What Mike Balfour OBE of Fitness First fame did next: The Hideaways Club: Doing property investment in a different way
23 June 2011
Mike Balfour made his name founding, building up and selling the chain of gyms Fitness First. He says the idea came from seeing what was happening in America and translating that to Europe. He started being a director at a health club operator in Texas which eventually sold out and it was then that he decided to launch a gym operation himself. “I started in the ‘92 recession with an old squash club” says Balfour so things were tough. I had big ideas to launch ten clubs but ended up with more than five hundred clubs in twenty one countries. We floated on the AIM stock market in ‘96 and then went back to the market five times. In 2003 we did an MBO to take the company private for £415mn and then in 2005 a private equity company acquired it for £835million. I came off the board eighteen months ago because I wanted to focus on my new project The Hideaways Club.” Explains Balfour from his rooftop office in Sloane Street.
Of the new venture Balfour says, “I had seen most people who do well aspire to get a second home but from my own experience, I knew it was an expensive thing to do; was full of hassles and then you felt obligated to go back to use the property when other destinations might be more appealing. I thought there must be a better way. I didn’t like what existed in the market because it seemed like a hangover from timeshare usage which didn’t give a share of the upside or ownership of the properties.”
So he launched The Hideaways Club where members own and pay an annual fee for the upkeep of the real estate in a fund. “Members benefit from property valuation increases and from four to eight weeks staying in properties depending on the investment they make (for the block of weeks mentioned it’s £250,000 entry point but there are two other smaller entry level points)” but he says “with The Hideaways Club, you have to like staying in villas because it’s a villa proposition although we are opening new clubs which members can go half and half into which will be focused on City apartments. I think though for some destinations the only way to visit them is by villa, like the South of France especially if you have a family. The way I look at it is this: people can spend £1.5mn buying a property and managing it themselves or £250,000 with us and they own a share of a hundred villas which gives more variety of destination and our villas are well appointed, luxury properties.” The villa fund is still gaining ground with thirty eight villas and chalets and two hundred and thirty members.
Balfour explains their mechanism “We have a ratio of members to villas so we have six hundred members in a fund to a hundred properties being managed within it. It ends up being six members to a property and they own a share of the property company.”
I mentioned some ownership schemes in the Caribbean where individuals buy homes and then income is earned or ongoing costs offset by renting these properties as hotel apartments or villas. The properties seem to have had the living daylights beaten out of the rooms and repairs and the concierge were lacklustre. Balfour says this won’t happen with their properties. “There is downtime and rest for the villas so they don’t end up overused and can rest. They’re also only used by the people who are investors so they tend to be better looked after than in a hotel environment.”
And the tough talk? What if investors want out? Balfour says members can leave easily they aren’t locked in and they don’t want to make it difficult for people to depart. “We value the properties every three years but many properties will be coming online year by year so valuations are more current. We also include the share price of the company and that combination becomes the price people exit the fund at.” The fund has grown six and a half percent a year says Balfour and has been going for three years since the end of 08. (There is a commission taken for sale of shares and a percentage on the profit of the share). “We’ve only had three people sell out of the club since inception because people use it as a family asset. We think there is far too much emotion in buying property so we do the deals and are more hard nosed about their location and getting the right price for the investors because we also need to increase profits in the fund for all members. Investor members need to have a flexible outlook on destinations. There are busy times and quiet times so investors need to be flexible and to consider nearby destinations like Ibiza or Portugal instead of Spain. We also have a concierge to look after members in their villas which means that people enjoy their holidays without having to work out where all the local amenities are for the first few days.”
Balfour is also launching a City fund where fifty members have already put their hands up to join which will have entry level investment of £65k to £120k. “It will be a hundred and twenty, two to three bedroom apartments in places like Miami, New York, London, Paris, Vienna, Prague and KL.” He says. “People can have twenty three nights in any of the apartments and we also have an option where investors can buy half into the villa fund and half into the city fund.”
Isn’t it secretly just another timeshare scheme?
“People will realise it’s not a timeshare if they look at if for thirty seconds or more. It’s true equity ownership and is much like a unit trust where you have a share in many different companies. The fund is very transparent. They can see exactly what we do and it’s very simple to understand.” Balfour says “I have a track record running the biggest health club in the world with more than twenty thousand employees. We are partly owned by Investec and other investors include a managing partner of a private equity fund. It is a serious business and none of the players would be involved if they thought they would lose money. All we’ve done is just worked out a new way to do things. If you look at low cost airlines like Easyjet they did the same thing. They looked at airline travel with high flight costs and meals included and took the thing apart and put it back together a different way. It worked out a better way to do things than airlines currently did. That’s all we are doing with this.”
It probably also helps, that Balfour was awarded an OBE for services to business and is a qualified chartered accountant.
“Since the crash there are far more sellers so we can buy as cash buyers at good prices. Asia is different. Prices are rising fast. Majority of members are UK but they are now also coming from Asia and twenty three countries are now represented in the club.”
Balfour is a member in his own right
“It’s a long term venture for me because I enjoy it. I am a member in my own right and my family love it.”
And what next?
“I am building health clubs in Eastern Europe in places like Poland and Bulgaria with a new concept.”
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