The $7.3 million sale of the Brass Monkey in Northbridge last week to listed property trust ALE Property Group Ltd is the latest in a series of significant purchases in the hotel sector.
The $7.3 million sale of the Brass Monkey in Northbridge last week to listed property trust ALE Property Group Ltd is the latest in a series of significant purchases in the hotel sector.
Local syndicates and institutional investors are spearheading the spending spree, with prominent pubs including The Cottesloe Beach Hotel, The Brisbane Hotel, and The Balmoral Hotel, changing hands off-market in recent months.
WA Business News understands the owner of the Herdsman Lake Tavern is now considering an offer in the vicinity of $9 million for the property from a local syndicate, which intends to own and operate the business.
It is the first time the ‘Herdie’, which features a sports bar, restaurant, brasserie, TAB and Drive Thru Bottleshop, has been offered to the market in 24 years.
Sales agent and Burgess Rawson manager hospitality, tourism and leisure, Graeme Clarke, said pub properties in WA were tightly held, but increasing market values and greater competition were making owners reconsider their options.
Mr Clarke said local syndicates and institutional investors were looking to buy WA pubs, and that more consolidation was likely to occur as long as the economy remained strong.
“There is a lot more demand for pubs now because they have become good, profitable businesses. Western Australians have a higher disposable income than ever before and pub owners are spending up to create better facilities,” he said.
“Tastes have changed too. There’s a lot more wine and premium beer sales now, and the influx of people from interstate and overseas have helped drive this trend.”
Demonstrating that catering to changing consumer tastes via expensive pub renovations can pay off, publican Geoff Hayward sold his popular up-market Highgate property The Brisbane, for $15.3 million to the ING Real Estate Entertainment Fund in August.
This was almost 10 times the $1.55 million he paid for it in 2003.
Likewise, property developer Graham Hardie made a significant profit in February when he sold the remodeled St George Hotel in Innaloo, now known as The Saint, for a purported $16 million to the Australian Leisure and Hospitality Group (ALH), a joint venture between Woolworths and hotelier Brice Mathieson.
Mr Hardie bought the hotel in 2004 for $3.1 million and is understood to have spent more than $1 million upgrading it.
Doubling its money last month without a major renovation, Multiplex sold the iconic Cottesloe Beach Hotel to a local syndicate for a reported $41 million, $24 million more than what it paid for it in 2004.
The deal came as the Western Australian Planning Commission boosted the hotel’s development potential by ordering the Town of Cottesloe to amend its height limit along Marine Parade from three to five storeys.
CB Richard Ellis senior negotiator hotels, Ryan McGinnity, said when potential investors were looking at pubs, profit from rent and/or operations and evidence of sustained growth in trade were the main factors governing most decisions to buy.
Mr McGinnity helped broker The Brisbane deal, and revealed it was a “walk-in, walk-out” sale based on profitability and returns of between 13 per cent and 15 per cent.
The deal raised eyebrows at the time because it was almost double the $8 million ALH paid by for the nearby, but bigger, Hyde Park Hotel in April.
“The different sale prices were because the bottom line for the Hyde Park wasn’t as high as The Brisbane. Even though the Hyde Park was a larger site, the land doesn’t really factor in,” Mr McGinnity told WA Business News.
“The Brisbane also had the bonus of a council car park adjoining it, meaning every bit of the premises was used to trade in liquor.”
He said the market for pubs in WA was performing well, but it did not move much as the risks were higher and the yields lower than in other states of Australia based on WA’s lack of gaming machines.
But the lower yields have not stopped ALE and ALH from scouring the state for pub assets.
Prior to its purchase of the Brass Monkey, ALE bought East Victoria Park’s historic Balmoral Hotel for $6 million, on a yield of 6.3 per cent before transaction costs.
The company’s interest in WA is not surprising, given the value of its other pubs in the state – Fremantle’s Sail and Anchor and The Queens in Mount Lawley – have risen by up to 35 per cent since August 2003.
Despite the small footprint in WA, the company is still Australia’s largest listed freehold owner of pubs, an achievement assisted in part by Foster’s divestment of its hotel property business in 2003.
With all of its 104 pub properties around Australia managed by ALH, ALE is believed to be keen to acquire more pubs in WA managed by ALH under long leases.
Aside from managing the Brass Monkey, ALH has spent a number of years amassing an interest in prominent WA pubs, including Perth’s Belgian Beer Café, The Como, Foundry Pub and Grill, The Vic, The Saint and the Dunsborough Tavern.
