Excess for success
Stephen Hung sees the future of consumption, designing his new Macau hotel with ultra-rich mainlanders - and their opulent tastes - in mind, writes Nick Edwards
When King Louis XIII of France began work in the first half of the 17th century on what would become the world-famously opulent Palace of Versailles, 20 kilometres southwest of Paris, it essentially marked the beginning of the end of the Bourbon dynasty he ruled.
The extravagant luxury that Versailles represented and the money it consumed in construction - estimated at as much as US$2 billion at today's prices - were flashpoints for the poverty-stricken revolutionaries who decided the decadent monarchy had had its day and marched Louis' great-grandson, along with Marie Antoinette and large swathes of the French aristocracy, off to the guillotine.
Hong Kong banker-turned-socialite businessman, Stephen Hung, hopes for something rather more rewarding for his Macau-based hotel and entertainment venture that has taken Louis XIII as its name in homage to the ultra-exclusive lifestyle concept it represents to the ultra-high-net-worth clientele he serves.
"Versailles as a palace was the beginning of the end, but the lifestyle it inspired is still here today if you think about it," Hung, joint chairman of Louis XIII Holdings, told Money Magazine.
"We are looking around the world and picking the elements of something very long standing that represents luxury in the ultimate sense, that stays for centuries, and that will stay for centuries after we are all gone."
The former co-head of Asian investment banking at Merrill Lynch personifies the ultimate luxury lifestyle he's selling.
Trademark red-dyed hair, a wear-once-only haute couture wardrobe and a fleet of supercars - including a Bentley with bright red gold-flecked bodywork and a sports car so unique it's called the Stephen Hung Edition by its makers, Pagani Huayra - are the affectations of a lifestyle that leaves the casual observer in little doubt that the purveyor of pure opulence knows what he's talking about.
His investors, including the Ontario Teachers' Pension Plan and Janus Capital, must clearly hope so, having bankrolled a HK$3.2 billion capital raising effort in January that financed the HK$2 billion acquisition of exclusive rights to develop a 65,000 square foot land parcel on the Cotai Strip - Macau's much more profitable take on Las Vegas.
On it, Louis XIII Holdings will build an exclusive luxury hotel and entertainment complex covering 945,000 square feet, complete with an invitation-only atelier to give selected guests unique access to bespoke couture and jewellery from the world's top designers.
Prices will start no lower than US$1 million and some are expected to be well over US$100 million. The exclusivity is such that even guests of the hotel will not be guaranteed access.
This being Macau, a casino will also be part of the property, subject to regulatory approval.
Graff Diamonds has signed up to be part of the offering, as has the Paris-based Michelin three-star restaurant, L'Ambroisie, in its first venture outside the French capital.
Hung says memoranda of understanding have been signed with other top names, but contractual obligations prevent him from revealing them while the hotel is still so far from completion - due early 2016.
There's plenty of work to do on the project and Hung is leaving little to chance on the development that has a budgeted price tag of HK$6.5 billion.
He has employed one of Louis XIII's direct descendents, Princesse Tania de Bourbon Parme, as a special adviser in an effort to give clients an authentic taste of the ultra-exclusive lifestyle enjoyed by the Bourbon monarchs.
A designer in her own right, de Bourbon Parme will have a direct role in helping ensure the baroque grandeur of the hotel's designs are properly complemented by the more modern elements of Hung's vision.
"My interpretation of the property, the brand itself, is also the modern representation. I'm not trying to borrow things from baroque, or copying Versailles. That is not the intention," Hung says.
"I picked the baroque era because it is more elaborate than the Renaissance and the rococo," he says. "I'm not going to steal it as is. I'm going to interpret it in a very different way. When you see the property in the future, there will be grand baroque elements and old-world charm, but there will be elements of modernity that are put together in a very tasteful way.
"We want it to be a time-tested building so that when you look at it today it'll be great when we open and then in 10 years, 20 years, 50 years from now it'll still be a classic. That's what you want from an icon."
The iconic touch will come from architect Peter Marino, creator of some of the most eye-catching spaces for the world's most recognisable hotel and fashion brands. He's in charge of taking Hung's outline brief of "a red building with a diamond" and creating something unique.
"There are several directions. The Las Vegas titans said let's build our best in Macau. Others said let's create something from scratch with a modern theme. Others said let's create a hybrid of both and build something more Asian. There are lots of expressions.
"For me, because my clients are very high end, I can take the liberty of building something from scratch," Hung says.
He can also build something from scratch because Louis XIII Holdings is essentially the new front end for one of Hong Kong's oldest and most successful construction companies.
It was known as Paul Y. Engineering - builder of Hong Kong's cross-harbour tunnel and Li Ka-shing's Cheung Kong Centre office tower - until April 2013 when shareholders voted to change the firm's name to make it reflect the new focus of its operations.
Paul Y. acquired the Cotai site rights through its HK$2 billion purchase of Hung's Falloncroft Investments announced in late 2012 and concluded early this year.
The business is in talks with bankers to borrow the remaining money to fund development, something Hung says is made easier by the company's balance sheet dynamics and being able to leverage Paul Y.'s track record.
"It's corporate finance 101 - if you have a debt to equity ratio of 1:1 you are really under-levered. Banks know that, so we are really just borrowing the other 50 per cent.
"We are in the prime, prime category as borrowers," Hung says.
"Behind the shell of the luxury packaging, there is a lot of plain vanilla business intelligence and hard work from a lot of people."
When all the work is over, Louis XIII Holdings will be the owner of a hotel with around 230 duplex suites, 16 villas, the atelier and a Michelin-quality restaurant.
It will also boast the world's most extravagant - and expensive - suite with a price tag of at least HK$800,000 a night.
"It could be more," Hung says. "There will only be one like it in the world and if there is somebody who wants it and is willing to pay more, then that's the price."
What you get for your HK$800,000-per-night experience - roughly 25 percent more than the Royal Penthouse Suite in Geneva's President Wilson hotel, widely believed to be the world's most expensive hotel room - is a secret, but Hung says guests will not be disappointed.
As for who will rent it, Hung recounts the story of a friend of his, a European billionaire who took such a fancy to the presidential suite in a prime hotel property on the Kowloon side of Hong Kong harbour that he leased it for four years straight to enjoy the privilege of staying there for about two weeks every year - while stopping anybody else from doing so.
A client like that would suit Hung just fine.
"There are a lot of people like that around the world and so my audience is not just the regional wealthy. My friends from Russia say that Macau never had anything important enough for them to come, but now with [my hotel] they say they do."
Which brings us naturally around to why the ultra-wealthy would actually want to spend their money flying to a mock-chateau in a former Portuguese colony on the southern coast of China?
"We are not trying to create a mini-Europe. That is a theme park in China. We do not want a Europa or a Europeland in Macau," Hung says.
Still, if money is no object, why not go and experience the real thing - stay in a French chateau and buy your exclusive fashion items direct from the designers in their European headquarters?
This is plainly the question Hung has been waiting for.
"That's exactly the point. These things already exist, but in bits and pieces all over the place," he explains.
"Unless you are European, it is quite a long way from Asia. It's a 12-hour flight. There's jet lag and all that. And it's not located in one location. When you land in Paris for haute couture, you have to jump from here to there to here to there and it's not as easy as you think. If you want something from the Italians then you have to fly to Milan or Rome."
Aggregation, convenience and individuality are crucial to Hung's clients.
Living the luxury lifestyle he's selling to others, Hung knows how important it is and that's the basis of the concept for Louis XIII.
He tenses when it's suggested that what he's building sounds like the world's most expensive convenience store. Thoughts of 7-Eleven-style comparisons haven't really crossed his mind, Hung says. He's more the luxury industry's equivalent of Google for grandees.
"I'm not as egotistic as trying to compare myself or my brand to them, but Google didn't invent information. It's available all over the web. They just organise it in a very easy, accessible way to its audience. Facebook didn't invent people taking pictures and sharing them with each other. But they give you a platform so that everybody can access them with ease.
"In the same way, all these very high-end luxury products are around and for our target audience we are really just grouping them all together in a sensible way - in my way in the sense that I'm the screening part of it. We want to pick certain things that achieve certain standards of quality, of luxury, of tradition that we can introduce to our audience. That's essentially what we are trying to do."
Hung says his approach is good for a luxury industry struggling with the risk of becoming decidedly mass market in the mainland after an explosion of wealth creation over the past decade.
The mainland now has more than one million US dollar millionaires, according to the widely watched Hurun Report, and around 300 dollar billionaires.
Louis Vuitton is one brand feeling the risk of saturation as clamour for its products among the aspiring new consumer class rises. The company said earlier this year it would not open more stores in second- and third-tier cities to avoid becoming too commonplace.
Consultants at McKinsey say China's ultra-wealthy consumers - those with liquid household assets above 100 million yuan (HK$125 million) - demand a VIP shopping experience. Sophistication in their purchasing choices is accelerating. That's something all too evident to Hung.
"I've had numerous discussions as a VIP of most of the brands and now as a potential business partner, I say: 'You guys always think of how you want to sell to VIPs - let me tell you what the VIPs want.'
"You invite me to a party, you want to sell me jewellery, but if it's a social function I'd rather just be with my friends. I don't want to see my friends buying things, let alone trying couture. That's not the way to sell."
Nor is tying your customers to the rigidity of the haute couture spring/summer and fall/winter season schedule.
Parties for the rich happen all the time at any time. In other words there is permanent demand for exclusive fashion and Hung's Louis XIII concept is all about channelling that demand, improving on the delivery of product to an increasingly demanding customer base that ultimately has a singular focus - exclusivity.
"What a lot of brands have successfully done, and made a lot of money out of it, is to create what is now mass luxury. It is using a very nice brand and making it very affordable to a lot of people," Hung says.
"I don't buy things from that end. The luxury I'm talking about is the extreme," he says.
But it's an extreme luxury that in Hung's analysis is timeless, borderless and converges at the very top end.
"Regardless of culture, regardless of time, these are the things we appreciate," he says, using diamonds as his benchmark.
"If you take a very high-end diamond and you look at it today and looked at it two centuries ago, it's the same. The Tsars, the Maharajas would all look at it in the same way too."
Hung says that convergence helps insulate his business from the worst gyrations of the global economic cycle, currently in the middle of its slowest period of expansion since the depths of the 2008-09 financial crisis.
"We are not building Canary Wharf or Dubai. We are a tiny property compared to all our industry friends in Macau. That makes it manageable. Good things in life don't happen in big numbers. That makes the whole strategy make sense. I don't have to build 5,000 rooms. If that were the case I'd be subject to a whole different set of parameters and risk analysis. But it's a tiny project and all of that becomes very manageable," Hung says, revealing his inner investment banker.
"We are not throwing money away. We will save money when it makes sense to save and when you have to be elaborate, you have to be elaborate," Hung says.
"There is no cutting corners, but then again are we really going to put real Old Masters paintings on the walls? No, that's silly. You have to strike a balance. Most of my clients have seen such things, they own such things and they don't expect to see it in a hotel," he says.
"Behind the red hair and the flair and everything, I'm an investment banker by training."