Pub sales hit new highs in a frothy market
Cash continues to be pumped into the hot pub sector across the city and regional areas with prices escalating as investors and owner/operators battle it out to get a deal.
More than $2 billion worth of sales have been done in the past 12 months at a time when the sector was hard hit by the global pandemic.
While seasoned pub owners remain in the mix, a new batch of cash is coming in such as the deal by Harvest Hotels, a Sydney-based pub fund headed up by Chris Cornforth and Fraser Haughton, which paid $51 million for the Windsor Castle Hotel in East Maitland.
It is a record price for an inland regional pub and adds to the group’s portfolio of regional pub assets which includes the Woy Woy Hotel on the NSW Central Coast, the William Farrer Hotel and The Vic in Wagga Wagga, Brady’s Railway Hotel in Albury and the Milestone Hotel in Dubbo.
JLL senior vice president, hotels and hospitality, Ben McDonald, advised on the deal and said pubs are in demand because, unlike alternate real estate asset classes, changing economic conditions and shifts in global finance markets are not adversely affecting hotels as an asset class and the transaction outcomes being achieved.
“The demand for this asset class comes from long-term investment horizons of buyers with many established families and large hotel groups continuing to grow and enhance existing portfolios,” McDonald said.
“High legislative barriers to entry with protected business models offering increased levels of security of cashflow performance over alternate businesses are also an attraction.”
In the last week alone JLL has completed more than $100 million in asset sales, setting two new price records in the process. The first being the largest ever leasehold transaction with Glenquarie Tavern, Macquarie Fields, selling for $28 million and the agents also launched the sale of the famous Oaks pub in Sydney’s Neutral Bay with a price tag of more than $175 million.
A range of buyers such as private equity funds, family-run funds and syndicates, high net worth individuals and the veteran hoteliers are all likely to run the ruler over the Oaks.
McDonald said the sale of the Windsor Castle to Harvest Hotels highlights the market’s willingness to pursue assets underpinned by “robust trading fundamentals in key growth locations”.
JLL hotels managing director John Musca said unlike other asset classes that have seen the cost of debt slow market momentum, the hotel market has continued unabated with nearly $2 billion of capital flowing into the sector in the past 12 months.
This has seen a wide range of new buyers enter the market and the trend is expected to continue.
“The flight to scale is increasingly competitive from both institutional and private owners across the country, with levels of liquidity at unprecedented levels,” Musca said.
This has been reflected in recent deals such as the Smorgan family’s acquisition of the Continental Hotel in Sorrento, Victoria, the Fairfax family’s Sydney pub portfolio and ASX-listed Johns Lyng Group chief executive Scott Didier’s purchase of the Great Northern Hotel in Byron Bay.
“For those that accumulated wealth in mining, media, software, logistics or any other sector, once you finalise a business case, owning an iconic pub hotel in reality is far more fulfilling and exciting than any other form of investment,” Musca said.
Another deal concluded by Savills Hotels was the $22.5 million sale of the Lord Roberts at 64 Stanley Street, Darlinghurst. Owner Sue Cameron sold the freehold going concern of the “Lord Bob”, to Adam Macfarlane, who is a new entrant to the sector.
Savills Hotels’ Nick Butler, Selin Ince and Nick Lower said the sale price reflects the strength of the asset class, with city fringe hotels having enjoyed a measurable bounce back into profitable trading post-pandemic.
“The precinct is set for significant investment in development with the Lord Roberts at the very epicentre of planning proposals and properties under option,” Lower said.
