One school of thought is that if you're not in the real estate business, and you're in some other business like fashion, then you probably shouldn't own a lot of your real estate. The general idea is that the opportunity cost of doing so is too great; it ties up a lot of capital, taking it away from the core business.

But then there's LVMH.

In 2023, the company spent €2.45 billion on real estate across the world, mostly for its retail stores. And then this week it was announced that, earlier this year, the company closed on the Villa Bagatelle in Cannes for €46.5 million. Supposedly this is one of the most expensive homes ever sold in the city.

LVMH plans to use the 12-suite villa for brand activations during events like the Cannes Film Festival, and then rent it out when they don't need it.

So clearly they are of a different school of thought. They are blending experiential marketing and real estate investing, which is an interesting approach. It also makes me wonder if this has something to do with the fact that Bernard Arnault started his career in real estate.

For more information on the Villa Bagatelle or to inquire about renting it for your next family vacation, go here.

The US has tech and France has luxury goods:

The roots of French dominance lie in a luxury ecosystem that dates to the court of Louis XIV, and a culture of corporate raiding that began with Bernard Arnault. After gaining control of LVMH in 1989, he set out to build the first house of luxury brands through serial acquisitions. Rivals followed his lead. Increasingly, the global luxury industry is based on goods that are still made by small Italian firms but sold by big French conglomerates. Gucci, Bulgari, Fendi — all are Italian brands now under French owners.

While US tech firms overshadow all rivals, the same can be said of French luxury. Among the top luxury firms, the French have annual sales three times higher than the Swiss, more than four times the Americans and Chinese and 12 times the Italians.

One of the most interesting things that LVMH is doing, though, is a combination of tech and luxury goods. In 2021, they announced, along with founding partners Prada and Cartier, a new luxury goods blockchain called Aura.

The idea behind Aura (an appropriate name, in my opinion) is to create a kind of digital passport that proves authenticity and ownership, and also allows for traceability. So if you want to sell one of your luxury items or you need to service it, now someone can easily see the chain of ownership and determine that it's real.

This to me is a perfect use case for the blockchain technology and, as of March of this year, the group was reporting 24 brands on board. At the same time, they also announced a new feature that allows brands to participate through public chains such as Ethereum or Solana.

All of this is probably still very esoteric to most. But eventually the tech will recede into the background and most will probably just see it as, "I'm buying this expensive purse and along with it I get this digital passport thingy that lives on my phone. I don't know or care how the tech works, but it makes me feel even more special."

However, a big question remains: What does all of this innovation do to industry concentration? (Which is one of the main points of the above article.) One promise of crypto is that it will be a decentralizing force in our economy. And while I believe this to be directionally true, I obviously understand that LVMH has an empire to maintain here.

For those of us who deal in real estate, it is also interesting to think about this topic of brands and authenticity when it comes to property. And so we will talk about that later this week on the blog.

I am sure that most people aren't going to feel bad for LVMH, but it is facing some opposition in trying to bring the first Cheval Blanc Hotel to North America. Last year, Beverly Hills City Council approved the hotel development on Rodeo Drive, but since then, enough signatures were collected that a special election is going to be held later this month for the ~22,000 residents who are registered to vote in Beverly Hills. And from the sounds of it, the results will decide the fate of the project.

As I understand it, there are two mains groups that are upset:

1. A union representing hotel workers

2. Local area residents

The official message from group #1 is that they want affordable housing. But there is speculation that they just want the hotel to be unionized. I don't don't, so let's move on to group #2. Why would residents be opposed to this project?

One way to think about this is that LVMH is trying to build a fancy new $2,000 per night hotel in one of the richest cities in the US, on one of its most luxurious streets. So, you would think that there would be a fit and that more than a few rich people would be excited about such a development. I guess this is true — and Council did vote in favor last year — but clearly there are other concerns:

...some people were unhappy a 109-room hotel, framed by Rodeo Drive, Little Santa Monica Boulevard and Beverly Drive, would rise nine stories on one side and tower over surrounding retail and commercial spaces sitting at three and four stories high. Four buildings would have to be razed, and the idea of more traffic coming to the area was unsettling.

It seems to be about scale:

...Cheval Blanc opponents want to keep that small town vibe. “The area is charming and beautiful right now, and, if and when they are able to put that project out there, it will not be. It is very nice to be around low-rise buildings. You can sit at a sidewalk café in Beverly Hills and look across the street and see the hills. It is a very good feeling,” said Darian Bojeaux, an attorney who has lived in the city for 35 years and signed the petitions launching a special election. “Let them build a code-compliant hotel that is three stories high. Let them build something nice that doesn’t ruin the city.”

Here's an aerial of said small town vibe for context (I've marked the number of proposed storeys):

What's interesting about this situation is that it seems to isolate the concerns. Because what is being proposed here is an obviously compatible use. It is a rich thing in an area for rich people. Residents don't seem to be saying that this is a problem. Instead, it is height that could potentially "ruin the city." (Ignore for a second that there's already an office building of similar height across the street.)

What this tells me is that if you're thinking about proposing nine storeys of Ferragamo and Balenciaga, that's probably not small town enough. Saint Laurent needs to be no more than three.