23 Jun 2023
Words
Trudy Crooks Informer 107
Are you positioned for a reposition?
Everywhere we look these days we’re being encouraged to recycle — and that’s no bad thing.
In our industry, a recycling of sorts is also taking place. Up and down the country, we’re seeing a recycling of accommodation property assets. Except we don’t call it recycling, we call it “repositioning.” Old motels are being converted into retirement villages. Retirement villages are being turned into affordable housing. And on and on it goes.
This is nothing new. Different purposes have been found for buildings as long as buildings have existed. But what’s interesting is the new money that has entered this space and the opportunities this creates for the owners of accommodation property assets.
Last year, ResortBrokers sold Port Denison Motor Inn, located in Bowen in Queensland’s Whitsunday Region. The buyer was ASX-listed Eureka Group Holdings which is in the business of providing quality, affordable accommodation for seniors. This property had a very interesting history. It was originally built in 2001 as a 46-unit retirement village, then it was repositioned as a short-term holiday let, and now Eureka plans to reposition it once again as a retirement village to the tune of $105 million. And the vendor was very happy to let it go for a figure just over $5 million, which was a phenomenal return on their investment.
“Opportunity, like land, is a non-renewable resource.”
It’s a trend we’re seeing right across Australia — assets changing hands for changing purposes. At present, we’re in talks with the NSW government for the sale of an asset listed with us on the Central Coast. If it comes off, the property may be repositioned towards social housing, which would be great to see.
In Queensland, the state government has been buying up former aged care facilities to be repurposed as social housing. In January, it purchased a 30-unit former aged care facility in Clayfield from Aveo Group for $9.4 million. In March, it purchased two more Aveo retirement homes — a 30-unit property in Windsor,Brisbane, and a 50-unit property in Toowoomba — forconversion into social housing.
These purchases are part of a $3.9 billion investment by the state government in social housing, consisting of new builds as well as repurposed assets, such as the ones sold by Aveo.
What’s clear is that there are new buyers with considerable capital entering the repurposing space, both government and corporate.
Private sector buyers will always look at past trade, but these new buyers are now looking much closer at the underlying real estate with an eye to repositioning it. Traditionally, sales have transacted largely on what the asset has been earning.
Now, we’re seeing a new kind of buyer looking at properties in great locations and building their own cashflows based on what they think the asset can generate if repositioned. This, in turn, has led to record sales and some very happy vendors.
I see no end to this trend. Australian towns and cities are continuing to grow apace and are pushing the limits of their own boundaries, especially in our regions. Traditionally, motels and caravan parks were built on the outskirts of a town. But as those towns have grown, those assets are now sitting on great pieces of land. What was once the outskirts of a town is now virtually in the heart of town!
The domestic tourism boom has highlighted the need for better accommodation throughout regional and coastal Australia. Cashed-up funds and operators are responding to that need. They’re looking at these assets differently, not just on what they’ve earned in the past but on what they think they can earn in the future if repositioned.
What does all this mean for you? Well, if you’re a landlord of one of these assets and there’s big money splashing about, perhaps it’s worth seizing the moment. Opportunity, like land, is a non-renewable resource. And, as the saying goes, opportunity waits for no one.
Yields for freehold going concerns are very tight at present. If your passive investment is underperforming in the current market, then perhaps it’s worth having a conversation with your broker about selling. If your lessee is selling up, perhaps it’s time to reunite the freehold with the leasehold and selling the whole kit and caboodle. The demand is certainly there from this new generation of funds looking to reposition underperforming assets.
“It’s a trend we’re seeing right across Australia — assets changing hands for changing purposes.”
A lot of landlords will naturally question why they should sell. They will say, this has been a great passive investment for me, and passives are hard to come by, so I’d better hang on to it. It’s true, passives are in short supply.
But it’s also true that demand is sky high from large funds on the hunt for prized real estate. If your asset is presently under-rented, there’s enormous upside in reuniting the leasehold with the freehold and selling the whole shebang.
Finally, ResortBrokers’ outstanding Q3 results indicate the strength of the accommodation property sector nationally. Across the country, we settled 123 properties totalling $246 million last quarter, with another 82 new deals worth $169 million heading towards settlement before the end of the financial year.
Most encouragingly, our number of enquires for the quarter was 8,802, which surpassed pre-Covid levels. In April we also saw our strongest month on record for the number of enquiries for freehold going concerns. Interest in this asset class has surged by 75 per cent compared to this time last year.
Ultimately, the accommodation property business is about people. We love setting people up in a great business, and we love helping people sell their business to set them up for their next step or a well-deserved retirement. So, hearty congratulations to all vendors and buyers who transacted through us this quarter. We’re glad we could help make it happen for you. END
