Inside Sydney’s multi-billion dollar pub battle between Hemmes, Laundy and Arnaout
Sydney’s hospitality billionaires are engaged in a pub-buying frenzy that is setting spending records and captivating commercial property watchers.
NSW
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Stuart Laundy recalls some advice imparted many years ago by billionaire industrialist Lang Walker, back when the aspiring dealmaker was still picking up glasses at his family’s pubs.
“He said; ‘If you can buy or rent something with water in front of it, you can’t go wrong’,” says Laundy, who had no idea at the time how pertinent those words would become.
Skip ahead a couple of decades and Walker’s advice has become short of an ominous foretelling for what is happening in the hotel and pub market – described by one leading broker as a ‘once-in-a-century’ cyclone of contract exchanges fuelled by minuscule .01 per-cent interest rates and some very lend-happy banks.
In the past financial year to date, a record $1.3 billion worth of hotels has traded nationally.
At the centre of it all are three Sydney “billionaire’’ publicans, with no end to the buying spree in sight.
Laundy in the past three months has snapped up two waterfront pubs on the Northern NSW east coast for just under $70 million, with an eye on several more.
Alongside, or perhaps in direct competition with him, is Merivale boss Justin Hemmes, who is currently buying pubs at the rate regular folk purchase milk; four last month alone, including the sprawling Lorne Hotel perched on Victoria’s Great Ocean Road as well as a holding in Byron Bay – currently the world’s most in demand postcode – on which to possibly build an ambitious hospitality complex with rumours he also has eye on a neighbouring development site.
Then there is Sam Arnaout, the notoriously private boss of hospitality group Iris Capital whose vast portfolio encompasses everything from waterfront mega pubs — The Narwee Hotel purchased recently for $40 million — to wineries, hotels and beyond. Quite literally beyond. Arnaout recently plonked down $105 million for the famed Priscilla Queen of the Desert hotel and casino pub in Alice Springs.
But it is high-profile pubs – preferably east coast, waterfront or overlooking the water, corner blocks, with plenty of room to grow – that have become the hottest commercial real estate ticket in town on the back of a year nobody saw coming.
Laundy cites Covid fallout by way of an explainer of how pubs have thrived when all else was going to the proverbial dogs.
“Maybe it’s part of this internalising of Australia that has come with the boom in domestic tourism and shutting the borders because of Covid but I think we have genuinely returned to an age, sort of what happened in the 70s and 80s, which is that pubs are seen as this community godsend again,” he says.
“They’re so many things to so many different people.
“You can take your kids there. You can have a fantastic meal. You can watch sport there and sit in a beautiful bar or bistro and look out at the water or whatever, depending on where you are.
“And some might argue that their value is in poker machines but that’s just not the case anymore.
“Like a lot of people we are doing away with a lot of our machines. Because if Covid has taught us anything is that the era of poker machine dominance is over and now these new style of pubs have so many more wings.”
They are also, according to Sydney hotel broker Andrew Jolliffe of HTL Property – which has handled major commercial sales for all three of the top-three hotel scions – seen by lenders and banks as assets that fall into that most desirable of categories; extremely low risk.
“Because even in a global financial crisis or whatever, they are the first to bounce out … the first to rebound,” says Jolliffe.
“Banks do their own due diligence and, like anyone would do in their position, they want to back certain operators who compete effectively in the market.
“They’re keen to provide them with the ammunition for their guns, so to speak.
“And hotels are appealing on a number of levels … most are always in prominent positions, geographically.
“They are almost always on a corner on a high street. Whether that’s regionally or in the CBD.
“They’re a hub. And that property is so valuable, from a commercial perspective.
“I mean, I’m standing in the Sydney CBD right now. And I’m looking up at The Forbes Hotel and the CBD Hotel and these are two beautiful ornate buildings right in the middle of the city, both about five or six storeys high.
“And unlike an industrial shed in the middle of nowhere, hotels can be repurposed to include accommodation, to include retail, rooftop bars where possible.
“And they also have the ability to affect the property values in the area. Make no mistake, if Justin (Hemmes) or Stu (Laundy) or Sam (Arnaout) development a hotel in your area that are going to positively impact residential prices and high street retail offerings.”
But with so many billions – Laundy Hotels and Merivale are valued at $1.4bn and $1.21bn respectively – sloshing around and only a certain amount of prime freehold sites for the picking, competition among the big players is predictably fierce with all three, as well as some outlying contenders like Bruce Solomon (Solotel) and hedge fund backed Moelis Australia, regularly bidding on the same assets.
“It’s almost weird when we’re not,” says Laundy, who recently bumped up against Hemmes on a high-profile, $50 million bid for The Bangalow Hotel. Neither was victorious, however, after the vendor opted not to sell.
“There’s a bit of a beat-up around a rivalry around Justin and I but when we see each other we’re friends and business is business,” he says.
“I have said this quite often but if I manage to isolate a hotel that (Hemmes) hasn’t gotten involved in yet I question the seller. I think; “Why don't you have two horses in this race? I mean, we both have hefty cheque books,” he laughs.
Any end to this mitigated frenzy, meanwhile, looks unlikely according to Paul Waterson, CEO of the private equity-backed Australian Venue Co. which, second only to Woolworths, oversees almost 200 mostly hotel leaseholds nationally.
Woolworths currently controls the leaseholds and freeholds of a combined 380 venues.
While it may appear that every major pub is being bundled into consolidation by billionaires and corporate-backed groups, the reality, he says, is supply is and should remain relatively plentiful.
“There are about something like 9500 pubs in Australia and only 11 per cent are corporate-owned. Still around eight-nine per-cent are owned by private publicans,” Waterson says.
“I think the average publican owns an average of 2.3% pubs and I think that’s why you are seeing so much consolidation. Because pubs really are one of the last fragmented industries remaining in Australia.
“Of the total licensed venues we hold 1.6 per cent. Hemmes has 0.8 per cent. The Laundys have 0.3 per cent.
“So while there is that perception that the market is being swallowed up the reality is there is plenty of aggregation opportunities for a very long time to come.”
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