The Motel, Caravan Park and Hotel sectors, like many others has slowed over the last 20 months with properties that are well positioned still being in demand and the more marginal property sales rates slowing.

The three p’s of position, position position continue to be important, closely followed by the property type, age and condition. Purchasers continue to search for the best options for them with the question often asked “What is in it for me?” and what is the upside?

Certainly yield for the properties have increased in importance and below are some current guidelines for returns on Motels as specified by lending institutions and valuers. Recent sales have substantiated these statistics:

1.      Freehold operations, smaller motels mainly bed and breakfast with small in-house dining. Coastal 11% to 14% max, Inland ( up to 4 hours from Sydney ) (3 hours from Melbourne & Brisbane respectively) 14% to 16%, Far west 16% to 18% ROI. Once properties hit the magic 15% Net, they are usually viable to split and enable a lease with an investment to be created and sold off. This significantly broadens the market and the sales opportunity.

2.      Larger freehold operations with corporate trade and generally valued at $2m plus. Coastal 11% to 15%, Inland 14% to 16%, Far west 16% to 18%

3.      Leasehold operations, smaller motels. Coastal 23% to 28%, Inland 28% to 34%, Far west 34% to 40% and this depends upon the location, condition and price.

4.      Larger leaseholds. Coastal 26% to 30% (VIC 21% (Meld CBD)-35%(Country location with a restaurant)). Inland 28% to 35%, Far west 32% (Average for NSW & QLD sales have been a little higher) from to 40%(Country location old 3 star or less with restaurant.

These averages are based on motels that would have at least 20 years left to run on their leases and the rental to turnover ratio at no more than 28%.preferrably less. Victoria has a mandatory 5 yearly market review where as NSW and QLD often have straight CPI or CPI & market whichever is the greater.

 Motels:  There has been strong demand for good quality motels, both leasehold and freehold in Queensland and NSW with a lower demand in Victoria. The most popular areas being coastal and locations associated with the mining and energy sector .A sample of 32 lease sales for QLD revealed an average of 34% Net on sale price, 25% rent% of turnover and , the average net return % of turnover as 29% after rental.

Comparing QLD to NSW, for NSW a sample of 71 sales that averaged 32% Net on sale price, 27% rent% of turnover and, the average net return % of turnover as 35% after rental. Victoria is considerably different with 5 yearly fair market rent reviews legislated for leases with rental and returns reduced accordingly. The retail leases Act in Victoria is seen by many investors as a detrimental influence upon the investment market when compared to NSW and QLD, but there are a number of benefits that can be highlighted to keep them on par.

Realistic sellers are accepting that buyers are looking for slightly higher returns on their investment and adjusting their expectations accordingly. Leasehold motels, which are by far the most sought after, have seen return on investment increase by approximately 2% plus in most recent sales, slightly lowering the price as the returns increase.

These minor adjustments have been caused mainly through higher financing expectations from the banking sector (Increased margins) and reinforced by valuers and accountants through the after negotiation due diligence period. In a number of cases we have seen the sale price renegotiated after formal valuation has taken place. Whilst there are a number of properties currently on the market there is a significant shortage of high performing and well located properties to meet the demand.

The strongest areas of enquiry are for both the lower priced leaseholds up to $600,000 and the higher end of the market from $2,000,000 upwards. Sales in the $2,000,000 plus bracket with buyers coming out of the management rights market on the Gold Coast & Sunshine Coast being attracted by the higher returns are occurring. Motels have a return on every dollar; Management Rights have a return on the business component only with investors seeking capital appreciation on the property.

There is not a lot of activity in the freehold market with severe shortage of well priced motels being the major problem; once again the main focus from buyers has been concentrated along the coastal strip and the mineral & energy hot spots. Some inland locations are seeing valuers place returns of 15% in cities like Toowoomba for operational properties whilst we recently sold a coastal motel under $2M with a return just over 10%, this is in contrast to the top end of the market where the Corporate players have a large role

Recently we have seen, Bill Ireland’s-backed tourism assets tipped into voluntary receivership after the Mariner Coastal Investment Fund was unable to pay back a $30million loan that was due to the Commonwealth Bank. The portfolio consists of three properties, the NSW Myall Shores Resort at Myall Lakes and the Murramarang Resort at South Durras, and the Queensland Nestle Inn Tourist Village. All of which need marketing support

Port Douglas and Cairns continue to feel market corrections with it recently being reported that Rydges (Amalgamated Holdings) purchased the 192 room $40M Sabaya Resort for $22M. (Perhaps a buy of the year as a corporate purchase). We are starting to see signs of Mum and Dad purchasers return to the market

On a similar note, the Australian Bureau of Statistics figures, average revenue per room for Cairns fell 9.3 per cent to $74.31 in 2008 due to weaker international tourism and conferencing combined with a longer than normal wet season. 2009 has been stronger than 2008, but a lot more growth can be consumed with considerable capacity available.

An industry positive, the Stella Group (CVC Asia Pacific-controlled) earlier this year reported it had reached an agreement to restructure its debt facility with its Swiss funder UBS. The group that is made up of Gold Coast-based Stella Hospitality and a Sydney-based travel services arm.  Stella Hospitality, operates approximately 140 buildings under the Peppers, Mantra and Break Free brands.

Opportunities abound in the marketplace for all and a large number of sales are being made. Tourism Brokers have now been established in Queensland for 18 months after being established in NSW & VIC, operational since 2004 with many years direct involvement in the industry prior to commencement. and in that time have been well received by the motel and management rights owners with 12 active sales representatives. It helps that all the team members have either owned or currently own operational property and have experience on both sides of the counter The result of sales recorded to date have been well in excess of our budget estimates. We as a company operate by direct contact or personally visiting all the motels, caravan parks & management rights throughout the state a number of times each year. This way we can provide up to date information to all our clients as and when they need it. Tourism Brokers often give back to the industry as well conducting 2 day seminars on operational aspects relating to a motels purchase, positioning and growth opportunities at Kempsey NSW & Maryborough QLD with Industry professionals.

The sales team in Queensland has been increased this year with the appointment of Chris & Sally Rowe in Townsville to handle motel, management rights and caravan parks. Also Craig & Sonya Clark have been appointed in Coolum, Sunshine Coast to handle management rights and caravan parks with David Harris servicing Brisbane.

Management Rights continue to range throughout Australia with the most prominent being QLD followed by the other states

Management Rights: As for the market size, we understand there to be 3000 Management Rights schemes in QLD and 600 in NSW. When compared to 2008, a number of sales have occurred in this sector in 2009 with activity and sales on the increase. Permanent complexes are in demand and holiday properties with position (eg. Noosa/Noosaville) showing a 12% return or more on total investment with a secure letting pool.

Of recent times, looking at some 18 sales in the Sunshine Coast precinct as a sample, the Average property content has been $620K, Net income$290K, a multiple of 5.3 times and an average unit impact of $8130 upon the price for units in the pool.

The Gold Coast did see a considerable decline in the market with multiples below 4 times being encountered for some, with some of the smaller complex’s in the Sunshine Coast facing a similar reality as the net returns are adjusted. A number of recent sales suggest this correction is now altering with some sales achieving solid multipliers.

In Brisbane, we are seeing an average multiple of 4.7 – 4.9 times. A $100,000 letting with minimal work could be 4.6 -4.7 times, $80,000pa may be 3.8 – 4 times, $150K - $160K may be 5.2 times. With an average workload and indication may be 4.6times – 4.7 times, but it really is a complex by complex basis with areas such as the agreement terms and conditions, Office on title or exclusive use all contribute.

Few sales have occurred in NSW for management rights with Tourism Brokers involved in 4 recent sales at multiples less than 4 times and considerably more motels, especially leases.

 The New Zealand purchasers are slowly returning to the market, but the market is still very patchy. Tourism brokers continually markets to the New Zealand and Australian markets in addition to the normal market mediums to sell property.

Tourism Brokers - Introduction mp Sept 09.pdf