Halfway through 2009 and the hotel industry is experiencing major
shockwaves with a number of high profile receivership's occurring in the
industry. It is our opinion that the hotel market has moved close (but
not quite all the way yet) to "traditional" levels of return.
This value correction combined with a return to "traditional" lending
ratios by lenders will place stress on a number of properties that have
transacted in recent years.
Leasehold hotels have their own separate marketplace. There are a number
of factors affecting the value of a leasehold hotel; such as Term and
Rental. Recent years have seen the "traditional" hotel lease varied with
bonded leases, high rent-no premium, 30 yr, 50 yr and even perpetual
Assets owned by the tenant vary occasionally and we have seen some
lease's where the tenant owns the Poker Machine Entitlements.
Variations from the "traditional" cause confusion in the market and can
lead to strange results.
With the tightening of bank lending criteria a number of lease purchasers
have had to down grade their expectations. Supply of leasehold properties
(particularly CBD Sydney) has increased as pressure is placed on a number
of lessees's to reduce their lending exposure and lower debt levels to
inside today's new lending parameters. Many of these leasehold properties
were freshly created in recent years and have rentals well outside
"traditional" levels which are causing them to be rejected by the market.
Latest results show that leasehold properties with rental, lease terms
and conditions and terms as expected in the "traditional" leasehold
marketplace are far more saleable than properties that are outside
Leasehold hotels are traditionally valued by applying a capitalisation
rate to the Broker devised business profit (earnings before interest,
taxation, depreciation, amortisation and exceptional items - EBITDAE).
The leasehold marketplace has been in a state of confusion with so many
variations from the "traditional" hotel lease. Conflicting "expert"
opinions and un-realistic expectations by landlords and lessee's have
seen a number of lessee's walk away from their obligations.
Genuine leasehold vendors need to carefully select the price portrayed to