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Turn on the tap: $4b worth of pubs change hands in frothy market
A wave of cash is flooding into pubs as venues from the inner-city to the bush change hands making them one of real estate’s hottest sectors.
In the past year, hotels worth close to $4 billion sold, well above past peaks, with several long-term family-run operators cashing out. A large $1.7 billion takeover of ALE Property – a big pokie pub landlord — by property behemoth Charter Hall added to the frenzy of deal-making.
Pubs’ consistent food and liquor revenue, gaming machines, rental income, development profits from renovations and capital growth from underlying land values are making them an attractive investment proposition as COVID-related social distancing restrictions ease and the sector bounces back.
The Carousel Inn occupies a large 1.17 hectare corner site in Rooty Hill.
Real Capital Analytics estimates transaction volumes are on course to eclipse previous highs. Sales volumes for pubs dropped precipitously in 2020 after COVID-19 hit, slumping 22 per cent compared to the year before.
“Investors don’t appear to have been completely put off by the numerous lockdowns Melbourne has undergone and the one in Sydney,” RCA’s Pacific head of analytics Benjamin Martin-Henry said.
HTL Property managing director Andrew Jolliffe, who kicked off the latest transaction bonanza when he negotiated the sale of the Hotel Hollywood in Sydney’s Surry Hills in April, says investor interest is at an all-time high.
In late December, former Nine Entertainment boss David Gyngell and the widow of the late actor and writer John “Strop” Cornell, Delvene Cornell, sold the Hotel Brunswick near Byron Bay for $68 million to listed fund manager MA Financial.
And in one of the last big sales of 2021, the Stanford family sold its Riverstone pub known as the Pub @Rivo, in Sydney’s west to a private Sydney consortium, headed by PwC Australia legal partner Andrew Wheeler, for around $26.5 million. It was the last of the family’s three pubs to find a new owner.
Each pub in the portfolio provided extremely rare Western Sydney growth corridor real estate. “The Stanford family’s Sydney portfolio set new benchmarks both in terms of record pricing and yields,” Jolliffe says.
Bruce Solomon, a pub industry veteran, set the bar high with his purchase of the Carousal Inn, in Sydney’s western suburb of Rooty Hill, from the Stanford family for an eye-watering $64 million.
“The big attraction of hotels is the consistency of revenue. As it used to be in the old days, people still have a drink when they’re celebrating or have a drink when they commiserate.”
Pub veteran and Solotel director Bruce Solomon
Solomon runs the Solotel Group with his family and celebrity chef Matt Moran and says pubs are attractive when they are part of a community where locals and visitors relax and enjoy being social after months of lockdowns.
Solotel has owned the Darlo bar in Sydney’s city fringe for decades and also runs the Opera Bar and Barangaroo House in the city, among other popular venues. “The pub trade has been remarkably resilient,” Solomon says.
“The big attraction of hotels is the consistency of revenue. As it used to be in the old days, people still have a drink when they’re celebrating or have a drink when they commiserate.”
Justin Hemmes’s Merivale is setting its sights on building its Victorian portfolio where it splashed out a combined $80 million to purchase the coastal Lorne pub and Tomasetti House in Flinders Lane.
The freehold interest in Melbourne’s Boronia Hotel sold for $24 million — 48 hours before the official campaign closed. JLL director pub investment sales John Musca says the sale highlights the “esteem investors hold in hotels as an asset class, delivering an internal rate of return exceeding any other form of retail property.”
Musca says the weight of money looking for pub investments will continue to drive an “extraordinary period of transactional activity.”
The Boronia Hotel in Melbourne’s south traded on a 5 per cent yield.Credit:
Pub veteran Arthur Laundy last year swooped on the Bay View at Woy Woy, on the NSW Central Coast for $38 million. Laundy says community pubs are in “high demand.”
Long-time publican and hotel operator Fraser Short will take the reins of The Sir George from mother-daughter ownership duo Liz Prater and Kate Hufton this February after paying $14 million for the property.
On the corporate side, listed property fund manager Charter Hall has become the country’s biggest pub owner after investors in landlord ALE Property approved a $1.7 billion takeover.
ALE Property was the country’s biggest pub landlord with 78 high-profile pubs and bottle shops across the country that are majority-leased to the newly listed drinks and pub operator Endeavour Group.
The ALE portfolio will add to the Hostplus and Charter Hall fund’s existing portfolio of 62 Endeavour Group’s leased assets.
The ALE portfolio is attractive as the assets have long-term leases with lengthy options, a quality operator, and low site coverage, which provides redevelopment potential over time and are materially under-rented.