Motels are the backbone of our accommodation sector. Since these roadside retreats emerged in Australia in the 1950s, they’ve evolved and endured to remain vital, lucrative business and property investments.
ResortBrokers founder and managing director, Ian Crooks, played a pivotal role in the motel evolution. In 1985, he opened up the industry by pioneering the concept of motel leasing. Until then, the sector had been entirely owner-operated. Today, more than 80% of Australian motels are ‘split’ into business (leasehold) and property (freehold) components.
FREEHOLD GOING CONCERNS
Of course, Freehold Going Concerns are still very keenly sought. This refers to motels where one party is both owner and operator, responsible for everything from bookings to refurbishment. No rent is payable and the owner receives all profit after operating costs.
The vast majority of motels, however, provide two distinct investment opportunities.
The Motel Lease, usually starting with a 30-year term, is sold to an operator (lessee) who conducts the day-to-day management of the business and often lives onsite.
As their own boss, they aim to build occupancy and tariffs for maximum net profit. They’re responsible for all operating costs and pay the property owner an annual rent for the use of their land and buildings. While lease documents vary, generally the leasehold operator is responsible for the supply and upkeep of all ‘chattels’ needed to run the motel.
FREEHOLD PASSIVE INVESTMENTS
In this scenario, the land and buildings are owned as a Passive Investment by a commercial property investor (the landlord). They are responsible for all structural repairs and are expected to maintain the standard of the property for the duration of the lease.
They receive an annual rent from the lessee, but have no involvement in the business. Depending on lease terms, rent generally increases annually by CPI, or may be subject to a rent review clause.
Motels in any form are considered very strong investments, with banks happy to lend on all models. For the latest information on returns and lending ratios to expect in the current market, contact ResortBrokers on 1300 665 966 to speak with a specialist broker.