Commercial - Hotels/Pubs

[Hulkster]

I haven't seen a lot of discussion about Hotels or Pubs as commercial investments apart from mentions about how some of the large listed groups have been hurt by buying high and diminishing returns.

I purchased a leasehold (the business) in 2005 in a city of around 100,000 people and at the time was active in residential property. Freeholds (the building) seem to be tightly held in my experience, so when the partnership that were our landlords dissolved we managed to purchase it on about a 10% return.

We did it for two reasons - paying 16k a month in rent to someone else was ridiculous, and having someone pay us 16k (or more) a month in rent is an attractive superannuation for the future.

Has anyone else dabbled in licensed property?

Nick

 

[craigb]

I have not had personal experiance, but i heard someone do this: pretty cool!

1,purchase and old country pub, NSW. ie $500k.
2,sell the gaming machine, licence, 1 mill?
3,sell of the bottlo/drive through as a seperate entity. $300k.
4, get rebate for painting and historical refurbs , from the histerical socity.
this covers paint plaster, etc all paid for?
5, sell the old pu as a bed and breakfast for $600k

The couple did this on several occasions, pretty clever!

 

[Dazz]

paying 16k a month in rent to someone else was ridiculous

Why do you say that Nick ?? It allowed you to keep your 1.9M in your pocket, and also allowed you to operate your business out of the premises.

Sounds like a bargain to me. Why do you consider it to be ridiculous ??

 

[Hulkster]

Why do you say that Nick ?? It allowed you to keep your 1.9M in your pocket, and also allowed you to operate your business out of the premises.

Sounds like a bargain to me. Why do you consider it to be ridiculous ??

To clarify a bit - I financed the purchase at under $14k a month, so from my point of view I'm $2k per month plus annual CPI increases in front without reaching into my pocket.

Obviously my debt went up by most of the purchase amount, but the debt costs me less per month than rent did. It gives me a little something at the end.

 

[grossreal]

hi
couple of thing
the largest pub owner at the moment is the banks
and the receivers.
pubs and clubs are selling at about 50% of val
the cap rate has gone from about 7 to 8% 12 months ago to 11 or 12 % now which takes the val thru the floor.
and yes I have investors just had a beer with one of my investors and hes at 32 mil currently
and his debt is at 45% so he's fine at the moment but yes you ahve good cash flow but not alot of equity.
I am just funding another purchase but its fun
vals are all over the place at the moment as funder s look at what your buying as opposed to what they are holding.
hotels resorts pubs are the fun market and unless you understand them stay well out in my view.
I am organising funding but they are not my cuo of tea
this client owns a couple and they are very well run so thats fine for me
unlike others funders or brokers I have to undeerstand the client before I organise funding so it a little different.
this market is the hardest hit so is the best to make profit.

 

[Hulkster]

Like all segments it's only an issue if you have to sell. If you overpay for an asset that underperforms then you're going to be in all sorts of trouble.

From what I have seen the actual leaseholds aren't taking a hit price wise, and quality assets are mainly sellig off-market. The banks are getting their fingers burnt in NSW and Qld but again it's the big pub groups who have splashed out in the $10M+, $20M+ markets.