FHT acquires Novotel Melbourne for $178M

(Hotel transactions heady in Australia)

Are Australia's top markets getting frothy? The latest heady transaction is the 380-room Novotel Melbourne, which has been sold to Frasers Hospitality Trust for AUD 237 million, or USD 178 million. The deal, at USD 468,000 per key, represents one of largest ever hotel transactions to occur in Melbourne. JLL's Hotels & Hospitality Group advised on the sale.

Craig Collins, CEO Australasia, JLL's Hotels & Hospitality Group, who brokered the transaction said, "We are currently experiencing significant demand for trophy status hotels across Australia's major markets. There has been a noticeable change of focus with global hotel investors who typically focus on international gateways such as New York, London, Paris and Hong Kong, now also targeting Australia's key markets. Over the past couple of years Australia has become even more attractive because of the excellent growth in international tourism, strong domestic market and the fundamental transparency and safety of the real estate market.

"We were always confident that the Novotel Melbourne on Collins would be strongly targeted by investors because it enjoys an absolute prime location in the heart of Melbourne, sits above a new luxury retail centre, and has achieved strong and consistent trading performance over a long period of time."

The transaction of the hotel follows AUD 2 billion of Sydney deals completed by JLL's Hotels & Hospitality Group, including, most recently, The Westin Sydney, Hilton Sydney and Sheraton on The Park.

Interest for the Novotel Melbourne was reportedly received from a range of domestic and international investors during the Expressions of Interest campaign.

"We are in continuous contact with a substantial pool of investors who are seeking to either enter the Australian hotel market or further invest," Collins said. "With the current scarcity of opportunities it is difficult for even experienced, well-capitalized groups to secure properties considering just how highly sought Australian hotel assets are at present amongst the international investment community.

"We expect to see further investment in Melbourne and other parts of Australia after a long period of Sydney being in the spotlight. Melbourne especially is well known internationally as a global cultural and events icon and is very well positioned for further long term growth. Right now is a very exciting time for tourism and hotel investment across the country."

Deal Rich

Australia is poised for record-setting transactions this year. It started out with a bang in Q1. “We have transacted AU$180 million in hotels and it’s only February,” CBRE Hotels Director Wayne Bunz told Hotel Management. “We’ve got another AU$80 million in due diligence—these numbers are just incredible for this time of year.”

With regard to buyers, “There’s still a mix, but it’s still driven primarily by Asian capital looking to come to Australia,” he said. Australian private equity and the recent entry of Middle Eastern capital have also been part of that mix.

Last year was a record for hotel transactions in Australia, with CBRE reporting a total of AU$3.87 billion, much of it coming from Asian investments in high-profile luxury hotels. A new record this year seems highly likely. Bunz said the two portfolios attracting the most interest right now—the M&L Hospitality and Ascendas portfolios—should come close to the 2015 total if acquired this year.

Australia’s current tourism boom is a result of record tourist inflows from Asia, especially China, plus rising domestic tourism. Both phenomena are being driven by a weaker Australian dollar that makes the country appealing to Asian tourists with stronger currencies while also making international travel more expensive for Aussies, many of whom are choosing to explore their own country rather than travel overseas.

Bunz said that demand for corporate and leisure hotels should stay strong for the foreseeable future, barring shock wave events such as another financial crisis.

“I think that hotels have proven since the global financial crisis that they are among the most resilient assets,” he said.

In addition to hotels in traditional markets, such as Sydney and Melbourne, new investments are picking up in the Gold Coast and Cairns, Bunz added.

In addition to a transparent legal and political system, China’s ongoing economic slowdown and expectations that the renminbi will weaken this year are enhancing the Australian hospitality industry’s appeal.

“A lot of Asian capital that comes to Australia takes a mid- to long-term view on those asset classes,” Bunz said. “Our land is free-hold, which is very appealing to the Chinese.”

With another record-breaking year in the making, Bunz says the main challenge in the Australian market is supply.

“The challenge we have is stock,” he said. “For every quality hotel, there are at least half a dozen genuine buyers who will bid for that hotel.”