New lenders helping to invigorate pub investment sector

New lenders helping to invigorate pub investment sector

13 September 2019

New lenders are helping to invigorate the pub investment sector, providing an alternative to the big four banks, according to CBRE Hotels’ inaugural Behind the Bar report.

As Australian hoteliers seek to bolster existing portfolios and enhance trading operations via strategic capital expenditure initiatives, non-traditional funding sources have become a key market driver, the report noted.

“While general trading conditions are relatively free of headwinds, access to capital and regulated debt covenants are key to maintaining transactional momentum in the pub market,” said CBRE Hotels Director Paul Fraser.

“Current interest rates and potential rate cuts will also fuel investment activity and create significant buying opportunities for well capitalised investors, leading to heightened operational cashflows and enhanced balance sheet performance.”

Mr Fraser noted that publicans were looking to increase capital expenditure in areas which had been potentially disregarded or ignored in the past.

“Proactive publicans have viewed gaming room upgrades as a necessary spend as gaming performance has continued in an upward trajectory,” Mr Fraser said.

“Upgrades can come in the form of machine inventory, room furnishings or signage. With Aristocrats Dragon and Lightening Link machines still seen as market leaders, many publicans have strategically increased the percentage of Helix machines in their room to increase total gaming performance.”

Outside of gaming rooms, CBRE Hotels Director Ben McDonald said publicans were focusing on bar and restaurant refurbishments, given the ability to lock in finance at a fixed level over three to five years.

Lower interest rates would ultimately also improve conditions in the ailing retail sector and support higher levels of patronage throughout pubs nationally, supporting Australians travelling domestically rather than abroad and making a holiday ‘down under’ more affordable to tourists from overseas.

“Pubs in prominent holiday locations should benefit from these trends – specifically the continued popularity of coastal assets and those regional centres underpinned by tourism activities,” Mr McDonald said.

In NSW, the report highlights that current economic conditions have provided the necessary support for greenfield hotel development projects – a trend that continues to gather momentum in key growth corridors.

Some of the largest and most recent Sydney examples include Laundy Group’s Marsden Hotel & Brewhouse in Marsden Park; Iris Group’s Station House Hotel in Campsie and Momento Hospitality’s The Governor Hotel at Macquarie Park.

Mr McDonald also noted that the current financial conditions had made publicans more amendable to taking larger perceived risks by acquiring assets that were deemed to be underperforming, with a view to redeveloping and/or repositioning them.

A similar trend has been apparent in Queensland, with three established publicans acquiring venues in South East Queensland in recent months that present repositioning opportunities.

These include the Commercial Hotel purchased by Roconcil, the Samford Valley Tavern acquired by The Comiskey Group and Woodford Hotel purchased by Deery Hotels.

“These pubs are examples of astute publican’s now looking outside of traditional ‘A’ grade assets at assets that are perceived to be underperforming and that can be revitalised with a CapEx injection,” Mr Fraser said.