TUI AG said it’s making progress on pulling out of an Italian vacation-home project seven years after the owner of Europe’s largest tour operator purchased the property just before the start of the global recession.

TUI has sold 90 percent of the apartments built in the center of Castelfalfi, an eight-century-old village in the region of Tuscany, while it will only convert two dozen former farmhouses into villas once buyers have signed contracts, project head Stefan Neuhaus said in an online interview.

Breathing new life into Castelfalfi has cost Hanover, Germany-based TUI 86.5 million euros ($109.8 million) in impairments and writedowns since then-Chief Executive Officer Michael Frenzel, 67, bought the deserted village for a 250 million-euro development targeting vacationers. Work has included planting vineyards and olive trees, setting up a 27-hole golf course and a separate 32-room boutique hotel and widening marketing beyond Germany, Austria and the U.K.

“The village is back to life with vacationers and owners and is also attracting families from the area,” Neuhaus said. “The real estate marketing has been very successful in recent months.”

The asset is among investments from Frenzel’s 19-year tenure as CEO that his successor, Friedrich Joussen, has been unwinding or turning around to stabilize earnings in the year and a half since he took the post. TUI is selling its remaining stake in container-shipping giant Hapag-Lloyd AG, acquired in 1997, and shareholders vote today on whether to recombine the company with Crawley, England-based TUI Travel Plc, the division formed in a unit’s 2007 merger with a U.K. competitor.

Optimistic Start

“The project was very optimistic from the start,” said Jochen Rothenbacher, an analyst at Equinet Bank AG in Frankfurt. “While TUI has expertise in developing hotels, it didn’t have the know-how to handle a project of such gigantic scale. From today’s perspective, it’s a disaster.”

TUI has yet to find buyers for more than half of the almost 50 sites being sold, which include new villas and the most expensive properties, as it targets completion of the project in 2018.

CEO Joussen, 51, said in May 2013 that Castelfalfi “will never make money in its current situation.” The company has written off goodwill from the property’s 105.6 million-euro purchase in 2007. It’s still targeting disposal of all the apartments and houses, retaining only hotels for management.

Neuhaus, 47, became the TUI manager responsible for developing the 1,100-hectare (2,700-acre) Castelfalfi site two years ago, and he’s made a “clean break with the past,” Rothenbacher said.

Completed Work

TUI has completed 41 apartments in Castelfalfi, and plans to sell a total of 47 in the old town center, Neuhaus said. It has also sold the first pair of 26 derelict farms slated for conversion into exclusive country houses, and the first pair of newly built villas, he said.

Hamburg-based realtor Engel & Voelkers has 13 of the farmhouses listed for sale, with one of the smaller units a five-bedroom, 410 square-meter (4,400 square-foot) building priced at 3.84 million euros.

Property buyers, also attracted by a newly opened gourmet restaurant and shops, are coming from as far away as the U.S., Canada and Australia, Neuhaus said.

“Castelfalfi is now under way to proving itself as an attractive investment location for our international target group,” he said.

While TUI has received local permits for another hotel, Neuhaus declined to specify the planned size or brand. TUI’s original program included adding a Robinson Club holiday resort and a Riu hotel with a combined 290 rooms.

Merger Focus

The Castelfalfi impairment charges are outlined in the prospectus for the proposed TUI-TUI Travel merger, and the document says all goodwill associated with the project has been written off. Joussen and his counterpart at TUI Travel, Peter Long, must now focus on persuading at least 75 percent of investors to agree to the combination, analyst Rothenbacher said.

“The most important date looking forward” is the shareholders’ vote on the merger, Rothenbacher said. “That will be the next big test for management at both companies.”

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net Tom Lavell

Photo Credit: TUI AG has lost nearly $110 million on its development of the vacation home community, Toscana Resort Castelfalfi in Tuscany. Toscana Resort Castelfalfi