Tuesday, June 30, 2015

Want to make your home aboard ship? You could, for as little as $3.7 million

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David Robb with a model of the Utopia. About half the cabins would be sold as homes.
David Robb with a model of the Utopia. About half the cabins would be sold as homes. GLENN KOENIG / Los Angeles Times
BEVERLY HILLS, Calif. - In the worst economic storm in decades, a Beverly Hills company has an ambitious plan to build a $1.1 billion cruise ship, set to cast off in 2013. But instead of offering four- or five-day excursions as typical cruise lines do, the business plans to sell half the cabins as floating homes.

Opulent cabins aboard the ship Utopia now range in price from about $3.7 million to $26 million. But even at these prices, a key draw will be location.

During the Cannes Film Festival, the ship is slated to drop anchor off the south of France in the Mediterranean sea. During the Carnival celebration in Rio de Janeiro, the ship plans to dock near the Brazilian city. On New Year's Eve, cruise ship operators hope to take passengers to Sydney Harbor in Australia to enjoy the fireworks display.

But some cruise industry experts doubt the project can stay afloat in the rough waters of the current economy.

"The promises don't mean a whole lot until the keel is laid," says Stewart Chiron, a cruise expert and president of Leisure Pro, a travel marketing business.

Utopia Residences Co. placed an order in December with Samsung Heavy Industries to build the 971-foot, 105,000-ton ship, scheduled to launch from South Korea. Once completed, the Utopia will offer 204 cabins that can be rented like hotel rooms for limited periods.

An additional 200 cabins will be sold as permanent residences, with prices ranging from about $3.7 million for a 1,400-square-foot home with two bedrooms and two bathrooms to $26 million for a 6,600-square-foot cabin with four bedrooms and three baths.

Utopia officials say purchasers would be buying a cabin on the ship but not an ownership share of the ship itself.

"They are not condominiums, and the residents do not own the ship or common areas," says David Robb, chairman of Utopia Residences.

In addition, the cabin owners would have to pay regular fees for utilities, security, concierge services, and access to private onboard clubs.

Some of the cabins will feature hardwood floors, marble kitchen countertops, recessed lighting, walk-in closets and fireplaces. Owners and renters would have access to the ship's amenities, including three swimming pools, tennis courts, an outdoor movie theater, a miniature golf course, shops, restaurants and a "lazy river" meandering around the deck.

In addition, Utopia would perpetually cruise the seas, coming to port so passengers could enjoy the world's most celebrated sporting and cultural events. Among the events on the Utopia itinerary are the Tour de France bicycle race, the Monaco Grand Prix car race, and the America's Cup yacht race.

"The beauty behind this product is that it's a global product," Robb says.

Much of the funding behind the project will come from Frontier Group, a private equity investment group based in Los Angeles and Washington.

The idea of a luxury residential cruise ship is not new.

The team behind Utopia, including Capt. Ola Harsheim and chief engineer Tor Hansen, launched a similar, 644-foot residential ship called the World in 2002. The following year, the residents of the World bought the ship and hired a management firm to operate it. The ship continues to navigate the seas, stopping in December in Bateman's Bay in southern Australia.

Harsheim has been a cruise ship captain for nearly 40 years and sailed with Royal Viking Sea before launching the World.

Hansen worked as chief engineer with Crystal Cruises and Cunard.

Still, at least one attempt at launching a residential cruise ship has not been successful.

In 2002, Ocean Development Group teamed up with Four Seasons Hotels and Resorts to propose a 720-foot luxury residential cruise ship to set sail in 2007. But the plan fell through because of financing problems.

Erik Hvide, a consultant and investor with Ocean Development Group, says the company could secure commitments to buy only about 30 percent of the 112 units on the ship when the global economy began to sink.

Because the financing to build the ship was contingent on the sale of at least 60 percent of the units, the project failed, he says.

While Hvide still believes the concept of a luxury residential cruise ship can succeed, he doubts the current economy will support the Utopia project.

"If anything, getting financing today is more difficult than it was two years ago," he says.

But Robb - a Harvard Business School graduate who cofounded Frontier Group with Frank C. Carlucci, a defense secretary during the Reagan administration - says he is confident that Utopia won't suffer the same fate as the Four Seasons ship.

"This ship has significant financial backing and very significant industrial partners, who have enormous resources," he said.

Utopia Residences has received purchase commitments for about 16 percent of the residential space on the ship, Robb says. The cabins are being sold through Prudential Douglas Elliman of New York.

Other cruise experts say the idea of launching a residential cruise ship for the super-rich may sound irrational during tough economic times, but the market may improve by the time Utopia launches in 2013.

"By ordering a ship now, some of the advantages are that you have less competition and lower construction prices,"says Matthew Jacob, director of Majestic Research, an equity research firm based in New York.

But Jacob notes that the number of people who enjoy cruises and have the money to buy a ship cabin is limited.

"It's going to be an extremely niche product," he says.

Still, there are always a few super-rich people who are willing to spend during any economic slump, says Jill Wlos, a cruise consultant for BuyCruises.com.

"In this economy, there are still a lot of people with a lot of money that they don't know what to do with," she says. "It wouldn't be too hard to find 200 people with that kind of money."

Los Angeles Times
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