Why do Gold Fingers Chase the Le Bijou Bond
The cat is out of the bag and finally the rumours came true. Le Bijou is issuing new bonds as it raises funds to invest in the significant opportunities brought about by the coronavirus crisis and Le Bijou’s “contactless living” philosophy.
This time though, it is not only institutional investors who are eligible, because private individuals can also now apply to participate in the company’s explosive growth.
The bond is backed by multiple revenue streams from over 42 hotel units in the five largest Swiss cities. It also boasts enviable return rates (3-6%) and unlike most bonds, this one pays out every month.
A hotel that benefited from the crisis
Global media recently fawned over Le Bijou, thanks to an inventive and compassionate business approach during the COVID-19 crisis. When the crisis hit, the company began converting their hotel units into prime quarantine facilities with corona tests and 24/7 medical supervision, while also providing free recovery stays for health workers.
One of the numerous features of Le Bijou’s creative crisis response in Forbes (source)
This creative response to the crisis drew healthy doses of new revenue and unprecedented publicity. Instead of shuttering like the vast majority of the industry, Le Bijou saw a spike of customers, enticed by their ‘luxury quarantine’ services.
At the time, uplifting stories related to the coronavirus were few and far between. So global media jumped with relish at the chance to cheer up their viewers with a David versus Goliath tale, of a relatively young hotel chain embarrassing the complacent juggernauts of yesteryear.
The story about Le Bijou and the paradigm shift reshaping the hotel industry literally went viral, with millions of potential customers clicking on the “luxury quarantine’ headlines generated by outlets like Forbes, Bloomberg, the New York Times, USA Today, Swiss NZZ, Tages Anzeiger and Cash.ch among many others.
As a result, Le Bijou today is a brand recognised by many more people than a few months ago. But Le Bijou is no new kid on the block. It has been disrupting the hospitality industry since 2013.
From the outset, it had a ‘contactless living’ philosophy (check-in to check-out) with Uber-like guest services. And it quickly took a chunky segment of the Swiss market by appealing to HNWIs and other wealthy clients that Airbnb was unable to cater for.
The avant-garde, privacy-focussed properties are brimming with state-of-the-art technology, highly prized by demanding guests like Apple co-founder Steve Wozniak, who described his stay as “the best experience of [his] life”.
The Hubner family with Apple co-founder Steve Wozniak, one of many famous Le Bijou guests
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What does Le Bijou raise the funds for
The coronavirus crisis has forever changed the hotel industry and Le Bijou’s contactless living philosophy has already proven its game-changing advantages.
So while traditional hotels that survive might spend years trying to catch-up, Le Bijou is poised to exercise its first-mover advantage by grabbing the top properties, strengthening her infrastructure and opening new service hubs across Switzerland.
At the same time, the coronavirus crisis has reinvigorated the real estate market, with many prime properties becoming available. Numerous landlords, enamoured by the stability of the firm, signed up on Le Bijou terms. Many are ready to co-invest, excited too to see their properties being given a signature update and converted into exclusive apartments equipped with James, a proprietary AI-backed digital butler.
Le Bijou works with funds, institutions, and private investors who are willing to participate in the disruption.
What will the bond deliver?
Every investor likes the stability that comes with investing in businesses which can point to a strong track record and a strategic position in a growing sector. But there are other distinctive factors and some of them were recently revealed in a survey of Le Bijou investors:
- Reliable monthly income (the bonds pay a monthly coupon)
- Monetisation of Swiss tourism growth
- Pension alternative with more bang for buck
- VIP access to private community events
- Owners Club members-only events
Toni Piech, a Swiss electric car maker, speaks at a Le Bijou investors meeting
The strengths of the business model
The success of Le Bijou is rooted in an obvious yet often overlooked business principle vital to long-term success: you must possess competitive advantages which rivals find tough to mimic, even in the long run.
Here are some of the key competitive advantages that secured Le Bijou’s steep growth trajectory:
- Memorable brand, strong customer captivity: as one of our franchise investors explained, (quoted below), Le Bijou exhibited the hallmarks of an enterprise which could go global and become truly iconic, like Apple or Coca Cola, and this is the secret sauce he looks for in a company when investing.
- Proprietary technology: Le Bijou’s package of ‘contactless living’ services is easy to scale and hard to copy. It took years for the company to refine what is currently an inimitable customer experience. Le Bijou’s AI-backed digital butler “James” is easily scalable and loved by guests, while the company’s Uber-like service model radically reduced overheads.
- Economy of scale: once a Le Bijou hub is established in a city, connecting new units is pretty straightforward. Servicing 100 apartments in one city is way cheaper than servicing 100 cities with one apartment each.
- Culture of creativity: American billionaire and hedge fund manager Ray Dalio said in a recent interview, that only two kinds of companies would succeed in the post-pandemic world: “meat and potatoes” companies and creative companies. In other words, businesses with a simple business model and low debt, and creative companies who can adapt well. Le Bijou is demonstrably both.
From the investment point of view, they can participate in the profits from real estate operations without owning the real estate itself, and carrying the connected risks. Real estate in central areas of Swiss cities rarely yields more than 1% – 1.5%, which makes it cheap to rent and expensive to own. So Le Bijou rents it.
“What Le Bijou is doing … can be considered ‘pure alpha’ equivalent in real estate investing. ‘Pure alpha’ measures the amount that an asset has returned in comparison to the market index. In this case, the market index is the returns of prime real estate ownership, which are 1%-1.5% in central areas of big Swiss cities, and ‘alpha’ is the returns that come from operating that real estate – in this case, operating it as an apartment hotel. Le Bijou doesn’t mix the beta with the alpha. This is very attractive, as the beta (in other words, returns from the real estate ownership) is very poor in Switzerland, although alpha is very attractive. This way, an investor can own only the most profitable part of it, the alpha, and allocate the rest of his capital elsewhere”.
David Fishman, Chief Investment Officer of Moonshot, a Hong Kong-based investment firm
What do investors think?
“Again, it comes down to my personal investment philosophy: knowledge about the industry and the people are critical for making investment decisions and Le Bijou is no different.
I know very well from experience and research that the problem is particularly acute in big cities like Zurich and Geneva. I like Le Bijou because it is tackling this problem head-on and achieving excellent results. Every property in the portfolio is profitable after the second month.
They recognize that it is a competitive market and the barrier to entry currently, although not low, is still possible for many. That’s why they are investing heavily in their services, technology, and expansion.
But when investing, I look farther than just the financial spreadsheets. Le Bijou’s vision isn’t merely fixed to solving accommodation problems for travelers 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.”
Severin Renold, CEO of Digialog AG and Le Bijou franchise investor
“I started investing in Le Bijou in January 2020 when I first heard about the coronavirus. I thought to myself – it will pass as SARS did, nothing serious. It didn’t, and I was really worried, but I knew they were going to come up with something. And they did. The corona shelter worked nicely for them. They never missed a dividend payment, not even in March or April, everything was on time, and this was super important for me as it is a large part of my personal income”.
Private Le Bijou Investor from Zug
Le Bijou prides itself on its openness and transparency and invites interested parties to feel free to call (+41 44 533 16 10) or write with any questions. Some of the most common are listed with answers below.
1. Is this a listed bond?
No, the bond is not publicly traded, but the liquidity is provided through an internal exchange platform with hundreds of investors. Not being publicly traded means the bond price is less susceptible to market fluctuations and panic sell-offs. The risk premiums of publicly traded companies disappear with the inflows of cheap money from funds who buy listed assets. So being not publicly traded also means the bond yield is higher. The drawback of this approach is that selling the bond can’t be done instantly.
2. Why doesn’t Le Bijou raise money from banks?
While we do raise bank loans for a limited set of projects, most of our developments are financed by private and institutional investors with an appetite for private debt. The reason for that is that we keep our model capital-light and lease the real estate instead of renting it, so that investors can reap a higher yield. This type of setup is not something that a typical bank can finance, as they require collateral in the form of real estate. The investors who look for real estate exposure can balance their portfolio by buying additional bonds that yield a lower income but are backed by real estate.
3. Will I lose money if real estate values drop?
This particular bond is likely to benefit from falling real estate prices. This particular issue of bonds doesn’t imply ownership of the real estate, instead, Le Bijou companies sign long-term property leases, up to 30 years with the lease extension rights. This lets the investors avoid the risk of real estate crash and enjoy the benefits of a cheap rental price when compared to the price of the property (the rental business is often yielding less than 1.5% for the owner of centrally located real estate; so it doesn’t make financial sense for Le Bijou and its investors to own the property, and makes perfect sense to rent it).
How to apply?
Update as of 15.06.2020: The whole issue of Luzern bonds was sold out this week. The outstanding amount of Zurich bonds is 1,980,000 CHF.