Golf, Art Are Luxury Weapons in Portugal’s Credit Battle: A. Craig Copetas

http://www.bloomberg.com/news/2011-07-06/golf-art-are-luxury-weapons-in-portugal-s-credit-battle-a-craig-copetas.html

On an oceanfront terrace in the Portuguese sardine-fishing hamlet Meia Praia, Sergio Vidal Balaguer is betting $1 billion that a “new luxury” will emerge from global economic calamity.
The 40-year-old Spaniard is director general of Grupo Miragolf SA in Madrid, and he has great expectations.

“Ferdinand Magellan sailed past here in 1522 to chart a new course into the future,” Balaguer says after a round of golf with a coterie of like-minded businessmen and politicians gathered at the Onyria Palmares Beach & Golf Resort to explore the uncharted frontiers of wealth and indulgence.

“What we’re doing is building a new luxury model for the post-crisis world,” Balaguer says of the perilous voyage ahead.“There are no maps.”

Portugal’s long-time Secretary of State for Tourism Bernardo Trindade, speaking over lunch, reckons the only choice left is to set sail on intuition. “We have to continue making bets,” says Trindade, one of the men responsible for laying the groundwork to repay Portugal’s 160 billion euro ($229.02 billion) debt.

The Portuguese government’s navigational skills are being put to the ultimate test on a global stage. Moody’s Investors Service on July 5 slashed Portugal’s credit rating to below investor grade Ba2 junk with a negative outlook, from Baa1. At the same time, Spain is scrambling to prevent Moody’s from downgrading its long-term government-bond rating another notch after it was lowered to Aa2 in March.

Millionaire Anguish

Proponents of the New Luxury operate on instinct and a 2011 survey by Fidelity Investments in Boston that shows there’s a 2-in-5 chance millionaires don’t feel wealthy unless they have a total net worth of $7.5 million to ease the pain of the economic slump. Coming generations of millionaires in search of luxury, Balaguer says, will want a much bigger bang for their buck and he intends to give it to them.

Jose Carlos Pinto Coelho, the 64-year-old chairman of the Portuguese property-development company Onyria SGPS SA and an economic adviser to Prime Minister Pedro Passos Coelho, is a transitional figure in the New Luxury. As he tells it, millionaires with less money who are wandering through financial landscapes pocked with trillions of dollars of debt require businessmen and governments to re-evaluate the relationship between style and commerce.

So with his twin 29-year-old sons, Joao and Antonio, Coelho this year committed almost 180 million euros to developing New Luxury projects in Meia Praia and along the Turkish Riviera for alarmed millionaires.

Global Tribe

But will they come?
“Destinations or products, everything now is word-of-mouth,” says Coelho, whose company employs 500 people around the world. “No advertising, no backroom operation managed by a brand-name chain. There’s no future in following the Gucci and Ritz-Carlton vision of luxury.”

Self-indulgence is still a virtue, so long as the price is right, the location exotic and there’s a solid Internet connection. Balaguer says the New Luxury is tribal in nature, global in scope and hinges on bringing Balthus to the clubhouse.

Indeed, Miragolf’s resort and stately home projects inSpain and along the Caribbean coast of Panama over the next 10 years will feature museums as their design centerpiece to attract a new generation that wants more than super spas, all-natural mojitos and miles of championship golf.

Art of Golf

“Golf is art, so I want artists, the world’s greatest artists, to be part of the next generation of my luxury resorts,” Balaguer says of the projects designed to delight next-generation Latin American and European millionaires. “My market wants contemporary-art museums on site, so we’ll go further and award artist grants and establish a foundation for the arts.”

This strategy is no marketing frivolity. Balaguer’s already negotiating with the Ivam Museum in Valencia to participate in Altea, the boutique hotel and luxury villa compound that breaks ground later this year near Alicante with an eco-friendly course designed by Robert Trent Jones Jr.
Balaguer clicks a pen and attempts to navigate the treacherous economics of the New Luxury on a paper napkin.

“Here’s where it starts for me,” Balaguer says. “The pre-crisis minimum price point for buying into a luxury property was 14,000 euros a square meter. I’m making it 8,000 euros a square meter and offering more.”

Targeting Clients

Just don’t skimp on the golf. New Luxury developers say their target customers have an average age of 48 and all of them are interested in playing the game.

“They are men who travel in groups,” says Antonia Correia, economics professor at the Technical University of Lisbon. “That means that the golf courses must invest in diversification of markets to appeal to young people. If they do not, there will be no future demand.”

Yet Rolf Kettmann is nervous and wondering if redefining lavish is little more than an attempt to douse a financial firestorm with a bottle of discounted Champagne. Kettmann is the 59-year-old general manager of the Yellow Lagos Meia Praia Hotel, an elegant beachfront resort opened by Eurimobe SA in April as an experiment in New Luxury.

“Our rooms are 150 to 250 euros a night, but we still struggle,” Kettmann says. “Occupancy is 65 percent, which is considered reasonable, which unfortunately isn’t reasonable.”

Lavish Future

Kettmann describes his role as creating a microclimate for the future. “The New Luxury is about repositioning products and services for the next generation of buyers,” says Kettmann.“The hard part is attracting these New Luxury guests, who do exist and want to seek out new places on their own. But it’s my job to worry and you can’t dump market prices forever to attract market share.”

Back on the golf course, Coelho is driving his cart toward a tough nine-iron shot to save par. The warning beneath the wheel reads, “Rollover May Cause Serious Injury or Death.” He isn’t concerned.
“I’m building 91 luxury homes and 230 luxury hotel rooms,” Coelho says of the development taken from Frank Lloyd Wright’s architectural playbook. “The houses cost between 1.2 million euros and 4 million euros and will deliver a 36 percent gain in value over the next 10 years.”

Coelho’s shot comes up short, though accounting firm KPMG LLP says the sport is a growth winner, annually generating close to 20 billion euros of direct revenue and supporting 400,000 European jobs that pay almost 9.4 billion euros in wages. In the U.S., research institute SRI International’s Golf Economy Report says the game pumps some $76 billion into the economy.

“Portugal, Spain, Greece, Ireland, America, the entire world is in economic trouble and none of us can get out of it by competing with China on manufacturing,” Coelho says. “So we must find our own way out by offering new forms of luxury in regions where costs are low. At least, that’s the plan.”