December 11, 2024 · View original
Every project in Miami is now a branded residence. This is not exactly true. But it’s mostly true. What I heard over the last two days at Elevate is that Miami is the second most active city in the world when it comes to branded residences (after Dubai).
So much so that when a developer sits down with a prospective sales team, one of the first questions they will ask is, “cool, so what’s the brand?” Is it Elle? Dolce & Gabbana? Or Pagani? You need a brand. And on average, the end pricing premium is somewhere between 20-30%, in exchange for paying a 3-5% licensing fee (on total revenue).
This makes sense. Brands have value. And I agree with Daniel Langer — who presented at the conference — that there is “added luxury value” when it comes to brands that are truly premium and luxury. It’s the only way to explain why certain goods & services command a premium. Consumers don’t generally pay more for something for the hell of it. They pay more because they believe that they are getting more value.
One interesting example that Daniel gave is a research study involving two groups of people looking at basically the same photo of a woman getting of a car. The only difference is that in the first photo, she is getting out of a Volkswagen, and in the second photo, she is getting out of some fancy car. I can’t remember which one, but just know that it’s fancy and expensive.
Now, the two groups had no idea this was a study related to “luxury” and they had no idea there was another group and photo, but when comparing the results, the differences were measurable. The fancy car improved perception of the woman in virtually every dimension: she was thought to be more competent, intelligent, attractive, and the list goes on. This is interesting. It demonstrates that brands matter.
So again, it’s no surprise that developers are “borrowing” hotel, fashion, car, and many other brands to strengthen the perceived value of their projects. It makes economic sense. But at the same time, I think there are different ways to go about this and I worry about the long-term value and resiliency of some of these branded projects.
For example, in some cases, the brand just seems like a superficial add-on to an otherwise banal project. And in these situations, it may work out for the developer in the short term, but at some point, people will come to the realization that there isn’t actually anything differentiated.
To do it well, you want the brand to permeate the project and you need it to survive after completion. This is why hotel brands are a natural fit and what started this category — they have property brand standards and they are typically there after construction is complete and the building is operational.
There’s also the peculiarity that in, adopting a branded residence approach, the developer is by default relegating their own brand to a backseat position. And so there are developers, including one panelist at this conference, who flat out reject this approach — they want to manage, control, and grow their own brand, not somebody else’s.
This is a reasonable approach, but it’s a longer game. Brand equity isn’t built overnight; it takes time and consistency. Not every developer has the benefit of being in this position, or maybe they don’t care to be. They want to remain entrepreneurial and nimble and just tool up on a project-specific basis.
So I guess the answer to the question of whether to brand or not is that it depends on your approach and on how you execute. But regardless, know that this is a massive business and that Miami is one of the branded residence capitals of the world. In the most desirable submarkets, it certainly feels a lot like table stakes.
