SYDNEY—The short-term investment strategy for Australia and New Zealand seems to be a “buy” sentiment, according to dealmakers on a panel at the Australia, New Zealand & Pacific Hotel Industry Conference earlier this month at the Hilton Sydney.
Transaction volume for January to June is AUD$656 million (US$570 million), according to Craig Collins, managing director Australasia, Jones Lang LaSalle Hotels. This represents 85 percent of the total volume of 2009, he added.
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“We will well exceed the (AUD)$1-billion (US$867.2 million) mark this year,” Collins said.
Sydney, Brisbane and Perth have the top “buy” sentiment in the area, he said. Equity buyers dominate the market, and there is a focus on capital cities.
“There are increasing opportunities in Europe and the United States,” Collins said. “In the next 12 to 24 months, we’ll have to keep an eye on that. We may see a shift of Asia capital that will move north to those markets.”
Deal drivers
LaSalle Investment Management’s purchase of the Sofitel Sydney Wentworth for AUD$130 million (US$112.7 million) in May 2010 was one of the year’s notable transactions.
Ian Mackie, chief investment officer Asia Pacific for LaSalle, said there were many reasons for the acquisition, which was made with the LaSalle Asia Opportunity Fund.
“On the macro side, Australia has weathered the (global financial crisis) substantially better than almost anyone,” he said. “The big picture in Australia looks attractive. At the same time there is a general lack of capital for major assets in Australia. That’s an opportunity for us.”
At the local level, Sydney’s hotel performance was appealing, Mackie said. But the Sofitel is only the second 5-star hotel the fund has owned.
“We believe in that midlevel market,” he said.
Matt Eady, CEO of Tourism Asset Holdings Limited, agreed.
“The midmarket product is better suited to Australia,” he said. “From the yield point of view, the yield margins for midmarket are about double. … In Australia, 5-star is very tricky, mainly because of labor costs and Australians are not used to paying for 5-star.”
TAHL is one of Australia and New Zealand’s largest hotel owners with 46 properties. In March, the company refinanced more than AUD$700 million (US$606.2 million) of debt.
Regarding the transaction, Eady said it was “far from easy.”
“It took about eight months to do the deal,” he said. “We found the overseas banks incredibly supportive this time around compared to previous cycles. To the banks’ credit, there is less propensity to put businesses under. A less than reasonable refi would have serious ramifications.”
On the ability to buy assets in Australia, Mackie said the process went wonderfully.
“There are parts of Asia that are hard—a lot of time and brain damage,” he said. “Australia is refreshing and straightforward.”
LaSalle is a constant seller of assets in predecessor funds, Mackie said. “When we sell depend on the opportunities for the time. It’s just circumstances driven by the fact that we’re a closed-end fund.”
The majority of its assets are in office and warehouse, he said.