Buying the management rights to a luxury resort in tropical FNQ during COVID-19 might seem risky but for the entrepreneurial Labuschagne family it was a calculated move!
For retired South Gippsland veterinarian, Gerhard Labuschagne Sr, his wife Cavell, and son Gerhard Jr, purchasing the management rights to Far North Queensland’s Sanctuary Palm Cove in July provided a much desired sea change. The luxury holiday resort is now managed as a partnership between the couple, Gerhard Jr, and his partner Upasana Prasad.
The family’s search for a management rights property began last year, after they sold The Econolodge in Tamworth (NSW), a 60-room motel with an a la carte restaurant, which Cavell, Gerhard Jr and Upasana had successfully run for four years. They inspected 12 properties along Australia’s eastern seaboard stretching from Forster, New South Wales to Palm Cove.
Documents for Sanctuary Palm Cove were signed March 8, but then COVID-19 struck, and settlement took almost 4 months, finally finalised July 1. Gerhard Sr said that at the beginning, banks were “wanting to throw money at us”, but the pandemic changed everything and essentially their only guaranteed income would be the body corporate remuneration.
“Because we were all cashed up, jobless, and homeless we decided to push through,” said Gerhard Sr.
Broker Mike Phipps Finance was able to get the deal over the line and make the family’s dream of living and working in Palm Cove a reality. The lending ratio was 54 percent with a multiplier of four.
Cameron Wicking, credit representative, said the big challenge during COVID-19 was finding a bank willing to lend to the short-stay accommodation industry, however if buyers were able to find sellers in the present market, there were still plenty of opportunities.
Negotiations for Sanctuary Palm Cove happened relatively early during COVID-19 and the Labuschagne family requested a discount on the purchase price due to the uncertainty. As the finance and settlement dates approached, however, the vendor saw a return to normal operations in terms of forward-bookings, and was reluctant to let the property go at a discount, so it sold for asking price.
“This placed time pressures on ANZ Bank, Cairns, at a time when everything was taking longer, but thanks to cool heads, we were able to get the approvals needed and settled on time,” said Cameron.
Frank van der Heijden, owner, Resort Sales, said due to COVID-19, even if a seller does their P&L based on last year’s profits, the “figures don’t stack up anymore”.
Frank said pre-COVID-19, banks would lend up to 65-70 percent on “a good property with good nett income and all the figures and arrangements stacking up”.
“Now, some banks have stopped lending completely while other banks say 50:50.”
Sanctuary Palm Cove was an “unusual property”, according to Frank.
“It was a very stable property relying more on domestic guests than international, so when domestic travel opens up again, they will come back to full operation.”
A word of advice from Cameron to anyone seeking to buy management rights in the current market: do your research and put together your own business plan.
“A. S.W.O.T. analysis of the complex (and the local market for that matter) is indispensable in the current market and shows the banks that you are really thinking about the acquisition in question, and can assist in helping the buyer in deciding what they are willing to offer for an asset.”