Sotheby’s International Realty adopts multipronged Asian strategy
By Cecilia Chow
/ The Edge Property |
Early this month, Sotheby’s auction house set a world record when Hong Kong-based jeweller Chow Tai Fook bought a 59.6-carat pink diamond dubbed the “Pink Star” for US$71.2 million ($99.7 million). The oval-shaped precious gem displaced the 14.62-carat Oppenheimer Blue Diamond, which had set the previous record of US$57.5 million when it was sold under the hammer by Christie’s in Geneva last May.
In March, Sotheby’s in London sold an Impressionist painting of flowers by Austrian artist Gustav Klimt in 1907 — for £48 million ($84.4 million), the third-highest price paid for a piece of art at an auction in Europe.
Art, jewellery, watches, wine and classic cars are some of the alternative investments favoured by the super-rich. These are the passion investments that Sotheby’s has specialised in over the course of its 273-year history. It was established in London in 1744 and opened its office in New York in 1955. It went public in 1977 and was listed on the New York Stock Exchange in 1988. As at end-December 2016, Sotheby’s reported US$4.9 billion in sales, and net income of US$74.1 million.
In 1976, the auction house decided to set up a real estate arm, Sotheby’s International Realty. “They figured everyone who bought a US$10 million painting would need a wall to hang it on,” says Michael Valdes, Sotheby’s International Realty Affiliates’ global vice-president, who was in Singapore earlier this month.
In February 2004, NYSE-listed real estate services provider Realogy Holding Corp signed a 100-year franchise with Sotheby’s International Realty. Incidentally, Realogy also owns the franchise of Century 21, Coldwell Banker and ERA. As at end-FY2016, Realogy registered total sales of US$5.81 billion, up 2% from a year ago, and earnings of US$216 million, up 16% y-o-y.
Last year was a historic one for Sotheby’s International Realty, as it booked total sales of US$95 billion, according to Valdes. Of the total, US$10 billion was attributed to sales outside the US, of which one-third came from Canada. The remaining two-thirds were evenly distributed among the different regions, with Asia-Pacific estimated to have contributed US$3.5 billion in sales.
Valdes: In the luxury marketplace, especially for real estate over US$5 million, we usually lead on a global scale
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Regional network
Last month also saw Sotheby’s International Realty roll out an Asiawide strategy through its affiliate, Japan’s Yokohama-based List Co, a Japanese real estate developer, builder and brokerage services company with eight offices in Japan and two offices in Oahu, Hawaii. List was founded in 1991 by CEO and president Hisashi Kitami, described as an avid surfer active in sports and community organisations in Yokohama, including the professional baseball team Yokohama Baystars and professional football team Yokohama Mariners.
List’s real estate brokerage franchise started in Japan in 2009, and then expanded to Oahu “because Hawaii is the most popular destination for high-net-worth individuals in Japan”, says Yasushi Yamada, chief operating officer of List Holdings Singapore, the Singapore entity of List Co. In December 2013, the brokerage offices in Japan and Hawaii were rebranded List Sotheby’s International Realty.
The success of the business led List Co president and CEO Kitami to extend List Sotheby’s International Realty’s reach in Southeast Asia. It started by acquiring the franchise rights in Singapore in December 2015, followed by Thailand and, most recently, Hong Kong.
The company owns the franchise in the Philippines, where operations began last September. The Singapore office officially opened in March, with Hong Kong slated for September and Thailand by year-end, says Yamada.
Yamada: The success of the List Sotheby’s International Realty franchise in Japan and Hawaii led to its extension into Southeast Asia
Second time the charm?
This is not Sotheby’s International Realty’s maiden foray into Singapore. It arrived 10 years ago during the last property boom in 2007, under the auspices of several businessmen. “It was obviously the wrong partner,” concedes Valdes.
Neither is it the first time for Sotheby’s International Realty to be in Hong Kong nor Japan. Prior to List Co, Sotheby’s International Realty had another affiliate in Japan, but it proved to be an underfunded company that could not sustain the growth of the brand, says Valdes.
In Hong Kong, Sotheby’s International Realty terminated its agreement with former Hong Kong partner Sino Gateway effective from Aug 26, 2016. Sino Gateway’s owner, Samson Law, owned another agency called Hong Kong Homes, which specialised in selling overseas properties to Hong Kong buyers.
Hong Kong Homes was the marketing agent promoting several uncompleted properties in Manchester to Hong Kong buyers in 2014. Some of the projects failed to be completed according to schedule, causing angry buyers to report the case to the Hong Kong police, according to the South China Morning Post in a report last September.
“[Sino Gateway] had done a deal under Hong Kong Homes that had nothing to do with our brand,” says Valdes. “But the deal had negative repercussions for the [Sotheby’s] brand.”
So, even though the master franchise agreements with its overseas affiliates are for a duration of 25 years, there have been circumstances in which Sotheby’s International Realty has terminated the agreements earlier. “One of the reasons would be reputational risk to the brand and, in some circumstances, we have taken action,” explains Valdes. “Our first and foremost plan is to protect the brand.”
Therefore, anyone interested in becoming an affiliate of Sotheby’s International Realty is subject to a “deep due diligence and background check”, with the final approval to be given by the auction house, he adds.
Source: World Class Global
List Sotheby’s International Realty Singapore is marketing two penthouses at Australia 108 at A$12 million each
Hiring real estate veterans
With that in mind, List Sotheby’s International Realty is employing professionals to head the businesses in Singapore and Hong Kong. In Singapore, Leong Boon Hoe, a property veteran of 18 years with CBRE, where he was last managing director of CBRE Realty Associates, came on board as chief operating officer of Sotheby’s International Realty, Singapore.
Leong says Sotheby’s International Realty intends to be research-focused. “The Singapore market is sophisticated and mature, and the prime districts in Singapore are well defined. It’s quite easy to enter the luxury market, but not that easy to be good at it.”
Leong reckons Sotheby’s International Realty’s target audience in Singapore will be those who either have already invested overseas or are looking to do so. “It’s therefore important for us to hire people who have an understanding of not just the Singapore real estate market but the overseas market as well.” The Singapore office has 12 staff, five of whom are licensed real estate agents. The target is to grow the number to 100 over the next few years, adds Leong.
In Hong Kong and Thailand, List Sotheby’s will adopt the same approach it has taken in Singapore. “We will look for very experienced candidates in the marketplace to set up the company, and focus on the business of local and overseas brokerage services, project marketing and research,” says Leong. “Thereafter, we will decide whether to buy over an existing company or to grow organically by picking the right candidates to join the group.”
Leong: The Singapore market is sophisticated, and the prime districts are well defined
Focus on iconic projects
As befits the Sotheby’s brand, Leong says the focus will be on marketing “iconic developments”. In Singapore, they include the 1,129-unit Reflections at Keppel Bay by Keppel Land, designed by renowned architect Daniel Libeskind; the 1,042-unit Marina One Residences, which is part of a giant mixed-use scheme by M+S, a joint venture between Khazanah Nasional and Temasek Holdings; and the waterfront luxury condominiums and houses at Sentosa Cove.
The first appointment secured by List Sotheby’s International Realty, Singapore is to handle the marketing of two remaining penthouses at Australia 108 in Melbourne. At 101 storeys and 319m in height, it is considered the tallest skyscraper in the Southern Hemisphere. Australia 108 contains a total of 1,105 residential units, and is developed by World Class Global, a subsidiary of Singapore-listed jeweller Aspial Corp.
List Sotheby’s International Realty, Singapore will be marketing the two 3,856 sq ft penthouses on the 97th storey, which have three bedrooms, three private parking spaces, and uninterrupted views of the Melbourne CBD and Port Phillip Bay. The price tag on the penthouses is A$12 million ($12.7 million) each.
Source: World Class Global
The Sky Garden on the 70th floor of the 101-storey Australia 108 skyscraper is the tallest in the Southern Hemisphere
Capitalising on brand
Even though the real estate business is separate from the auction house, the latter is a very big part of the brand lineage, says Valdes. Sotheby’s is in 90 locations in more than 40 countries, with the main headquarters in New York, as well as in Hong Kong and London, where the major auctions take place.
Even the auction house has had to adapt to changes in technology, with online bids accepted for products under US$100,000. Meanwhile, for those above US$100,000, bidding has to be conducted via the phone, live or a representative at the auction.
Leong is hoping to tap the clients of the Sotheby’s New York and Hong Kong auction houses. “The Hong Kong market is the melting pot for North Asian and Southeast Asian high-net-worth investors,” he says.
Prices of luxury property vary widely across countries. For instance, the average price of real estate transacted by Sotheby’s in the US was just under US$800,000 last year, compared with the national average of US$230,000. Globally, the average price of real estate deals conducted by Sotheby’s is higher, at US$1.2 million, notes Valdes. “In the luxury marketplace, especially for real estate over US$5 million, we usually lead on a global scale.”
This article appeared in The Edge Property Pullout, Issue 776 (Apr 24, 2017) of The Edge Singapore.
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