good reason for this. “Mixed developments are not a new trend globally. In Las Vegas there are a huge amount of condo resorts with the Four Seasons offering hotel and managed residences. If I built a 400-room hotel I would be taking an incredible risk. But 200 hotel rooms and 200 residences and you are minimizing the financial risk. A lot of people are looking to buy – they want their two months a year, their 60 days. It’s all about alternate financing. I leverage myself and share the equity – it’s just different ways of raising equity for the hotel industry. With the residential and hotel combination, we want our villas to be managed as a hotel.” And as the market for branded residences sweeps from the USA through Asia the market changes from those buying places to live in and those snapping up multiple residences for investment. “Three years ago was the first wave from Hong Kong with people moving to Phuket. The next wave is buyers for investment. They are looking for, number one, capital appreciation, and number two, investment return on an annual basis through rental. For them it has got to be a brand, and then you have the support of sales offices in Europe and North America. Trisara is an outside player, relying on Anthony from Aman. But look at Laguna. The arrival occupancy offers a 10-15% premium over others on the island. But somewhere like Panwa, that’s a tertiary destination and it’s going to be hard going.” Another thing to bear in mind is the seasonal rhythm, with peak, shoulder and low seasons creating a problem in some places, depending on the geographical market your property attracts. “Somewhere like Trisara is a higher end resort than your traditional destination, and therefore relies on Europeans, who are looking for those white sand beaches. But only from November to April and then there will be a decline during the low season. But at Laguna they also attract many regional tourists from Hong Kong and Singapore who want to get away at least three times a year. It’s idyllic – maybe they come to Banyan Tree two or three times a year, then also Bali for fun, the emerging market of Koh Samui… It’s important to attract a wide range of tourists. “A new market is the Russians. They are either very high or low end. The high-end tourists spend big in F&B. They come, they spend. They’re a very desirable market. But too many can be negative for other business segments, you don’t want to concentrate on one market segment. Phuket has good business fundamentals. It has a large domestic Thai audience, strong support from regions like Hong Kong, Singapore, China, and the traditional markets of Europe and the US. It is well split up. You can’t rely on one market, or one event, or you’re finished.” Driving around the island there are so many new developments – anything from up and running hotels to those under construction to just tracts of wasteland waiting for construction with boards heralding the beautiful new development, to the uninitiated it looks as if soon there has got to be a danger of over saturation. “Phuket is staying solid as a fundamental market because there is no over supply,” says Barnett. “Properties are not built on speculation - most of what you see being built is already sold. So if the market softens tomorrow, there won’t be an over supply. And Phuket is full of smaller, independent developers who don’t offer finance. They are attracting cash buyers – people with hundreds of thousands of dollars in cash. And of course units also go back on the market. “97 was a live example of how the market can change. If there is a crash we can weather the returns. Right now the market is very strong and for the past three or four years it has enjoyed double digit growth – that’s an incredible capital appreciation, and that’s what is bringing people from Europe, from the Costa del Sol.” When Barnett starts talking numbers you can tell that not only does he know this market inside out and upside down, but also that he has a passion for property and a piercing view into what may happen in the future. “There has been a 300% increase in the product here over the last 12-18 months, which is enough to out-survey the market. Renaissance, Conrad, Cape Panwa, the InterCon is rebranding the Karon Villas to a Crowne Plaza… But there are a significant number of international brands in Phuket missing. Four Seasons, Ritz-Carlton, Pan Pacific, Westin, Sofitel – they’re all not here, so there is a lot of room for growth in that segment too.” “The land prices will continue to appreciate, the supply demand will stay fundamental. Residential doesn’t depreciate, not like hotels. When you are entering your 2005 capital appreciation - operation costs are low, hotel and labour costs are low, the average room rates compared with other destinations are high. “30% of all new real estate is a vacation or second home for buyers within the US. There are more buyers from the UK and Europe right now because of the strong currency for a Euro or Pound buyer. Hong Kong is growing – Allan Zeman’s Andara luxury villas are nearly sold out. There are many buyers from Hong Kong – it’s a financial market with excess money. Six to eight month bonuses and a financial market that is very strong means there is excess money for luxuries. And Hong Kong tourists create an incredible work of mouth. They are also qualified buyers – not looky loos.” “People are now buying multiple properties and trading up. There is a qualified resale market here. But speculation is still highly erratic. We take the conservative approach and still advise people to buy fundamentals. People have doubled their money in three years but really you are safe to look over ten years for a good capital appreciation and good returns. Phuket is hot stock. Even financial analysts look at Phuket property as a national profession and an investment.” And the numbers bear out his wise words on looking for the fundamentals. “Even in states they are buying for capital appreciation. Properties must be managed by a hotel brand. In Asia, and in Bangkok, it’s a great property angle. People are not buying just for lifestyle but for a return on investment. And people are buying brands because they will outperform the non-branded.” With Ocean Breeze and East Coast Ocean Villas Barnett is putting his money in economy tourists. “They are small developments and following the trend of resort apartments,” he says. “An airplane is 80% full of economy travelers. So here on the east coast there are 150,000 apartments, 132 units and 50 units - multi use. They are primary property investments to include at an affordable price for long-term rental. And they are represented by international companies.” One mystery is the lack of support from the government. “While most of the tsunami clean-up was financed by the private sector, there was no single voice message after the tsunami, no really good disaster management. Phuket is a huge revenue for the government through taxation, but there are few government initiatives on the island. And Dragon Air pulled out – why hasn’t it come back? This route has always been profitable, there has always been demand. Bangkok Airways has flourished…” But Phuket’s future looks enduringly bright with new trends coming up and attracting even more tourists. “People want a spa,” says Barnet. “The Marriott moved in with a new type of mass hotel, and has an enormous spa. This element is continuing to grow and there are now around a hundred spas in Phuket. People are beginning to focus on lifestyle and the importance in their health. Health tourism is a new tourism category, and here you can have aesthetic surgery or laser treatments for a fraction of the cost in North America. Definitely Phuket will develop into more of a major destination. “And casinos!” says Barnett with a flourish. “For the Asian clientel they are very important. Look at the return of investment for hotels in Macau. High stocks tables in Macau outlearn those in Las Vegas. Investment in The Sands was recouped in two years of operation – that’s unheard of for a traditional hotel. Gaming is a huge growth market. And even Fortune Magazine lists Phuket as one of the world’s top most ideal place to retire. “There are five marinas and numerous golf courses, and this all spells retirement,” agrees Barnett. “The Thai government is very liberal with retirement visas, and people from the UK who know Asia, possibly from working in Hong Kong, love to retire to Phuket. Spain is unaffordable but here the cost of living is very favourable. You can get your annual physical – medical and dentist – and rounds of golf. It’s a very good lifestyle. People from the UK are moving out of Spain. When you are living on a pension, in Asian terms you have a disposable income, which in Thai terms is relatively high. You can come here, have a maid, play golf, go out every night to eat… Retirement will be a huge market in the future.”