LEADING Auckland broker Wayne Keene from Bayleys Real Estate, says highly profitable motel leases in New Zealand are available for very modest prices, and that astute managers can make impressive profits.
Mr Keene has 30 years’ experience in real estate and has spent almost the entire time dedicated to the hotel and tourism industry.
“You can still get into something really good in New Zealand at a very reasonable price,” Mr Keene said, “they can be very strong businesses.
“As an example, we have a motel on the market in Taupo with a 30-year lease plus a 20-year right of renewal – so effectively if you’re the operator you can have it for 50 years and you don't have to pay anymore for an extension.
“The asking price is $1.2 million and you're going to get at least a 23 per cent return so that's an example of what I would consider good buying.
“The return will probably be even better than that, but that's a good example of what's on offer and the sort of money that can be made.”
Taupo is situated on the North Island between Auckland and the New Zealand capital of Wellington.
Financier Alan Robertson, the director of Auckland-based Strata Funding, said typically motel leases costing $1.5 to $2million were returning 25 per cent.
“They are good businesses and the operators make good money,” Mr Robertson said.
“Of course you now have to factor in the climbing interest rate because the debt servicing costs have gone up, and you have to look at how revenue has increased at a motel in the last couple of years.
“Has it been from holidaymakers in New Zealand or has it been from leasing units out for social housing? That is a significant factor that people must look out for if they’re thinking of buying into the motel business in this country.”
Lawyer Seaton Read from Harmans Lawyers, says like any field of business, there are good motel investments in New Zealand and some not so good.
“The people who know what they’re doing, who buy well in a good location with strong visitor numbers do very well,” he said.
“The motel business in New Zealand can provide excellent returns for the right operators.”
Leading broker Kelvyn Coffey from Coffeys Tourism Property Brokers, said leases on the South Island would generally have a multiple of five times applied to earnings while on the North Island it was four times.
“So you were getting a 25 per cent return rather than 20 per cent.
“That variation still exists and there's no real logic for it other than the fact that these markets have all grown independently of each other
“Areas with buoyant visitor numbers such as Dunedin on the South Island do well with a strong corporate presence. It's supply of rooms relative to visitors so it has a pretty steady trade and you're probably going to pay more for that.
“People make good money from New Zealand motels but I don't know if they make as much as they do in Australia.”
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