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Published on December 4, 2007

Property funds are a riskier investment than other kinds of funds, TMB Asset Management CEO Jotika Savanananda admitted yesterday.

However, that has not stopped the company from issuing another property fund, the Luxury Real-Estate Fund (LUXF), to follow the launch of its last such fund, the CPN Growth Fund, two years ago.

Although at Bt10.92 billion, the CPN Growth Fund is the country's largest property fund, earlier in the year it failed to raise an additional Bt7.17 billion from existing trust holders, because of the Bank of Thailand's capital-control restrictions.

Why then would investors want to bet on yet another property fund - backed not by assets such as popular shopping complexes, as in the case of CPN, but for the first time by hotels and resorts?

There has been much wealth created in the region and there are simply limited ways in the region to spend it, says Jean-Michel Germing, a partner of Zurich-based private-equity firm Germing Frey.

The firm's joint venture with the Sarasas family, the Pa Koh Hotel, will hold a 33-per-cent stake in the new property fund in the event of its Bt1.317-billion initial public offering, scheduled for January 16-29.

Germing believes once these new Asian multimillionaires satisfy themselves with the most expensive luxury goods that money can buy, they will look for new lifestyles to splash their money on. And these hard-working high-net-worth individuals will look for exotic destinations about three hours' travel away. At present, only Thailand, Bali and certain parts of Malaysia are capable of attracting such a rich crowd.

The Bt1.965-billion LUXF will invest in the Six Senses Hideaway Yao Noi resort, located on a secluded island off the coast of Phang Nga and accessible from Phuket and Krabi.

The fund will have freehold over the 76-rai, 56-villa property, which will then be leased to a company called EHY for 20 years, with an option to extend for another decade. EHY is 99-per-cent owned by the Pa Koh Hotel, which will hire Six Senses to manage the property.

The deal is structured so as to circumvent the requirements of the Securities and Exchange Commission which forbid asset-management companies from directly holding hotel or resort properties.

The LUXF will receive a fixed rent of Bt1 million per month, subject to revision every three years, plus other rental fees contingent upon the resort's incomes, Jotika said. In the first year, the fund will allocate Bt30 million to EHY.

The manager of the Six Senses Hideaway, Marco Groten, who has worked at Six Senses Soneva Gili and Six Senses Spa in the Maldives, said Yao Noi was still a largely unknown tourist territory.

Although the recently rebranded Six Senses has garnered a reputation in the niche five-star resort market, it faces very tough regional competitors, notably Banyan Tree Hotels and Resorts, whose parent company's initial public offering on the Singapore Stock Exchange last year injected much-needed cash into the company.

A room at Six Senses Hideaway starts at Bt29,000 and goes up to Bt400,000 per night. Guests come mostly from Europe, particularly the UK and Germany, in the high season; and from Asia, mainly Japan and South Korea, in the low season.

European guests tend to stay much longer and are not as price-sensitive as their Asian counterparts. And because of its location, guests are pretty much confined to spending most of their time - and money - at the resort.

Ki Nan Tsui

 The Nation