DC4MS

Prime timeshare

January 19, 2007

Fitness First’s founder and a top retail entrepreneur are backing an investment club for upmarket holiday homes.

By Doug Morrison

Prime timeshare - Property Week

Two of the City’s highest-profile businessmen Mike Balfour and John Lovering are tapping into the British predilection for both holidays in the sun and buying properties overseas with the launch of the Hideaways Club.

Balfour, the founder and chairman of Fitness First, and Lovering, the chairman of Debenhams and Somerfield, are among the backers of a £15m fundraising for Hideaways, a luxury holiday home investment scheme that will be open to investors, or ‘members’, from May.

By then, Hideaways aims to have 12 villas across Europe. Membership costs £207,500 and there is an annual fee of £10,000 to cover running and maintenance costs. The operation is based on the so-called fractional ownership system that has become established in the US.

Ultimately, says Hideaways, the aim is to have a portfolio of 100 properties with an average individual purchase price of £1m. The launch investors, including Investec Bank, are already considering san eventual flotation on the stock market.

Hideaways is, in effect, an upmarket timeshare scheme, but with a property investment twist. Balfour, who has been appointed executive chairman, tells Property Week: ‘It just seems to me the most sensible way to own any asset which is not going to be used a lot.’

He adds: ‘The key thing is that our members will get an investment in a whole portfolio of overseas villas. They get the usage at a very much subsidised rate in a large choice of villas. They get all this without the hassle of actual ownership.’

Hideaways is being hailed as the first European scheme for European investors although UK-based Rocksure Property Alpha Fund has been launched this month to tempt buyers into homes further afield (private investor, 12.01.07). For years, the closest venture to such asset-backed holiday schemes has been Holiday Property Bond, albeit without offering any investment upside to its members.

Hideaways is the brainchild of Stephen Wise, its chief executive and a former management consultant with Bain & Co. Its big calling card, however, is the endorsement of City high-flyers such as Balfour and Lovering, who first came to prominence at Tarmac in the 1990s, but more recently made a fortune from Homebase and Debenhams.

Hideaways’ executive team includes Patrick Henchoz, the founder and former managing director of Esporta, the fitness chain. Both Balfour and Henchoz are used to running clubs whose memberships run into tens of thousands, but Hideaways is altogether more exclusive. There will be no more than six members per property – 600 in total once the scheme is fully subscribed and they will be required to stay invested in the club for a minimum of three years.

Members will have the right to use any of the villas for a certain number of weeks each year. In theory, the 600 cap on membership should mean that availability of accommodation is rarely an issue, adding to Hideaways’ attraction as a holiday scheme.

‘The likelihood of getting the weeks you want is very high,’ says Balfour. ‘We estimate there will be a lot of availability and that these properties will probably be used for maybe 20 or 24 weeks in any one year.’

According to Hideaways, the typical cost of renting an equivalent villa with inclusive concierge services is between £4,000 and £8,000 a week. Hideaways members who use their full annual allocation of two peak holiday season weeks and two other weeks might otherwise spend up to £25,000 on similar accommodation. This is the usual cost case for hassle-free holidays made on behalf of many timeshare schemes.

As for Hideaways’ appeal as a property investment, that remains to be seen. The club has appointed agents such as Knight Frank and Savills to identify and buy the 12 villas for the launch portfolio in locations such as the south of France, Tuscany, Majorca, Cyprus, Morocco, Portugal, Switzerland and Spain.

World of interiors

The homes will have an average floor area of 2,500 sq ft (232 sq m) and a minimum of four bedrooms and three bathrooms, private gardens and swimming pools, where applicable. The portfolio will also include ski chalets. All of the properties will be subject to extensive refurbishment, supervised by Hideaways’ architects and interior designers.

Some are already in solicitors’ hands, such as Gran Vista, a 5,382 sq ft (500 sq m) property in Majorca, Podere Le Sensaie, a 150-year-old restored farmhouse in Pisa, Tuscany, and Le Rouret, a restored stone villa close to Cannes. Like the rest of the portfolio, they will be held for the long term.

“It will be a very floatable company. Certainly an IPO is potentially very attractive
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Mike Balfour The Hideaways Club and Fitness First

‘We don’t plan on selling the villas,’ says Balfour. ‘We’re going to buy and hold.’ All the assets are to be held under the UK-registered Hideaways Club Property Company, while the club operations will be run through a Gibraltar-registered Hideaways Club. Members acquire their shares in the property company and sign a membership agreement with the club company.

The dual structure has been devised by accountant BDO Stoy Hayward to ensure members’ interests are underpinned by Hideaways’ assets, although this structure also means the club does not come under the regulation of the Financial Services Authority.

The board will set the share price periodically, based on supply and demand. But Balfour maintains that the strength of the share price will always reflect the underlying value of the club’s properties and will be underpinned by the exclusivity of the club membership and a guarantee that the club will never sell a share for less than a member has paid for it.

‘The price will reflect the popularity of the club,’ he says. ‘One would expect the share price to be slightly higher than the actual property backing.’

Balfour believes the wide spread of locations is an added attraction. ‘Different markets will go up and down but you are investing in a very balanced portfolio of properties, which is much more secure than investing in one individual property,’ he says.

Then again, members will only crystallise the value of the shares if they sell them after three years. Balfour says members can at least avoid the hassle and time involved in direct property investment transactions overseas.

Share will power

However, Hideaways will charge a 5% fee on completion of a share sale, with 20% of any capital gain going to the management and he remaining 80% going to the member.

According to the club, this 20% take-out will ‘provide the executive team with an incentive to buy properties on behalf of the club, with significant potential upside’.

Balfour’s status as founding investor, as well as chairman, reflects his confidence in the success of the Hideaways holiday and property formula. He believes the club will be fully subscribed in two to three years a self-fulfilling process that should help it raise the money needed to get to its target of 100 properties.

He also expects success in Europe to attract the attention of the US fractional ownership specialists which have stayed on their home turf to date, but which may offer ‘an exit’ to the launch investors in Hideaways.

The other obvious option, says Balfour, is some form of initial public offering. ‘It will be a very floatable company,’ he says. ‘Certainly an IPO is potentially very attractive.’

The more immediate question is: who are the likely members – seasoned investors who feel Britain’s buy-to-let market is overheating, or fans of holiday timeshares with a desire to dabble in property?

As Balfour puts it, there are lots of two-bedroom apartments in Benidorm that can be picked up for £200,000, but at the very least, Hideaways removes the ‘the hassle factor’.

‘It’s anybody who wants to invest £200,000 into property overseas,’ he says. ‘Those people who simply would like to buy a villa, but instead of spending £400,000 on one villa, here they get a choice.’