Melbourne hotel deals indicate strong resurgence

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Hotel and hospitality assets have become hot commodities in Melbourne despite tough business conditions amid COVID lockdowns, with the hospitality industry experiencing its strongest period of transactional activity in two decades, agents said.

For example, the Edwardes Lake Hotel’s freehold interest in the reservoir sold for $ 28 million earlier this month, a day after its expression of interest campaign ended.

JLL’s national ad investment sales manager John Musca said the sale confirms the nation’s appetite for large-scale investment hotels remains insatiable.

Acquired by Hotel Property Investments, the Edwardes Lake Hotel was offered a sought-after, quality 60-year triple net lease, with the site operating 100 slot machines and net annual income of $ 1.4 million. dollars.

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Mr Musca said the sale highlights the astute recognition of the investment hotel market as an asset class that offers an internal rate of return (IRR) higher than any other form of commercial property due to the millions of dollars in dollars of underlying perpetual goodwill value that existed in each rental. .

Other significant deals include the sale of five of the Zagame family’s gaming hotel leases to the Francis family for $ 99 million. Rented pubs were also popular with investors, as evidenced by the sale of the Boundary Hotel in East Bentleigh and the Tudor Inn Hotel in Cheltenham, both sold by Hotel Fund ALE.

National interest is expected for the freehold sale of the Boronia Hotel, located in the eastern suburbs of Melbourne.

Sold through expression of interest, the newly renovated hotel, set on 7,079 square meters of corner land, is sold with a triple net long-term lease.

The freehold interest in the Boronia Hotel is sold through an Expression of Interest campaign until October 14.

It has net annual income of $ 1.2 million and an initial term of 20 years expiring in 2041, followed by two more 20-year options.

JLL Hotels Vice President Will Connolly said that over the past 10 years, investment hotels have solidified their place as the nation’s premier retail asset class.

“This is further demonstrated by ASX-listed entities who have recently aggressively secured assets in the industry, despite varying degrees of lockdown imposed by COVID,” he said.

“Their unique underlying value of the rental business, which attaches to game approvals and licenses, offers a huge reversion increase that is simply unattainable in any other form of real estate investing.”

Senior Director of CBRE Hotels Scott Callow said a series of deals in the pub market set new performance records.

“High quality assets will always attract a lot of interest and we have seen some blue chip assets come to market in the current environment,” he said.

“We expect the hosting market to deliver substantial transactional results as well over the coming months. The cost of developing new hotels continues to rise and, while record selling prices are set, they remain below replacement costs. “

Accommodation hotels are also in high demand, he added, as buyers see an opportune time to raise capital to acquire assets in a difficult market.

“We haven’t seen significant levels of distress from owners and many are long-term holders of these assets,” he said.

State Manager of Metropolitan and Regional Sales for Savills Hotels, Nick Lower, said there had been a strong appetite for accommodation assets, and when normalcy returned after the closures, the industry would experience a strong resurgence.

“Like everything, most investors take a long-term view of assets and if you put the money in them you are not looking to recycle it in six months,” he said. “Melbourne is a fantastic city [and] I think most people think there has been a bit of a deadlock in the market, and when you look at the groups that are actively buying right now, the supply pool has shrunk considerably.

“Having said that, however, there may be only a handful of buyers and they may not have much choice. So when it comes to transactions, the basic economics of supply and demand… there just isn’t a lot of supply.

Looking ahead to 2022, Mr Callow said he expected the pub and accommodation markets to rebound strongly.

“Regional hotel assets have benefited greatly from domestic demand, particularly during weekends and holiday periods,” he said.

“When border restrictions are relaxed, Australia’s domestic market will seek to make up for lost time and missed travel opportunities. Whether for work, play, or visiting family and friends, we expect the market to experience a boom.

“Even with the opening of international borders, many people may be reluctant to go abroad when Australia will be seen as a safe and secure place to travel.”

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