Serviced Apartments Query

[Renoir]

Hi, I was wondering if anyone could give me any advice about serviced apartments.

I have a small development project complete with DA & BA close to Brisbane Airport which I have just put on the market last week and I am wondering if I should be marketing it towards people who want to own and operate a boutique serviced apartment business. I mentioned it to the agent who I have it listed with and he seems to have no clue about how to market it as a business/investment opportunity to prospective accommodation providers.

The current DA is for a boutique development for 3 executive style terrace houses, each with:

3 Bedrooms / 3 full sized Bathrooms / Double Lock Up Garages and each have Private Rooftop Garden/Entertainment Terraces with awesome bay, airport and gateway views! There is also 3 onsite visitor car parks.

The design means it could easily be managed like dual/tri key apartments you see in resort projects. If only one bedroom was needed then the other two bedrooms could be locked so they cannot be accessed. So it could be easily rented to anyone wanting one bedroom, two bedroom or three bedroom accommodation. So there is a potential business opportunity. The close proximity to the airport and highly visible location is a huge plus for short term accommodation.

There is a large motel not too far away and the people who own that expanded a few years ago to meet demand and part of that expansion was 3 bedroom townhouses to meet the needs for families and larger groups which they rent for about $450 a night (their price varies depending on how many people). They rent their 1 bedrooms for $160 per night. It's seems to be very successful business and it’s located on a much busier road, it seems it is successful because it is convenient to the airport not because it is anything flash to stay in (well that is what numerous reviews on trip advisor say its main appeal is)

Although this is only a small boutique project when they are built they will significantly devalue the two adjoining houses so if the operator purchased those 2 adjoining properties they could develop those sites at a later date and turn it into a much larger motel/accommodation business with a mix of accomodation styles. And if the 2 adjoining houses were bought and developed then you would have 3 street access.

I decided to put it on the market because being a single, self employed woman I can't get the finance to do the build without selling 1 off the plan and I don't want to do that. I would be happy to actually retain one for myself to live in, as that was what I originally intended to do. I'm self employed and I work from a home office so if someone wanted a passive investment then I would be happy to manage it and keep an eye on it for them.

Does anyone have experience in serviced apartments? Do you think someone would be interested operating a small boutique development such as this a serviced accommodation business?

Any advice about which way to proceed would be greatly appreciated.

 

[Piston Broke]

Maybe you can approach a competitor of the hotel chain.
Or chat to some local agents or travel agents/tourist operators.
Check out the hotel and look for big company logos on them, may be worth approaching.
Although without anything built yet I don't think there's much point doing more than general research.
As for nightly rentals, I would not jump to conclusions on how much money they are making as expenses mount up quickly.

 

[SB25]

Hi,

From someone who sells development sites and commercial properties in Qld these are my thoughts -

1. Economies of scale - you still need to employ cleaners, Managers etc - a 3 - 9 room property may not sufficiently allow for this in it's revenue;

2. Motel businesses usually operate with an onsite manager, and therefore you would need sufficient number of rooms and provision for accommodation for this person due to the 24/7 nature of the clientele. These properties are popular because they are convenient to the airport when you have an inconvenient flight time.

3. This sounds like the type of operation that could suit an owner-operator. There is definitely demand for boutique style accommodation, and not just from airport-bound guests but also larger families looking for somwhere to stay for a few days whilst in Brisbane that won't cost the earth.

4. Does the DA allow for short term accommodation or would this require another DA to be lodged? Under the existing terms how many occupants can be onsite? Would the plans be compliant with building and fire regulations for this style of operation?

5. If you're selling a development site, you are better off appointing an agent who specialises in this field rather than a local resi agent. You are much, much better off spending some money and promoting it heavily from the outset with either an Auction or Tender campaign rather than adopting a 'soft' approach.

The soft approach will result in all of the local builder/developers seeing it, and if it doesn't sell the market will ask why, and then psychologically discount it because of this. Additionally, a sales campaign with a deadline will create competition and give you some structure around the process. The most critical point to make here is that YOU CAN'T SELL A SECRET.

I don't know if you can send PM's with this forum but please feel free to message me if you'd like further suggestions. I have recently sold a site with DA & OPW for 4 x 3 bdr townhouses which generated around 65 enquiries with a result 50% above val and would be happy to talk you through the process without obligation.

Kind regards,
Sam

 

[Renoir]

Hi,

Thanks for the repies, I agree it would suit a owner operator. The reason I am thinking along these lines is because I currently have an investment property nearby and it has 7 bedrooms and 3 bathrooms and it is rented out on a room by room basis. It is a basic renovated house, we renovated the property 2 years ago and it's comfy but it's nothing flash. We fully furnished it and started renting on a room by room basis because there was a demand for short term accommodation in the area. It has worked well and we have rarely had a spare room available and we have had tenants staying anywhere from a month and several have been with us from the beginning so just over 2 years now.

It's fully furnished and we pay all the bills power, water etc and provide a high speed internet connection. We have a weekly cleaner who has been with us for years and she goes in and cleans all the common living areas and bathrooms twice a week and she cleans their bedrooms once a week and changes the sheets and leaves them fresh towels. The cleaner does all the washing of the linen and towels for us as well. She charges us $250 a week to do so.

Each of these rooms rent for between $225 to $250 a week. So it's been a good earner for a house we originally bought 3 years ago for $300K and spent just under $200K on renovating. Whilst it is more work renting on a room by room basis it has worked well and it allows us to keep a close eye on the property which we really like. Basically all the tenants are men who work in or around the airport and they just want clean, comfortable accommodation and they don't want to worry about cleaning etc. The only thing they have to do themselves is cook and wash their own clothes.

So that is what I was intending to do with these terraces houses, I was going to live in one myself and rent out the other 2 out on a room by room basis. But since I started the process of getting the DA etc the banks gotten a lot stricter on their lending practices and now they want me to sell 1 off the plan to secure the finance to build. So that has really stuffed up my plans so that is why I have decided to sell.

In reply to Sam.....The DA wasn't put forward to the BCC as a Serviced Apartments business but it meets all the requirements from the Town Planning Code for a business of that type so I imagine there wouldn't be any dramas getting approval for that.

In reply to Piston....I have contacted the large motel nearby and asked them if they would be interested and I emailed all the approved plans through to their email address and the girl said she would forwarded onto the owner but I haven't heard anything back. (It is under management the owners aren't involved in the daily operation of the business).

 

[Piston Broke]

I was also thinking along the lines of something a long term 1yr+ rental to a company that may use them all year round without bookings.
Less than booking single rooms, privacy & comfort, save money for them earn more for you.

 

[SB25]

Hi Renoir,

The laws on 5 or more unrelated people living in a residence have recently changed and both the BCC and RTA are apparently now clamping down on this type of accommodation.

It can be very profitable and we've seen a number of these opportunies across our desks recently however it pays to do it 'by the book'. Interestingly they tend to trade on higher yields (circa 10-12%) given the greater level of management involved and you are effectively running a business rather than a passive investment.

With DA & BA it sounds like it is ready for dirt to be turned. If you've paid all of the headworks it should be quite attractive to a builder/developer who can acquire and commence work immediately. Alternatively if you can get a precommitment from a lessee for 3 - 5 years that may help you source construction funding?

Alternatively you may have to sell 1 to get off the ground, which realistically is only a 33% presales commitment which is quite low in this market.

Sam

 

[Renoir]

Yeah I know about the 5 unrelated people rule......that won't be an issue for this project as each terrace house is 3 bedroom and 3 bathrooms and are seperate residences so it wouldn't be an issue unless each bedroom was rented out to a couple.

Sam I have sent you a PM with my phone number if you want to have a chat, unfortunately I am tied to an exclusive agency agreement at the moment so there is not a lot I can do.

 

[AshFenwick]

Commercial Agent (Sam), just in reply to your post that wouldn't be a 33% pre-sale commitment to a lender, if you were referring to a lenders terms (I'm assuming you calculated this as 1 into 3?).

When a lender looks at a pre-sale commitment, it is the % of the proceeds from the sale into the debt. For example, if you had a debt of $800,000 for the construction of the 3 apartments and pre-sold an apartment for $400,000, you would have a 50% pre-sale debt coverage which would be about right for a small development like this.

Cheers.