A Swiss Hotel Thrives in the Crisis. Investors Eat it Alive
Le Bijou, a network of high-end apartment hotels, not only showed impressive resilience to the crisis but also strengthened its strategic position
The coronavirus crisis hit everything and everyone—banks braced for bank runs, shares tumbled, governments printed money and companies laid off millions. But those familiar with history saw light in the dark, as every crash also means an opportunity.
Symbolically, an old Chinese saying goes: "When the wind of change blows, some build walls, others build windmills," and one Swiss hotel chain perfectly embodies it. Le Bijou, a network of high-end apartment hotels, not only showed impressive resilience to the crisis but also strengthened its strategic position, so that investors, large and small, eat it alive.
The company's CEO, Alexander Hubner, is seen as one of the most promising entrepreneurs in the post-pandemic times. Le Bijou was also endorsed by tech-icon and Apple co-founder Steve Wozniak, who called Le Bijou "the most outstanding hotel experience he ever had".
The Hubner family, the major shareholder of Le Bijou Holding, talks about the backstory to their success.
Crazy Hustle or Heavy Prepping?
Le Bijou's model redefines the paradigm of the hospitality industry. Since inception in 2011, the hotel practices "contactless living" philosophy, check-in to check out.
There are no traditional amenities, which the Hubner family deemed outdated and even dangerous: no reception (and no receptionist), no restaurant (as the whole city is a restaurant), no lobby (and no other guests), no unexpected visits of cleaners (unless you invite them). This will be the de-facto standard in the post-crisis world and the co-founder and CEO Alexander saw it coming many years ago.
"Le Bijou units have full-service kitchens and in-room amenities like saunas, fireplaces, and gyms, so that our guests can stay healthy and fit no matter how long their stay is. They practically don't have to leave the apartment—the hotel boasts an app and a concierge service where they can order groceries, meals, massages, and even personal chefs," says Alexander.
Was it a long-term vision involving intensive planning or a mere coincidence? A bit of both, says Alexander: "I enjoy studying history and modelling the future in my head. I actually did think about an apocalyptic scenario, where you won't be allowed to see any other living creature for a couple of months. The world has already seen a few of those pandemics and a lot of more localized quarantines. I thought that we'd have an advantage in this type of situation, although I didn't see it coming in 2020. If I did, I wouldn't probably change much in the hotel. We were prepared."
When the crisis hit, Le Bijou came up with its COVID-19 Quarantine offer, designed to maximize safety as well as comfort for guests.
In essence, Le Bijou provides 24/7 medical supervision with external specialists. If there is a need, the residents can have a coronavirus test inside their Le Bijou apartments, without exposing themselves to infected patients at hospitals. Should a guest require a more complex medical service, it won't be an issue—all Le Bijou apartments are centrally located in immediate proximity to emergency clinics.
With these innovations, the Hubners' hotel never saw a prolonged drop in bookings. "At the beginning of March, we saw the bookings rate going south like 30 per cent. Even though we still had bookings from business travellers who had to travel no matter what, we knew we have to come up with something," says Alexander. "We looked at what advantages a hotel like ours has in this new environment and came up with COVID-19 Luxury Quarantine. We tapped into a new audience: elderly locals who want to have 24/7 assistance and supervision," he added.
Zombie Apocalypse on the Hubners' Terms
While money moves from riskier to less risky assets, Le Bijou sees no shortage of investment offers. In part, investors are allured by the resilience of Le Bijou's model. But they are also looking to escape cash and purchase real assets in fear that governments will keep printing money and currencies will lose their value.
"With interest rates hitting zero in Europe and the US, the governments heavily print money to soften the crash. This devaluates the currency and investors flee from cash. We might see the major currencies losing value against real assets by double digits in the next couple of years. No wonder that institutional and private money flows into real assets, especially mid-size, simple to manage businesses, where there are still good profits to be made. Le Bijou hits exactly what investors want", says David Fishman, chief investment officer of Moonshot, a Hong Kong-based investment firm.
Real estate trading in Switzerland is also proving advantageous for Le Bijou's expansion. As many overleveraged companies leave the market, companies with strong balance sheets take advantage of affordable prices and landlords' willingness to sign extra long-term deals.
"Now the time plays in our favour. The recent events presented us with an opportunity to secure the best real estate deals on very favourable terms", says Alexander. "We have a solid reputation among the landlords. They like our vision and the idea of having their properties turned into something as nice as a high-end hotel. We received numerous inquiries from top Swiss landlords offering cooperation and co-investment", he adds.
In 2020 and 2021, Le Bijou plans to open a multitude of new units. The expansion is being financed by a combination of the firm's own and landlords' capital. Individual investors also have an opportunity to participate—the company offers various tiers of growth bonds, with yields ranging from 3 per cent to 6 per cent, and terms from 12 months to 10 years.
A Strategic Outlook
Le Bijou is not the only company that adapted well to the crisis, and critical minds question if this kind of growth is sustainable. Without strong underlying competitive advantages and favourable industry structure, no company, however big or innovative, can sustain its profitability.
Fishman helped us review Le Bijou's business model and he explained the trend that Le Bijou capitalizes on: the unbundling of Airbnb. A phenomenon well-described by the Andreessen Horowitz fund.
"Le Bijou is just a part of a larger trend, where smaller companies take over the markets of their larger counterparts, chunk by chunk. A decade ago, Airbnb took over a part of Craigslist's market—short-term rentals, which existed and thrived long before Airbnb—and eventually overshadowed Craigslist in terms of both revenue and valuation," says Fishman. "Now, we see companies like Le Bijou and Sonder attacking Airbnb's original markets. Le Bijou provides the same level of independence and comfort of renting the whole apartment that Airbnb customers usually enjoy. But it also provides exceptional brand experience and security, two huge drawbacks that Airbnb can't control in principle. This process is called unbundling and we see that it continuously builds new unicorns and destroys the old", Fishman says.
One of the largest Le Bijou investors, Severin Renold, sees another solid advantage in the brand that Le Bijou developed. "When investing, I look farther than just the financial data... Le Bijou's vision isn't merely fixed to solving accommodation problems for travellers per se. It's much bigger. They have the potential to create one of the world's most distinctive brands. Although the company is relatively small now, they created a vibrant and iconic brand with a core group of advocates (comprised of guests and investors) who absolutely love the brand and generate a lot of word of mouth and local business. This momentum is formidable if it can be sustained. I firmly believe that the ability to create a distinctive, sustainable and scalable brand is a tipping point that separates just good companies from great ones. If you even have a great product, but no great branding, you will always be Huawei, not Apple", says Renold.
Investment banker Michael Mueller even sees a potential threat to the traditional private banks: "Their fragmented ownership model allows diversification among the most desirable locations. This is something a private bank did for the wealthy clients, but now we see more and more companies that have such diversification hardcoded in their business model, making it more accessible to the average investor".
The wealthy become wealthier?
The company's strength has a mixed flavour. Some claim the naturally privileged position of the company is "unfair" and providing luxury quarantine services is "improper", as it seemingly benefits the haves and is unavailable to the have-nots—both in terms of quarantine and in terms of wealth growth.
Madeleine Hubner, Co-Founder and CCO of Le Bijou, replied that alongside providing luxury quarantine for those who can afford it, the company provided numerous free relief stays for healthcare workers and those in great need.
As for creating the wealth gap, Madeleine doesn't see it. "We realize that bank-made financial instruments are inaccessible to average people," she said, explaining: "The assets are overpriced and have unreasonable entry thresholds. We change that. Although institutional capital is more attractive, we decided to be open to all sorts of investors. The citizens can participate in the growth of the economy that they build. Actually, more than 70 per cent of investors of a given property live in the city where their property is located; we are fond of those local investor communities, as they help to promote the business locally."
To give even more bang for the buck for partners and co-investors, says Alexander, Le Bijou created a community called the Owners Club: "At the private events, accessible only for prime members, investors can rub shoulders with famous entrepreneurs, successful CEOs and their colleagues' investors," says Hubner. The speaker at the most recent event was Toni Piech, a member of a famous Porsche family and a founder of Piëch Automotive, an electric car producer.
However, to enter the Owners Club, one has to invest. And the minimum ticket is $10,000-50,000. Not so much when compared to crazily high Swiss salaries, though still barely an equal opportunity.
Is there life beyond the Swiss haven?
One of the issues worthy of note is the rate of growth. Switzerland is a small Alpine nation—the largest city, Zurich, boasts only 800,000 inhabitants. Although the tourist inflow grows, the company might find itself short of new properties, as its criteria are very strict—consider just two of them: "Fully available historic building in the central area" and "should include a penthouse".
Thus the company is left with two choices—either to extend its means or shrink its ambitions. If it chooses to sustain this kind of growth further and goes international, it may face a very different reality outside of Switzerland. The investors and stakeholders believe Le Bijou's innovation is applicable worldwide and that the company will continue its steady advance towards becoming a new bluechip corporation.