For sail: 200 homes on a cruise ship

In the worst economic storm in decades, a Beverly Hills company has an ambitious plan to build a $1.1-billion cruise ship, set to cast off in 2013. But instead of offering four- or five-day excursions as typical cruise lines do, the business plans to sell half the cabins as floating homes.

Opulent cabins aboard the ship Utopia now range in price from about $3.7 million to $26 million. But even at these prices, a key draw will be location.

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FOR THE RECORD:
Cruise ship: An article in Business on Monday about a proposed cruise ship that would offer residences for sale said that another ship, the Oasis of the Sea, weighs 225,000 tons. The vessel’s name is the Oasis of the Seas, and the tonnage is not the weight but the interior volume of the ship, measured in gross tons. —

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During the Cannes Film Festival, the ship is slated to drop anchor near the south of France in the Mediterranean sea. During the carnival celebration in Rio de Janeiro, the ship plans to dock off the coast of the Brazilian city. On New Year’s Eve, cruise ship operators hope to take passengers to Sydney Harbor in Australia to enjoy the fireworks display.

But some cruise industry experts doubt the project can stay afloat in the rough waters of the current economy.

“The promises don’t mean a whole lot until the keel is laid,� said Stewart Chiron, a cruise expert and president of Leisure Pro, a travel marketing business.

Utopia Residences Co. placed an order last month with Samsung Heavy Industries to build the 971-foot, 105,000-ton ship, scheduled to launch from South Korea. Once completed, the Utopia will offer 204 cabins that can be rented like hotel rooms for limited periods.

An additional 200 cabins will be sold as permanent residences, with prices ranging from about $3.7 million for a 1,400-square-foot home with two bedrooms and two bathrooms to $26 million for a 6,600-square-foot cabin with four bedrooms and three baths.

Utopia officials say purchasers would be buying a cabin on the ship but not an ownership share of the ship itself.

“They are not condominiums, and the residents do not own the ship or common areas,� said David Robb, chairman of Utopia Residences.

In addition, the cabin owners would have to pay regular fees for utilities, security, concierge services and access to private onboard clubs.

Some of the cabins feature hardwood floors, marble kitchen countertops, recessed lighting, walk-in closets and fireplaces. Owners and renters would have access to the ship’s many amenities, including three swimming pools, tennis courts, an outdoor movie theater, a miniature golf course, shops, restaurants and a “lazy river� meandering around the deck.

In addition, Utopia would perpetually cruise the seas, coming to port so passengers could enjoy the world’s most celebrated sporting and cultural events. Among the events on the Utopia itinerary are the Tour de France bicycle race, the Monaco Grand Prix car race and the America’s Cup yacht race.

“The beauty behind this product is that it’s a global product,� Robb said.

Much of the funding behind the project will come from Frontier Group, a private equity investment group based in Los Angeles and Washington, D.C.

The project comes only weeks after Royal Caribbean International launched the Oasis of the Sea, the world’s largest cruise ship, at 1,181 feet long.

The King Kong of cruise ships weighs 225,000 tons with a capacity of 6,360 passengers.

The idea of a luxury residential cruise ship is not new.

The team behind Utopia, including Capt. Ola Harsheim and Chief Engineer Tor Hansen, launched a similar, 644-foot residential ship called the World in 2002. The following year, the residents of the World bought the ship and hired a management firm to operate it. The ship continues to navigate the seas, stopping last month in Bateman’s Bay in southern Australia.

Harsheim has been a cruise ship captain for nearly 40 years and sailed with Royal Viking Sea before launching the World.

Hansen previously worked as chief engineer with Crystal Cruises and Cunard.

Still, at least one attempt at launching a residential cruise ship has not been successful.

In 2002, Ocean Development Group teamed up with Four Seasons Hotels and Resorts to propose a 720-foot luxury residential cruise ship to set sail in 2007. But because of financing problems, the plan fell through.

Erik Hvide, a consultant and investor with Ocean Development Group, said the company could secure commitments to buy only about 30% of the 112 units on the ship when the global economy began to sink.

Because the financing to build the ship was contingent on the sale of at least 60% of the units, he said, the project failed.

While Hvide still believes the concept of a luxury residential cruise ship can succeed, he said he doubts the current economy will support the Utopia project.

“If anything, getting financing today is more difficult than it was two years ago,� he said.

But Robb -- a Harvard Business School graduate who co-founded Frontier Group along with Frank C. Carlucci, a defense secretary during the Reagan administration -- said he is confident that Utopia won’t suffer the same fate as the Four Seasons ship.

“This ship has significant financial backing and very significant industrial part- ners who have enormous resources,� he said.

Robb said Utopia Residences has already received purchase commitments for about 16% of the residential space on the ship.

The cabins are being sold through Prudential Douglas Elliman of New York.

Other cruise experts say that the idea of launching a residential cruise ship for the super-rich may sound irrational during tough economic times, but that the market may improve by the time Utopia launches in 2013.

“By ordering a ship now, some of the advantages are that you have less competition and lower construction prices,� said Matthew Jacob, director of Majestic Research, an equity research firm based in New York.

But Jacob noted that the number of people who enjoy cruises and have the money to buy a ship cabin is very limited. “It’s going to be an extremely niche product,� he said.

Still, during any economic slump there are always a few super-rich people who are willing to spend, said Jill Wlos, a cruise consultant for BuyCruises.com.

“In this economy there are still a lot of people with a lot of money that they don’t know what to do with,� she said. “It wouldn’t be too hard to find 200 people with that kind of money.�

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