The Scandinavian-initiated second home project Baan Paradise, a holiday dream investment for many foreigners, fell apart in 2008 with the market changes. Many investors feared bitterly that their money was lost. After some six years, up until the spring of 2011 this project, built on a hillside a short walk away from Karon Beach, had still not been completed.
But now, in a remarkable turnaround and thanks to a new investor and big efforts from the various stakeholders, the project has now finally been completed. In December it stood ready to open, rebranded as the Dewa Karon hotel.
The doomed second home abroad project on Phuket has thus now eventually been saved but at high cost for the individual property investors – half of whom are Scandinavians. Their very own paradise living had to be turned into a hotel operation in order to get the finances back on track. This was a different outcome than the condominium project they had initially bought into.
Many of the turns in this mishandled property bugger-up cannot be verified but one thing is for sure: the two initiators from Finland could not get their ambitious project completed. The individual buyers fell victim to these two Finnish entrepreneurs-come-developers with no previous experience of building in Thailand and also to the global financial downturn that came with full force in 2008.
“Starting a project in Thailand is very complicated – it’s not easy by any means, which one can be led into thinking since it is a fairly simple environment to live in and a carefree setting to have vacation on,” says developer and hotel operator Lars Ydmark of Tri Asia, now operating Dewa Karon.
“There are many projects of this kind more or less designed by companies with no sort of experience within either this or that – being very opportunistic, seeing the market: ‘Here it is, let’s go! Wow! Let’s build something and sell!’ I’d say 99 per cent of them have good intentions from the start, but it‘s a complicated world here and one encounters difficulties all the time,” says Lars who is someone with enough practice to know the ins and outs of what it takes – and with a track record of project completions.
“One must keep track of it all in order for things to run smoothly. And buying something you don’t see, you must have certain trust in the person you are dealing with.”
With so many green field projects back then Lars describes the market as resembling Russian roulette regarding whom to buy from etc.
“One can do due diligence but it doesn’t say much about a particular person or company’s basic intention – or what happens if the market drops.”
No ending in sight
Looking back at the heydays for real estate on Phuket around 2003 – 2005 Lars was himself active with housing projects.
“It was very much starting to take off with plenty of buyers and a sound financial world. Things felt sort of enormous. One almost thought there would be no end to it; that this was to be the norm for the coming 20-25 years,” Lars recalls.
His residential project Grove Gardens was a product out of that development where he not only built a new home for himself but a whole estate for residential investors.
“But I’m much more conservative than most other entrepreneurs; doing one thing at a time. I could see then a number of projects taking off extremely and moving on with the next before the previous one was finalized.”
“Those who did not have time enough to finalize with the cash flow at hand from the buyers ended up in a very problematic situation when the market halted in 2008. And the finalization when something is not ready is a difficult equation getting together if there are no more buyers for any unsold units.”
This was most likely the scenario with Baan Paradise – a typical off-plan project, meaning that the financing mainly comes from the sales of the units. Then there are all kinds of other influential factors such as increasing construction costs, the market conditions, construction delays etc.
“I might have been lucky being able to deliver, but I don’t think developers aimed at tricking customers, but had bad luck.”
“Today the market looks completely different than back then when the byers themselves were senseless and bought with their eyes closed. You have other buyer groups now, a different mind-set and the products are different.”
Condominium becomes a hotel
In the summer of 2010 the apartment investors’ group at former Baan Paradise contacted Lars per recommendation in order to look at what one could do. These investors, who were only supposed to be condominium owners, had by then managed to get legal control of the whole development.
“This was in itself positive, because their investments had financed the project which they nearly lost.”
“It was still a stormy period then and I saw as the simplest possible solution was converting it to a hotel in order to get financing.”
The market was not strong enough in order to sell the remaining units and besides a lot more money was needed.
All the 39 apartment owners, whom are all recognized as investors in the hotel, endorsed this plan together with a local group had entered into the company as new investor in order to finalize the project.
ScandAsia has been unable to reach any apartment investor to get further details on how their money had actually been spent prior to this.
As for the initial developers, last time in contact Jonas Broberg (featured as their representative in ScandAsia in 2006) disclosed that he had sold his shares in Priority Village, the company behind Baan Paradise, in 2007 and that he regretted not having followed the saying that one should not do business together with one’s best friends; indicating a split.
His business partner Staffan Libäck promised to tell his side of the story as late as in May 2010, claiming that he had finished negotiations regarding financing of the remaining work and that they would “complete the project whatever it takes and hand over the sold units to their buyers” as “the only viable and honest thing to do”. But his lawyer later advised him not to comment due to an on-going legal dispute. He has then gone quiet.
According to Lars Ydmark the project had halted twice and after the intended condo owners could eventually gain legal control of the land it was moved to a new company in early 2010.
When final construction could start in March of last year more or less everything in terms of installations such as piping and air-conditioning had to be redone.
“The standard is really good here, and the structure and facades were in good shape. But with a project on and off construction for so many years many things happen in this climate with products being unused.”
“I saw the potential to work with this group, and not only because of that we were on good terms but also that the product had certain synergy with Dewa in Nai Yang.”
The Dewa concept is Lars’s own where the resort on Nai Yang beach – by now well established on the market – is also a mixed-used property. Gradually he realised that the project in Karon was similar and would fit well into the same branding which focuses on giving the guest an experience of a quality product and destination.
“We are very clear on what we are selling and delivering and this is for me a relatively easy product to attach to Dewa Nai Yang, since we have apartments there too.”
He says the owners also feel comfortable in that he has experience in running this type of mixed hotel product.
“We have turned to a very traditional market active in Karon, which is also a very strong destination already promoted hard all over the world so one just have to jump on board that merry-go-round and position it correctly price-wise.”
Dewa Karon will continue the hotel operation until 2013 in a first stage in order to go through any teething problems. Then they are jointly to define the next stage about what to do with the product from 2016 and onwards.
Meanwhile each individual investor will enjoy four free holiday weeks yearly. The worldwide standard is 28 days for this kind of leisure home.
“The investors ought to be happy,” says the hotelier, “going from buying a dream to loosing it completely, and coming back from that – is fantastic. Then this might not be the kind of investment they had anticipated from the very beginning, but hey, at least it exists now!“
“It’s not this group of owners’ fault that that things turned out differently. But it’s their happiness and success that they have been capable of taking over the project, getting it finalized and then turning it into something that can generate revenue.”
“The time ahead is the positive thing,” Lars ends while sitting in the restaurant with lights on in the apartments and listening to the sound of the waterfall in the spot lit pools.