Country motels and hotels have leapt off the sidelines and into commercial property’s main arena. Established players are facing competition from newcomers large and small as buyers snap up even the most humble of hospitality assets thanks to closed international borders and surging domestic tourism.
Regional Australia now dominates accommodation revenue. Global hospitality analytics firm STR found in the year to June 2020 the regional sector reaped 63.4% of all revenue leaving 36.6% for cities, a stark contrast to the 12 months prior when Australian capital cities raked in 55% of accommodation takings and rural areas the remaining 45%.
ResortBrokers, Australia’s longest established accommodation and hospitality specialist, has sold 39 regional motels with a combined value of $84 million during the 2021 calendar year. Off-market deals have become par for the course amid rising demand for regional hospitality assets nationwide said the agency’s managing director Trudy Crooks. This year has seen ResortBrokers dealing with record numbers of new and existing buyers, including investment syndicates, attracted by “appreciating assets that are income positive in the short term while remaining solid cash flow businesses in the medium and long term”.
“Often these regional motels are sitting on prime real estate which adds to the appeal,” Ms Crooks said. “High buyer demand in the regions is driving the tightening of cap rates and there isn’t enough stock to cover that demand. This indicates that prices in the market are rising and that investors perceive investment in these assets as a low-risk high-reward asset class relative to other options. We have 30 brokers covering every state and territory across the country and they’re all reporting the same thing.”
One of the year’s largest transactions took place within the last few weeks when ResortBrokers secured the prestigious Powerhouse Hotel Armidale by Rydges for major player Mandala Asset Solutions in a deal reported to be worth around $13 million. Described as a landmark regional sale and price by Ms Crooks, the property had undergone a $12 million transformation to become the New England region’s only 5-star hotel just before being put to market by well-known regional hotelier Greg Maguire. The property has been rebranded Rydges Armidale and offers 57 rooms and suites, a fitness facility, meeting venues, an upscale restaurant and a wine and tapas bar.
The Armidale deal follows a string of other major transactions this year including the June purchase of NSW South Coast boutique hotel and restaurant The Whale Inn by Justin Hemmes’ hospitality giant Merivale. The Narooma property sold for an undisclosed sum and took place soon after Hemmes’ snapped up The Quarterdeck restaurant, another popular venue in the coastal hamlet.
Quarterdeck has since reopened after a redesign while The Whale Inn is currently undergoing a trademark Merivale renovation with a view to opening next month. Mr Hemmes said his intention was to “jazz up” the interior with a “great new concept” which will make the most of the property’s sweeping coastal and ocean views.
Mandala Asset Solutions has been among this year’s most active investors in regional accommodation, the group’s Powerhouse purchase in Armidale its fifth for 2021 and 20th in total. Recently the major motel investor and operator revealed plans to raise $200 million for the acquisition of dozens more accommodation properties. The move could achieve such scale as to result in a listing in years to come according to the group’s principal and co-founder John Zeckendorf. So far Mandala has raised about $22 million for the fund to be known as the Trinity Accommodation Regional Hospitality Fund (TARHF III).
Mr Zeckendorf describes Rydges Armidale as the type of asset that fits with Mandala’s “proven strategy of investing in income-producing regional accommodation-driven assets with operation and property upside”.
“The strength of government business, education, agriculture, healthcare and other key industries and services make Armidale an attractive place to invest,” Mr Zeckendorf said. “We have been scouting the market for many years but haven’t found the right property with a blend of scale, quality and opportunity. Rydges Armidale fits the bill for all of these and will make an excellent addition to our growing TARHF Fund III portfolio.”
In addition to the renewed popularity of domestic drive holiday, regional motels and hotels have also found favour for their often premium locations as well as replacement costs. “The cost of building new on an existing site, or an acquired site, is prohibitively high for even the bigger operators,” Ms Crooks said. “So these existing regional assets are becoming more and more attractive.
“Also, how many times have you driven into a coastal town and spotted a three and half star motel in a great location right near the beach? This is typical of the type of accommodation being snapped up, done up and rebranded by these operators.”