Hotels back as fund manager circles Sofitel Adelaide

Fund manager Salter Brothers is in talks to acquire a landmark site as investors seek to capitalise on the post-pandemic travel surge.

Australia’s hotel market is firmly in the recovery phase with tourism and business travel back and top investors looking to get onto the next wave early.

In one of the latest plays, funds house Salter Brothers is running the rule over the Sofitel Adelaide as local and offshore investors look to capitalise on the post-pandemic revival of both domestic and international travel.

The fund manager’s interest in the five-star hotel comes hot on the heels of its acquisition of luxury accommodation chain Spicers Retreats for about $130m late last year.

That acquisition saw it pick up the Spicers Retreats business, as well as six of the ten resorts across Queensland and NSW with the move capitalising on the growing drive market seeking luxury getaways.

And this segment of the market shows no sign of slowing. Salter Brothers managing director Paul Salter was bullish about the favourable trends when the Spicers deal was unveiled.

“We know Australians love to take short breaks at home and regional areas are leading the charge, with domestic occupancy rates well above pre-pandemic levels,” he said at the time.

In Adelaide, developer Palumbo listed the Sofitel for sale last May, six months after the hotel’s opening. In keeping with the industry’s recovery, it was expected to attract offers in the $160m price range, or close to $650,000 per room.

Despite the tougher economic environment hotel sales are running strong, with sales around the country. The Pellicano Group just sold the Quest Woolloongabba to Singapore based real estate investment company Invictus Developments for $43.8m.

The sale of the hotel near the famed Gabba stadium, which will be one of the main venues for the 2032 Brisbane Olympics, shows how hotels are also benefiting from infrastructure spending and mega-events.

“The hotel has an excellent growth story stemming from the 2032 Brisbane Olympics and its associated infrastructure drive and is underpinned by a quality tenant in Quest,” Invictus Developments principal Chayadi Karim said.

The hotel has 132 keys and carries a strong 12 year weighted average lease expiry by income, with 94 per cent generated by a lease to Quest.

McVay Real Estate‘s Sam McVay, who negotiated the off market sale, is bullish about the asset class. “Hotel investment volumes topped $2bn in the last 12 months and we’re seeing record levels of buyer demand for Australian hotels,” he said.

According to CBRE’s latest hotel research, 53 hotels valued at more than $10m each changed hands last year, generating $2.14bn worth of sales – up 15 per cent from 2021.

Salter Brothers has been one of the more active hotel investors in the wake of Covid-19, teaming up with Singaporean sovereign wealth fund GIC to buy the Travelodge portfolio for $620m in 2021, before adding the Spicers Retreats network to its growing portfolio.

Since forming its hotel platform in December 2015, it has grown to become one of Australia’s largest hotel owners, with 4744 rooms across 20 hotels.

And it’s not alone in targeting more hotel acquisitions, with private and institutional investors circling the Australian market as occupancy levels and average daily rates surge on the back of the return of corporate, domestic and international travel.

Inside the Sofitel hotel in Adelaide.

Last year was the most active year by volume of sales and second most active by dollar value based on CBRE’s records.

Major sales last year included the Hilton Sydney, which sold for $530m to Hong Kong’s Baring Private Equity Asia and Syrian billionaire Ghassan Aboud’s acquisition of Rydges Sydney Harbour at The Rocks for about $100m.

The momentum has continued into this year with the $520 million sale of Australia’s first Waldorf Astoria to Andrew Forrest’s property investment outfit Fiveight. The 220-room hotel, which is due to open at Circular Quay in 2026, set a new record for a single hotel sale in Australia.

Hotels currently on the market include the Sheraton Grand Mirage on the Gold Coast, which could reap more than more than $200 million for its international owners led by gaming company Star Entertainment.

Salter Brothers was one of several groups that chased the ageing property last year as Star’s problems emerged.

CBRE’s Australian head of hotels research Ally McDade said investment in the local hotel market was likely to accelerate this year as the outlook for interest rates and inflation became more settled.

“An expected stabilising of conditions as the year unfolds should see capital markets benefit from greater investor certainty,” she said.

“While a high inflation and interest rate environment will place upward pressure on yields and internal rate of return expectations, improving tourism demand fundamentals and impressive performance indicators are likely to cushion any impact of higher credit-funding costs.”

The Sheraton Grand Mirage on the Gold Coast is up for sale.

According to CBRE’s Hotels Overview and Outlook report, average daily rates reached $228 by the end of last year, up 24 per cent from 2021 and higher than pre-pandemic levels across all major markets.

National occupancy rates are just shy of their pre-pandemic levels at 65 per cent, while revenue per available room (RevPAR), a key industry performance metric, rose 71 per cent last year to $149.

Around 8400 new rooms are expected to be developed nationally over the next two years.

In Adelaide, the renewed confidence is fuelling a hotel construction boom, with an 18 per cent increase in hotel rooms in the city since the pandemic hit, to more than 10,000 rooms.

New Vibe and TRYP by Wyndham hotels both opened their doors for the first time earlier this month, and they will be followed by the launch of the Marriott Hotel on the GPO site and the Glenelg Hotel at Colley Terrace next year.

The Sofitel, on Currie St in the Adelaide CBD, has 251 rooms and is part of a wider 32-storey development that also includes the 69 Luminesque apartments, which occupy the top eight floors.

Palumbo managing director Daniel Palumbo and Salter Brothers both declined to comment on their sale talks.

Last year Mr Palumbo said his family, which developed the French-inspired hotel, had intended to hold onto it longer-term, but decided to test the market following “several unsolicited offers’’.

It was the first new five-star hotel to open in Adelaide since the Intercontinental was completed 30 years ago.

CBRE Hotels’ Michael Simpson and Tom Gibson, along with Savills’ Nick Lower and Rob Williamson are running the sale campaign but declined to comment.