Investor appetite for pub assets continues unabated despite the latest round of lockdowns and restrictions in several parts of the country. Ben McDonald, Senior Vice President at JLL Hotels & Hospitality Group says there are several drivers behind the activity. For starters, the sustained buoyancy reflects the general strength and strong cash flows of this business sector.
“As an overarching comment, we are continuing to see buyer depth increase for pub assets at all levels given they are supported by underlying real estate ownership and strong underlying cash flows,” he says.
“Pubs really have shown just how resilient they are – even considering the events of the last 12 months. Hoteliers have continued to reinvent themselves and their businesses which is a testament to the entrepreneurial mindset many operators share.”
Booming prices
Another major driver is the current accessibility of debt markets, thanks to record low interest rates, McDonald notes. “Interest rates remain at record lows, and the hotel industry has been really well supported by banks generally. While debt markets remain open for business, we will continue to see ongoing buy-side demand,” he says.
So does that mean it’s a good time to sell? Yes, says McDonald, because buyer depth is at an all-time high which means there is increased competition for each asset. When coupled with low interest rates and relative debt liquidity, this translates to higher pricing assurance.
“Buyer depth is a real driving force at the moment,” he says. “We are seeing the depth and varied profiles of buyers. In addition to more traditional hoteliers, we are seeing an increase in corporate activity. When you have public and private capital sources making themselves known in the acquisitions scene and competing in the space, that is all helping to fuel price growth.”
Generational exits
So is it also a good time to buy? Again, yes, says McDonald. “Whilst the availability of stock remains reasonably tight, we are seeing owners take advantage of the current market appetite, crystalising strong pricing outcomes for assets in the process. Generational pub owners are capitalising on the market opportunity and are looking to divest, he says, which means a greater supply of quality assets.
“Great assets are becoming available, and this does not happen when it’s not a good time to sell – long-term owners generally don’t sell when the market is soft because they don’t have to.”
In some cases, you won’t see a complete exit by those large groups, McDonald notes. For example, they may just sell one ‘non-core’ asset to adjust an internal strategy or as part of changing family views. In other cases, long-term owners are seeking generational exits due to shifting family circumstances.
“We’ve worked with a lot of those recently, such as the Mooney family who divested the Great Northern Hotel in Byron Bay after 30 years of ownership.
“Byron has undergone significant transformation in the last five years, and given the strength of the local market the family looked to exit that particular asset to capitalise on the heightened market interest in what is one of the most coveted hotels in the country.”
In addition to the circa $80m Great Northern Hotel & Lateen Lane Hotel in Byron Bay, JLL has recently sold the Gladstone Hotel in Sydney’s Dulwich Hill for its owners of 42 years, and the London Hotel in Balmain for owners of 32 years.
“These long-term owners come to JLL for our really honest and transparent approach to working with them. We see it as a genuine partnership, we are respectful in the way we approach each campaign, and that’s why we see lots of brand loyalty through our client base.
“Also, JLL is not just a hotel brokerage agency – the market values the breadth of our agency expertise, which includes a significant capital markets platform, accommodation specialists, valuation and advisory professionals. It’s a broad and significant skillset that clients have access to when they work with JLL.”
To discuss your divestment objectives, or any of the content mentioned in this piece, please reach out to Ben McDonald on 0414 182 848 or Ben.McDonald@ap.jll.com.