Castlewood Group – Build It, And They Will Come And Invest.

Thailand’s resort island of Phuket is well known for its lush tropical beaches and luxury resorts that attract a large number of tourists from around the world, when its population can double from half a million to over a million during the peak tourist season. Phuket’s western beaches, thankfully, have recovered from the extensive damage they suffered during the Boxing Day tsunami of 2004, the catastrophe that also ravaged many other coastal communities around the Indian Ocean and claimed the lives of over 230,000 people in fourteen countries. But the island is today seeing a level of development like never before.

Over the past few years a number of high-profile developments have been sprouting  up especially in the northwestern part of the island (away from the crowded and gritty town centre around Patong) – some of them are gated communities built by big property groups that target the wealthier buyers looking for vacation or retirement homes; others, high-end luxury resorts targeting the jet-set rich and famous for their weekend getaways. Right among them is a new development along Phuket’s Bangtao beach that’s somewhat different: Singapore-based property development Castlewood Group is building its upcoming Nikki Beach Hotel & Spa in Phuket – a partnership with beach resort brand Nikki Beach – as a potential asset class for small investors.

But it’s not about the usual investing in whole units of the property – which would require vast funds – but portions of it. Castlewood Group, first established in Dubai in 2006 but later relocated its headquarters to Singapore, offers investors an opportunity to own a part of Nikki Beach Hotel & Spa in Phuket that’s due to officially open in early 2015 as the first of its five projects here in Asia. For as little as SGD$35,000, investors can purchase what the industry calls a buy-to-let hotel investment that offers fixed returns of 5% per annum, or even up to 18% per annum variable option for those less risk-averse.

Buying To Let

The concept of hotel room investment isn’t new – it was originally pioneered by investment and property tycoon Donald Trump; Richard Branson has also dabbled in the business model. 45-year old Castlewood Group CEO Chris Comer (pictured right) started working on adapting the model in Asia since 2008, and the company started marketing the product in 2011. When Nikki Beach confirmed in 2012 that it would partner Castlewood for the property, the product was finally set.

Comer admits that he left Dubai 2007 when he basically smelled a rat with regards to where the economy was going. “I knew the market wasn’t going where it should go, and so I left,” he says. “I was heavily involved in Dubai, and involved in building over 11 properties there.”

“What happened was that we niched the market too much and made service residences, and built a business based on the fact that we thought so many people were going to Dubai to live that they would need a serviced residence to tide them over till they found a dream home to live. That market didn’t really develop itself; it wasn’t as good as we thought it was, and we learned from that.”

So he moved to Asia, because he believed there was money to be made there and was where the world’s economy would be going. “(When) we came to Singapore, we looked for an option as far as what we’re going to do and I looked at all the major problems over the years with regards to residential property and investment properties, and some of the failures there. I tried to design a product that where people felt safe, and that’s what it’s all about,” explains Comer, who has been involved in property development since 18 years of age. “It’s a responsible product; when you build something in real estate, the usual idea is that ‘Here’re the keys, and bye bye’. We didn’t want to do that. What I tried to do is deliver something I believe people want.”

“Then we asked ourselves what market really gives something to its clients? And that’s a five-star hotel, where the clients arrives on private jets. And what matters is location, and the brand.” The idea for Nikki Beach Hotel & Spa was born.

Nikki Beach Hotel & Spa, built in the exclusive Laguna resort area that’s surrounded by other luxury resorts and gated communities largely populated by the wealthy, is a hotel made up of 174 keys – or units – that include luxury suites and villas. When it’s ready, the property’s facilities would include a rooftop infinity edged swimming pool, a full-service spa centre, a library, and an all-day dining restaurant, among others.

“Here the location is second to none, and the brand is amazing,” Comer says.

Building A Safe Investment

Comer doesn’t quite bristle up as expected when his property investment model is compared to land banking or timeshare; instead he looks thoughtful. “We get that every day,” he says, finally. “At the end of the day, timeshare – I used to own a timeshare myself personally – is actually about taking holidays. It’s not the same here.” He says unlike timeshare, which is more about buying and trading time slots to stay in various properties, those investors who put their money into owning parts of the property aren’t allowed to actually use them at whim. In fact, only 23 stakeholder suites out of those 174 units can be used by investors. “If they’re here as an investor, they’ve got to give me the inventory for me to make them their money,” he points out.  “I think timeshare is a great product if it’s sold properly. But this is about making money; it’s an investment.”

“If I had to describe this product in one word, it’s ‘safe’,” Comer declares. “We provide a safe buyer environment and we package the actual product with trustees, who are regulated by financial services regulatory authorities.” Castlewood’s assets are held in trust by the Intercontinental Trust; its investments are also protected with full title insurance through First American Title. Here Comer gets pensive. “As a company, in hindsight, we might have packaged it too well – people ask, “Where’s the risk?”. But that’s my point, I wanted to take the risk away from them.”

“It may sound like I’m trying to be a little saintly,” he laughs, and then turns serious. “But I wanted to give people something they could feel confident in and yet would not cause heartache, and be an investment they could actually enjoy and something they could be proud to own.”

His confidence in his product can be overwhelming, but he says he has every reason to be. Comer shares that the residential property market in Phuket, especially the luxury segment, is booming. According to real estate firm CBRE, the number of completed villas in the fourth qurater of 2012 reached 2,789 units, and villa sales in 2013 increased by 20 percent. And that demand is expected to continue. And that’s the reason why Comer believes he can offer the kinds of returns for his product. “In Phuket at the moment the average profit rate of a hotel, or RevPAR (revenue per available room), stands at about 13.6% according to CBRE,” he explains. “So I asked myself do I take a risk and protect my RevPAR prior to opening, or do I try and share it? And of course it’s a risk to me – because I’m setting the bottomline – but at the end of the day, we know right now across the board in Phuket what the RevPAR is. So I offer it to people.”

Comer says one of the biggest things he’s proud of is that he gets to deal with both millionaires and the average Joe on the streets. He remembers the time when Lehman Brothers collapsed, taking the life savings of many people with it. “It was the first time we’ve seen riot status in Singapore’s Shenton Way, when the Lehman Brothers offices were attacked and the riot police had to be called out,” he recalls. “And that was down to the fact that many of its investment products were sold to the man on the street who had no clue of the risks involved. I learned a lot from that.”

There aren’t many investment opportunities that the average man can get into, Comer points out, and “everybody knows the banks pay poorly”. “I want to provide an option for the man on the street that lets the man provide for himself and his family, and is better than the bank. It’s as simple as that.”

As the sun slowly sets over Bangtao Beach, partygoers at the completed beach house with its lagoon pool – around which the rest of the Nikki Beach Hotel & Spa’s facilities will be built – probably don’t know that the completed property is contracted to be sold by CBRE Thailand in 2020.  And they probably wouldn’t care who owns it in the meantime.

“We open at the end of this year,” Comer concludes, gesturing around the soon-to-be property. “The risk is on me. But I know I’m not going to lose.”

Disclosure: Young Upstarts was invited by Castlewood Group on a press junket to visit the proposed development site of Nikki Beach Hotel & Spa in Phuket.