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1. Accommodation market Activity as it seems from our travels
2. What are addbacks and how do they help you
3. Stamp Duty on the transfer of land or Business
4. Why Buy A Motel Lease - Management Rights or Caravan Park?
5. Steps to Purchasing a Motel - Management Rights - caravan park etc
6. Tips For Purchasing an opportunity for you either Motels - Management Rights - Caravan parks - Hotels - Manufactured Home Estates and pubs
See below for
1. Determining your price limit
2. What to look for at a property showing
3. Courtesy and ethics when looking at properties:
4. Determining the value of the property to you:
5. Determining what price to offer:
6. Verifying the financial data and other property details:
7. Forms of offers:
8. Protection for the buyer:
9. The Deposit:
10. Making the most of the Due diligence period:
11. Preparing for settlement:
12. Training
13. Settlement day:
14. Adjustments for Stock
| Accommodation Market Activity |
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For information about other opportunities including caravan parks for sale (RV's) in the United States of America , please look further below.
For the current national Auatralian trends as we see them for the areas that we service namely Management Rights, motels, caravan parks, Pubs, manufactures home estates, Hotels and resorts just to nema a few, please read on.We appreciate that you are only interested in what is in it for you and we are happy to provide information to you that will assist, either through this web site or through the information that we have compiled and are happy to share. These industries offer fantastic opportunities and we are happy to make them grow and help in the process.
On the road (In our car office throughout Australia and occasionally various locations around the world) more often than we are at home, we continually see a large number of motels and holiday unit complex's (Can be management rights for sale or Motels), but more frequently we are seeing some caravan parks for sale that are offering upoto or on occasion in excess of 30 cabins or are primarily cabinns changing hands throughout Australia.
As specialist resort brokers, Tourism Brokers continually assess and sell Motel Leases, Motel Freeholds, Motel investments, Management Rights, Caravan Parks - incorpotating caravan park freeholds, caravan park leasholds, caravan park investments, manufactured home estates and more and more hotels and pubs, B&B facilities and other specialist Tourism Brokers Australia and international opportunities.
Initially starting as as specialist motel business brokers, the business has grown to allow additional service for caravan parks for sale and management rights for sale and a number of other related operations and opportunities .
We have seen a slight increase in the number of enquiries especially in our role since we have representatives living throughout QLD, VIC & NSW and the are all specialist motel brokers with a depth of experience in all other aspects of our business as many have owned caravan parks, management rights and hotels etc. Our national coverage has allowed us to better service the Management Rights and Caravan Parks for sale markets in Nationally with a strong emphasis on NSW, QLD and Victoria on the ground and Nationally with co-ordination.
Motel leases for sale followed by Management Rights for sale are the two most popular segments certainly well positioned and well priced properties will always sell. We continue to see additional demand in caravan parks for sale, but with the high land content and the opportunities for re-development the opportunities are harder to come by. We are also seeing a slow increase in pubs and hotels for sale, but not as much as management rights for sale, motels for sale and caravan parks for sale in that order with the main emphasis being the business returns and capabilities followed by location and comparable property sales.
We are currently in a very busy time for buyers and sellers with well positioned and priced properties in high demand.Properties prepared to meet the market sell and we continue to sell a lot of property, especially motel leases, motel freeholds and management rights. Of recent times we have seen a significant imcrease in the number of caravan park sales.
As we continue to grow, a number of enquiries are coming from Australia nationally and with the team throughout Victoria Queensland and New South Wales, we are seeing increased enquiries from Overseas and other states which is encouraging. The benefits of living in Australia are high and people are following opportunities to do this and obtain redidency and citizenships as prt of the process.
Market Reviews – Leaseholds, Freeholds, Investments, Management Rights, Caravan Parks
Leasehold Motel Market
A large number of enquiries for leasehold motels, preferably Bed and Breakfast (B&B) have been received for price levels from $150,000 to $1.5 Million Leases that had been available with little interest shown in them , are now seeing some movement with a number inspected by potential purchasers.
Motels with restaurants are taking longer to sell then the standard B&B operations, but that is largely due to the workload required and the property position.
Freehold Motel Market
This market has continued to strengthen since with a genuine shortage of good stock with strong returns. Price is still a main factor for demand with the demand for smaller freeholds remaining strong, and this has now spread to the larger motel market. There has been excellent activity with many sales being successfully negotiated on freehold motels in the past 6 months by Tourism Brokers. Price ranges from $500,000 to $3 Million have been achieved with increasing levels of demand for properties in the higher price brackets upto $6M.
We are even seeig some of the motels being purchased for re-development and higher uses which is starting to alter the industry even more..
Investment Motel Market
Continually a shortage, we have sold a number of properties with Net returns less than 10% with some (few) exceeding. Demand keeps growing and growing for motels that are leased. Supply cannot keep up with demand at present, which has been the case for some time. Long leases with 10% - 11% net returns are proving to be most popular with investors. Good tenants, long leases with good net returns are the investment properties much sought after.
Position position position continues to play a significant factor. Motels do have some maintenance requirements and risks associated that some Commercial properties do not, but these are reflected in the returns. 9% Net is still a solid return after costs for a property with CPI increases and a 30 year agreement as we are seeing in NSW and QLD. This influence is increasing and the national Australian market is following the demand and starting to offer similar opportunities.
Victoria seems to be a little different with fixed CPI increases for 30 years being illegal and having the need for 5 yearly market reviews as required under the retail tenants legislation. This is an additional protection for motel leases, but raises a number of issues for motel investment opportunites.
Management Rights
Demand has increased for Management Rights, and this is very much a growing segment in the Tourism Market. Lifestyle for operators is proving to be the motivation for many, particularly those new to the industry. Some larger complexes with price ranges over $2 Mil have been moving as this allows some scaling of the business opportunites. Permanent complex opportunities offer increased security and these are very popularas well.
The Management Rights sector in Queensland, like many others did slow over the last 18 months with properties that are well positioned still being in demand and the more marginal property sales rates are slowing, but we are now seeing an increase in the number of sales. Corrections have taken place with some properties where alterations in the net and the property values have changed, but generally these are still fantastic opportunities and will continue to get stronger.
Recent sales results indicate a wide variation in the sales price multiplier achieved on different properties. Purchasers continue to look for value and potential when choosing their next business as they are after what is in it for them and how can they add value to the opportunity. High earning properties are still sort after but the multiples generally have started to increase with a number of recent sales in QLD, with some heading back to the 5 and 6 times multiple. Certainly some of the quality properties we have seen attract the higher multiples have not been placed into the market so Position, Position Position remains strong as well as the ability to grow and add value to the business.
Recently in Port Macquarie, we have seen multipliers in excess of 4 times due to the position and perceived growth. In other areas we have seen 10 year and less agreements go through sub 3 times, but each market segment has variations and generally this is a very well regarded industry that offers prime opportunities that allow a popular lifestyle.
For mid size properties where all the variables such as size of residence, time left to run on agreements, workload, location etc. are favorable, the multiplier is strong as people, are still after good properties as they can easily afford the price ranges after selling a residential house or in some cases accepting redundancies and the like.Often the motivation can be the location and the ability to have tasks that will assist in an income and lifestyle.
Purchasers continue to look at the total cost of the business and the residencein the decision making process.
We would predict that whilst ever interest rates remain firm, demand will continue to be strong for well positioned properties for some time in the medium to long term future.
Management Rights are in primarily new coastal or CBD developments where Motels are not viable due to the structures being on prime development land and a higher and better use is available. Often these properties may have been removed to make way for units.
Management Rights are the way of the future and the industry will continue to grow as it is a service that is needed and history has shown that an owner operator is more inclined to have a higher level of maintenance and upkeep (Not necessarily at a higher cost) as they have an investment in the complex as well as opposed to offsite or absentee operators orreal estate agents.
We are aware of some complex's in QLD where agreements have been sold with the expectation of automatic top ups. These are not a requirement and are subject to the contract being granted by the Body Corporate. Management rights in some instances can achieve the 5 year topups, but these are not guaranteed so the decisions need to be made upon the agreement terms and tenure. Management rights are a contract and the term is the term.
In NSW:
For new agreements, we are where possible seperating the caretaking and the letting agreements. The letting agreements can be 25 years, but the caretaking agreements under the legislation can only be for a maximum of 10 years, usually a 3+4+3 year term.
Agreements prior to 10 February 2003, you may have the opportunity to top up your caretaking agreement, seek professional assistance before doing so, if the correct procedure is not followed you may forfeit that right.
Agreements after the 10 February 2003, if contemplating selling, to maximise your position and minimise the risk for the incoming purchasers, you should top up the agreements to 10 years for the incoming purchaser.
Again the timing is crucial. The ability of the broker to establish a market price in NSW will depend upon past sales in certain areas and “apples for apples”.
The Multiplier explained;
There can be huge variations in multipliers even between buildings located next door to each other. Even your more common residential property markets produce similar disparity - pick virtually any street in any suburb and all the houses in that street will not be the same price!
With real estate and in this case management rights substantial price variations occur as they do with cars, boats and holidays. The industry is not a case of comparing apples with apples and there are a vast number of variables to consider with each purchase, the same applies to management rights.
Over the last decade we have experienced an unprecedented period of economic stability and growth. This, coupled with historically low interest rates and the public listed tourism companies like Break Free, MFS, Octavia, S8 and others scrambling for market share, created a fertile market for management rights in the top end. This competition pushed more people to the middle and lower end and increased the level of competition. The dynamics started to change when interest rates began to rise, owners wanted better service and greater returns and that was quickly followed by the sub prime mortgage fiasco and general stock market correction in late 2008.
The old saying no one ever rings a bell at the top or at the bottom of the market also applies to the real estate and management rights market. It is only with the benefit of hindsight that we can look at a graph or line chart to see where the high and low points of the economic cycle occurred. If we could pick it prior whoever did would be very very wealthy.
There are factors that determine the sales multiplier of management rights: Perhaps the most important in the free world is supply and demand. Supply and demand in any market, determines the price of virtually everything we consume. Competition of more buyers, less stock equals higher prices and a seller’s market. The converse, fewer buyers, more stock equals lower prices and a buyer’s market.
The big variable that plays a key component in the equation is interest rates! Most business’s need debt and use equity to increase the internal rate of return for the funds invested. When interest rates increase more of the business profit is eroded to service debt. The result is a dampening affect on the buyer’s ability to borrow funds and in turn places downward pressure on the multiplier as less people have the available funds and competition reducdes.
The WIFM, (What is in it for me) too much importance is placed on the multiplier by buyers and sellers alike. It is already established that supply, demand, interest rates and general market sentiment will ultimately determine what the multiplier and sale price is for any given property at any point of the economical cycle, so as a buyer or seller all we can do is decide when we wish to enter or exit the market.
Unfortunately we can not stop all the motivating factors for change such as health or stress place sellers in the market at a time when few buyers are active this creates opportunity for some to grab that elusive bargain ( offers a lot). There will always be willing sellers and willing buyers at a price acceptable to both parties. Conversely there will always be unrealistic sellers and buyers who wish they had heard that imaginary bell for the property cycle ring. What managers and prospective buyers should be focused on is growing the business as growth is good for any business We have no control over the multiplier and we don’t have a crystal ball that shows us a graph with the peaks and troughs before the event but we can improve the all important net profit by growing the business and adding value.
Assume you buy a building that was netting $100k at a 5x multiplier, you keep it for five years, you are a good operator and you manage to increase your net profit by 10% p/a $10k per year – an extra $50k over five years x 5 – that’s $250k capital gain with zero change to the multiplier. With the benefit of debt and gearing with borrowed funds, if we use the same formula on a business that nets $300k and the gain is three quarters of a million dollars (not too shabby indeed). 10% p/a $30k per year – an extra $150k over five years x 5 – that’s $750k capital gain
Management rights are a unique business in that they can’t be sold independently to the manager’s apartment and ancillary real estate. Likewise the manager’s apartment can’t be sold without the business. This creates one of the major problems in determining the sale price of the business and in particular the multiplier. While, in theory, you can borrow up to 75% of the total purchase price for management rights, in practice there are very few buildings that will have enough profit to service that level of debt due to high real estate values.
A good rule of thumb is that most buyers and bankers will be looking for a business where the real estate value is no more than 30% of the total purchase price (25% or less is ideal). This is one of the main reasons why buildings with net profits over $500k P/A are able to consistently achieve 6x plus multipliers; low ratio real estate value enables higher gearing levels.
Management Rights sales where the manager’s apartment is 50% or more of the total purchase are rare and the multipliers for these types of properties have been comparatively low. This is the main reason that the multipliers in QLD have seen alterations as the growth to a large extent has been with the Real Estate and with people borrowing, yes they wish to have a nice home, but they need the income to be able to service the debt.
The industry will continue to grow as motels and alternative forms of accommodation are either not suitable for the location as the demand is for residential units or they are not viable. Motels are regularly being demolished for higher and better use and people need accommodation. Management Rights form part of the future and the solution.
In permanent complexes, management rights complexes are often achieving better capital appreciation for purchasers as an owner will take the extra step and has more at stake than a normal employee who just has a job.
In Queensland:
Queensland management rights are sold off an accepted multiplier; currently NSW management rights still attract an individual ‘market price’ for each complex, dependent upon agreements, location, nett profit and anticipated growth.We have a number of team members throughout the country that provide local knowledge and input. We are happy to assist you with market information.
Caravan Parks
The season for most Caravan Park owners is well underway . As parks continually upgrade to meet market and consumer trends, we are seeing a number install ensuite cabin style accommodation in the caravan parks and enhanced services that are enhancing the caravan parks and are taking them closer to manufactured home estates, but increasing the experience for short term stays, most commonly holiday stays.
As the number of Coastal Motels have been diminishing for redevelopment and management Rights increase with the creation of strata and community title land developments, we are seeing a strengthening of some parks as they are re-vitalised with new amenities blocks, upgraded cabins and better facilities.
Enquiry levels and sales of Caravan Parks for sale over the last 12 months has been extremely buoyant. Most buyers have been from New South Wales, Victoria, Tasmania, New Zealand etc and have been chasing a lifestyle change, are generally over 50 years of age. We are seeing a lot of first time operators enter the market and some increased institutional demand.
In addition to the starter market, the Institutional / Corporate purchasers are also looking as we have been working very closely with a few major Groups that are looking to buy a number of Caravan Parks. The most common request has been for parks located on or near the coast and showing reasonable returns under management.
Yields have been strong for the larger parks over the last 12 months with a number selling in the 13% -14% net return range. The simple fact is there are many more Buyers wanting to buy than there are Sellers wanting to sell at the moment. With the cost being one factor involved, some of the sales are needing more input and assistance with highlighting the future, the needs and opportunities of the parks with business plans being created etc
Often when we sell businesses, we as agents or preferably through Accountants are required to quantify a number of “Add Backs” for a property to bring the accounts back to a format that can be qualified and measured against comparable property.
Most people in business minimise through their accountants the operational profits of a business and optimise the costs of operating the business to have amend result of minimal taxation.
Addbacks take a property back the true profit / loss position of the business, with personal costs such as borrowings interest, depreciation, financing costs etc that are not related to the business removed.
Once we have a confidentiality agreement in place, we are happy to provide the financial details and addbacks schedule for any property that we may have available for the market unless particular circumstances prevail.
| Stamp Duty on the transfer of land or Business |
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Each state and territory is different and we can assist with information in these areas. Examples are:
How duty is calculated as provided on the NSW Government Web Site June 2007 for NSW.
For new leases in Business sales no Stamp duty is applicable in NSW and this is why we are now seeing 30 year straight agreements rather than the 10+5+5+5+5 year agreements of the past. Each State varies and needs to be checked, but our understanding is that this benefit and others exist in Victoria and Queensland is similar to NSW. For specifics, let us assist you to the correct areas so your situation can be checked.
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