ABTN speaks to George Westwell, director of Cheval Residences and a hotelier for 35 years, about new properties in the pipeline and how the serviced apartment business is developing in the UK.
Tell me about the new Cheval property currently under development, Three Quays, near the Tower of London.
It’s coming along fantastically. It’s a 10-storey building – we’re going to have 155 apartments there, of which 97 will be serviced. They’re a mixture of one, two and three-bedroom apartments. We’ve owned the land since 2001. It lay dormant for a while, then it took us three years to get planning consent. We've now had a further two years in development and we're currently in the stage of what they call enabling works, so preparing the ground. We'll start coming out of the ground in April of next year and the scheduled date for completion is April 30, 2013.
We think it's a fantastic location for a number of reasons. One, it's on the North Bank. It's the nearest building to the Tower of London. Directly opposite, on the South Bank, is More London [a new office development]. When it is fully occupied they're going to have 20,000 office workers. We think from a corporate perspective it's a superb location. And of course the addition of water, with the river, and the views of Tower Bridge, are going to make it absolutely stunning.
There seems to be a lot of development work in the area.
There's a lot going on in the area. Sugar Quay is the building adjacent to ours. The current tenants are moving out to a new office building and a planning application has been submitted by another company to deconstruct Sugar Quay and then rebuild it as a new office block. That will hopefully be happening at the same time as our building work is going on.
They are also talking about improving the river walkway and making it more accessible, to make it a more direct route. At the moment you have to come off the walkway, walk up towards the tower and then walk back down again. There are plans to make it more accessible.
Although planning application has not been submitted yet, there is also talk of extending the boat pier. To increase it in size.
What other projects is Cheval working on?
We have two other projects that we'll be running in 2011. One of them is at Cheval Knightsbridge, for which we do have planning consent. We have a block there of eight apartments which we are completely knocking down and rebuilding, with the exception of the facade. We're extending out backwards, so we're extending the size of each of the apartments, and we'll be adding two penthouses on top. This is an apartment block that is two minutes' walk from Harrods. We're also installing a lift, which will make it more accessible for guests. That project will take 15 months.
The second project we are carrying out in 2011 is at Calico House, which is at Bow Lane in the City. We have 45 apartments there in total. We're significantly upgrading the interior design of the property, in all apartments. We are expecting to start that project in February. We've already built a prototype room, which shows the quality we will be achieving. We bought the property almost as a turnkey. It had already been developed, so we had to inherit things that were perhaps not to our normal standard. So we're upgrading the interior design and we're retrofitting air conditioning, which is an absolute must in this day and age. This will happen over a year basis.
Do you own all the Cheval properties?
Yes, we own and operate all of our properties.
Would you ever consider franchising the brand, or managing other people’s properties?
In essence I think we are a significant property company. We have commercial property, retail property and serviced apartments. We choose to operate them in different ways.Three Quays will be mixed use, because we'll have 97 serviced apartments, 58 AST apartments – short term let – and on the ground floor we'll have retail as well. That's different parts of our company coming together to operate one mixed use building.
In the future, there are a number of things that could happen. Our market is London at the moment. That's where we are established and that's where we are known. We have been approached by overseas organisations. There's an organisation in Europe that know of us and are entering into discussions with us to see if we would be interested in going into a joint venture or an operating agreement with them in a particular city. We are also looking ourselves overseas. In fact, we have a particular property that has come to light only recently that we are going to have a look at shortly. I can't tell you where.
You have built up the London brand. Is it an attractive idea to use the brand elsewhere, without investing in the property? So, operating serviced apartments you don’t own?
No, it's not an attractive way to do business because in essence, although we've never sold anything in our 28-year history, we make our profit in two ways. One is the capital appreciation of the building, an asset that we own. The other is the trading profit that we make out of it. Clearly, going overseas, it becomes a matter of scale. If you are operating a property in the Far East, a property in the Middle East, and a property in Europe, it might not be that attractive, because the amount of return we would get from it, just being an operator, might not be significant enough for us to take on that challenge.
What is your usual mix of guests?
On a group basis, our main feeder market is North American. In terms of industry sector, it is finance and banking, followed by legal and IT. What we do get major spikes on is things like entertainment. For example, if there is a film being shot in London, we become often the first choice for the stars of the film, and then obviously the production crew and people that are involved with it.
In terms of the mix between corporate and leisure, it's probably about 60% corporate, 40% leisure. We have long term and short term properties. In the long term properties (where the minimum stay is 90 days) on average the length of stay is 120 days. In the shorter term properties, where the minimum stay is seven days, the average is probably in the region of 15 days.
What have been the effects of the recession on Cheval Residences?
2008 was our record year, which was the time the recession started. In 2009 we did see a small decrease in our operating profit, but not significant. We saw a decline of about 6%. We're pretty resilient. The type of market we cater for is pretty resilient to recession, because it’s the top end of the market. Whereas people at the lower end start cutting things and you see major swathes of business vacuums being created, we don’t see that. And also it’s a slower process, because if you’ve got someone booked into a 90-day property, they will probably have another 60 days. They’re committed. So you don’t get the overnight fall-off.
This year, business has come back, plus more. We’re having a wonderful year, across all of our properties, without exception. The small dip we had in the business in 2009 has more than come back in 2010.
In terms of a change in customers, we haven’t really seen that. In the shorter term properties, however, there has been a change in travel pattern. We have a seven day minimum, and people perhaps coming over from the States would fly in on a Sunday, and stay over until the following Saturday. What we’ve found is that in some cases people are cutting their visits to three or four days. This means that hotels become much more competitors for us. It rules us out, because we have a seven-day minimum.
Have you been tempted to shorten your minimum stay?
At two of our properties we have hotel licences, so we can sell them. At others, the question of 90 days is a local byelaw. We have no choice on that. At the time you get planning consent, you are either granted a licence for what they call permanent accommodation or temporary. If it’s permanent it must be 90 days minimum. If it’s temporary, you can do it in most cases at one night. What we do is promote it as seven nights. But if someone came along a week before and asked for three nights and we had a gap, yes we would take it. We wouldn’t turn it away. But, we seek to go for the seven-day minimum, because we find that business model, in terms of conversion to profit, is a much better model for us to work on.
How do you market the properties?
We have overseas representation in the USA, the Middle East and Australasia. These are people that are employed by us on a consultancy basis to drive business into Cheval. That has been a very successful strategy, particularly of late in Australia where we had about a zero base and we’re now getting a lot of business.
We also have a website, which we find for this particular type of business becomes a major source of referral. Because, if you’re going to stay two nights in a hotel and it’s really bad, you can put up with it. If you come for seven days or 90 days, it’s a bit like buying a home. The buying criteria is a little bit more detailed and thought through. The internet is a very strong marketing tool for us. We have our own sales team, albeit small – there are three people. We also work with a lot of agents, both domestically and internationally, who specialise in extended stays or relocations.
The other thing is that we have a very high level of repeat business and referral business. Once people discover us, it’s like an extra sales person. They go out as ambassadors. I’ve seen bookings of three apartments grow to 10, because people have gone out and told people about us.
What is your view on booking agencies which also own properties?
I think at the end of the day, the customer always has choice. Some booking agents might put their own properties first, but if the customer doesn’t like it they will leave. It’s the quality of the location and the price that are important. We have our own booking agency, Reside International, and our policy is that we don’t put our own properties first. If Cheval is in the budget and the location requested, it should be offered to the client along with other options. In fact, the majority of Reside’s business does not go into Cheval properties.
The company bought Reside International in 2009. How is that acquisition performing?
It’s going ok. It’s more or less where we thought it would be. And we are having another focus on it at the moment. There’s quite a lot in the pipeline, so in the next year we should see the business we expected.
We bought Reside for two reasons. One is to be a profit centre, which is where we hope we will be getting. The other is that if you phone up at a peak time and you are a Cheval customer but we’re full, or we haven’t got the type of apartment you wanted, or we’re not in your budget, we’ve got Reside that can take it on. Whereas before customers would just phone up and we couldn’t help them, now we can. They get the Cheval quality service, albeit they may end up staying in one of our competitor properties.
Any thoughts on the serviced apartment industry in general? The market seems to be diversifying...
I’ve always said since I’ve been in the business that we need to educate the travelling public. The greater mass we have of serviced apartments, the more it’s written about, the sooner the travelling public begin to understand what serviced apartments are about.
I still think there is a misperception about serviced apartments. I think it is a niche market. People don’t understand it. People always know what a hotel offers, but serviced apartments salespeople still have to explain what they are.
I think that there are also different categories of serviced apartments. You’ve got people like us who own and operate. There are others that do short-term leases. I think this sometimes can go against serviced apartments.What happens with some serviced apartment companies is that someone buys five apartments in a development, and then they go to the company and ask them to rent them for them. It’s not a dedicated business. It’s a serviced apartment in a complex. The third side that you see are what I call the hotel type serviced apartments, such as IHG’s Staybridge Suites, where you have the same room that is rolled out exactly the same in all the properties and in different locations.
I think the market is growing, which I think is good. I think education is needed, both to the consumer and to agents. I think there are different types of serviced apartments, but I think all of it has got to be good because the bigger we are, the more we’re written about, the more business we will all see.
How does your role now differ from when you were running hotels?
Many elements are the same. I’m responsible for the strategy, the organisation, the development – it’s all pretty much the same. Where I think it is different is the interaction with the guest. In a hotel you’re constantly wining and dining guests. It’s all part of the role. In a serviced apartment it’s the guest’s home. They don’t want the same sort of interruptions that would be enforced on them in a hotel. Things like turndown services and minibar checks. What changes that role is that the guests feel that this is their home. I think fundamentally the basis of running a hotel and a serviced apartment is the same, but it’s the expectation of the guest that is different.
www.chevalresidences.com