Specialist Management Rights Focus

Specialist financial expertise, both at the initial purchase finance stage and during the on-going operation of your business, is critical to the accommodation management sector. National Australia Bank has allocated dedicated resources to the management rights industry.NAB demonstrated its confidence in the industry by specifically allocating $250 million to lend across Queensland for the purchase of management rights during 2007.“NAB is a pioneer in the management letting rights industry, and we assessed 2007 as being another strong year for asset growth and financial opportunity in this business,” said Julian Pearce, NAB’s General Manager for Business and Premium Banking in Queensland.“As well as ascertaining that your financial institution can provide the appropriate finance, we believe it is also important to ensure your financier can provide you with good old-fashioned customer service and assistance.“Many financial institutions offer management letting rights packages, but the relationship should extend past the initial purchase finance,” Mr Pearce said. “An important feature often overlooked by purchasers is to assess whether the bank can offer the level of service appropriate to what may be the most significant financial investment they will ever make.“With access to 22 letting rights specialists across Queensland, NAB clients can be confident the service, advice and support will make a bigger contribution to their business success than the initial loan.“With each of our managers having direct support, prompt service can be assured.”Mr Pearce said the most valuable tool at a borrower’s disposal can be a personal business banker. “It is valuable to have access to a professional who knows your history and who is available to speak with you about your business and personal needs when it suits you,” he said.“Equally important, NAB has wealth management specialists who can assist, on the sale of your management rights business, with the investment of your hard-earned returns.“Part of our relationship approach is to ensure we support clients to achieve their goals for wealth creation when they decide to move out of the industry.”About NAB Business and Private BankingThe National Australia Bank employs over 5,650 business banking specialists and 450 financial planners and specialists at over 158 business banking centres Australia wide. It is one of the market leaders in providing business banking services to Australian business. For further information visit http://www.national.com./Business_Solutions

Stella Deal Comes as Domestic Tourism Lifts

Big news on two fronts greeted me when I returned refreshed after two weeks holiday in Bali – fund manager MFS’s sale of half its Stella travel and accommodation business, and the release of figures confirming the continued revival of domestic tourism in Australia.First to the Stella deal. Congratulations must go to our own Gold Coast based MFS, which announced the massive sale of a half-stake in its travel and accommodation assets for a reported $1.2 billion. This is quite likely the biggest deal ever in this part of the world.MFS has grown remarkably from its origins as a small legal practice in Southport to become one of the biggest fund managers in the Southern Hemisphere. Resort Brokers Australia has done some business with MFS, and we are certainly excited by its achievements.Though MFS did not identify its new business partner, nor confirm the sale price, national newspapers The Australian and Australian Financial Review (14 June), named private equity group CVC Asia Pacific, which recently took control of the former Packer-led TV and magazine group, PBL Media.MFS spent around $2 billion assembling Stella, billed as the largest integrated travel group in Australia and New Zealand. It includes the S8 accommodation management business, Harvey World Travel, BreakFree, Saville Hotel Group, Outrigger Resorts, Sunleisure and Europe-based Golden Tulip.Industry watchers will keep an eye on the ramifications of our domestic travel sector coming further under the control of private equity groups. According to AFR, Flight Centre is now in discussions with Pacific Equity Partners over a deal similar to the MFS-CVC transaction. Clearly they are chasing our assets because of their quality. We do it so well.The deal came to light just a day after Federal Tourism Minister, Fran Bailey, released figures showing domestic tourism is on the rise, with 5% growth in the number of overnight holidays for the year ending 31 March, 2007. Domestic tourism expenditure rose by 7% to $55.9 billion for the 12 months, with 54% of this spent in regional Australia.As Minister Bailey acknowledged (and we have repeatedly reported in the tourism informer), domestic tourism has faced still competition in recent years from plasma TVs and overseas holidays. “But in recent times there has been a strong resurgence in holidaying at home,” she said.Domestic air travel also increased by 15% in the 12 months. “With healthy competition in the domestic aviation market, this trend can only continue into the future,” Ms Bailey said. “The challenge for the tourism industry is to promote more fly and drive packages, to ensure regional Australia enjoys the full benefits of cheap airfares as well.”We would urge accommodation operators to also rise to the challenge, exploring every opportunity for innovative marketing, holiday packaging and value-add attractions to capitalise on the positive market activity.I hope you find more inspiration in the following pages of this month’s edition.Please send your feedback to:thetourisminformer@resortbrokers.com.au or PO Box 854, Indooroopilly Q 4068.

Transfer Fee Decision Overturned

On 13 April 2007, the Qld District Court in the matter of Aqua Vista Management Pty Ltd vs. Whitsunday Waters Resort [2007] QDC 064, overturned a controversial decision of the Body Corporate Commissioner relating to the imposition of transfer fees by a body corporate when a management rights owner sells their business.The Commissioner’s decision had stated that a transfer fee could be imposed by the body corporate because the owner had sold their management rights within three years of purchase.This decision sought to extend the operation of section 83 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997, which states that a transfer fee may only be imposed within three years of a management rights owner entering into new caretaking and letting agreements or extending the term of their existing management rights agreements. Ironically, the Body Corporate Commissioner’s decision is probably a fairer method of dealing with the transfer fee issue. Arguably, the motivation behind the imposition of a transfer fee is to protect the body corporate from disruption caused by a manager buying the business only to sell soon thereafter.The way the current legislation reads, a manager of 10 years standing, who wants to top up his management rights agreements prior to selling, can have the full transfer fee imposed. We doubt this is the primary motivation behind the legislation.The apparent methodology behind the current operation of the section is that the body corporate becomes entitled to a share of the increased business profit associated with entering into, or extending management rights agreements. This cannot be the intended purpose of the section.Ultimately, the imposition of a transfer fee is a matter at the discretion of a body corporate. We have found, if a manager has done an excellent job, the body corporate tends not to impose the transfer fee. The opposite decision is often reached where a manager has done a poor job – so a form of natural justice applies.The decision of the District Court should highlight the need for the government to address the transfer fee issue in order to bring more certainty to this area of the law.

Management Rights: What are they?

Management rights are increasingly under the spotlight – widely discussed and advertised, sometimes misunderstood. It is timely to clarify exactly what they are, how they operate, and where they are best suited. Everyone entering the industry needs to understand the fundamentals of this model for operating a property.

Management rights operate in strata-titled holiday and residential properties where a significant number of owners are investors, providing an effective management model for investors who want to maintain an active role in the operation of their investment.

Where complexes are mostly owner-occupied, a caretaker with a short-term contract may be more appropriate, while hotel-style properties where the owner wants a more passive investment are usually better suited to long-term lease-back to a hotel operator.

Management rights are operated by a resident manager who:

  • has a caretaking service contract with the body corporate and attends to caretaking, gardening, pool care and cleaning duties specified in his contract, as well as coordinat-ing the work of other service contractors;
  • has a letting authorisation to conduct a letting business on the premises and is the only person who can conduct a letting business on site;
  • owns a unit in the building (or leases a designated unit) and either lives on the site or has an employee living on site;• is a member of the body corporate (as he owns a unit);
  • has a significant financial investment in the scheme and therefore has an incentive to ensure the scheme operates well;
  • maintains an office on site, either on title or with exclusive use on common property, from which he conducts the letting business; and
  • operates a letting business and acts as letting agent for those investor owners who choose to use the service. The business operates under the Property, Stock and Busi-ness Agents Act 2002 in NSW or the Property Agents and Motor Dealers Act 2000 in Queensland. The resident manager is licensed under the relevant Act.

Property developers usually decide if management rights will be part of the scheme, based on investment expectations, and create the management rights contract setting out the terms for its operation before any lots are sold.Purchasers know, before buying, that the expense and benefits of a resident manager will be part of the levies. They also know someone on site will attend to caretaking and securi-ty, having an interest in the process for selecting tenants, especially in a complex with long term residential tenants.

Minns Effort – Maximum Results!

First time owners, Michael and Lesley Minns, hadn’t heard of management rights before they departed western NSW seeking a seachange. Just seven months later, their La Mer beachfront apartments on the Sunshine Coast are thriving.The Minns’ inspirational story highlights the elements crucial to lifting revenue and adding value: expert, professional assistance, a strong marketing focus, great presentation, and a positive relationship with unit owners.Enthusiasm and proven business acumen were the first vital ingredients.

Michael and Lesley previously lived on a hobby farm near Orange, owning and operating a café in town. Their flair for hospitality was clear.“We were passionate about our café and worked very hard,” Michael said. “We won the Restaurant and Catering Association Award for the best café west of the Blue Mountains. But the dusty bush conditions got to us, and we opted a sea change. We bought our Sunshine Beach management rights business in October, and haven’t looked back.”

Michael says the first step to success was the input of trusted professionals: Glenn Millar of Resort Brokers to handle their purchase, Phil Jensen of NAB for finance, Greg Kamp of Kamp Business Accountants for due diligence, and Michael Kleinschmidt of Munro Thompson Lawyers.“Glenn and Resort Brokers were wonderful, always there when we had questions,” said Michael. “Munro Thompson Lawyers were extremely thorough; keeping us informed every step of the way and, like the others, very knowledgeable in the field of management rights.” From there, it was all up to the Minns. “One of our first priorities was to identify how La Mer was portrayed in the market. We looked at every accommodation website that listed or linked to us, updating photos and all information. It was amazing how many were out of date.”

Then came a thorough overhaul of all La Mer marketing material – new professional photography, vital to maximise appeal, a complete website upgrade, and new brochures.La Mer was also in need of some TLC. In just seven months, all crockery, cutlery and small appliances were replaced, three major apartment refurbishments completed, and a host other minor upgrades.

“We went to our first AGM armed with an abundance of costings for upgrades,” Michael said.

“Our body corporate committee was wonderful, understanding we were trying very hard to lift the image and performance of our beautiful beachside complex.”

Already the property boasts a new state-of-the-art phone system, new signage, pool furniture and many other improvements. The benefits are seen in impressive bottom line growth.

“Every month has been better than the corresponding period last year. Some have been 60 to 70 per cent better, with one month over double the turnover of the 2006 figure.”

Congratulations Lesley and Michael, proud hosts at La Mer, Sunshine Beach – proof of what can be achieved with initiative, hard work, and the support of unit owners who appreciate their managers are looking after their asset.