28th March, 2017
Sunshine Coast market powering ahead and likely to be sustainable
Buoyed by impressive tourism returns, the Sunshine Coast is entering “a halcyon period” as one top broker Glenn Millar puts it. And it is being reflected in management rights as well. MR specialist Sasha Jancevski told Resort News: “The Sunshine Coast management rights industry is experiencing some of the most positive vibes I have seen in almost 20 years.”
And MR legal expert John Mahoney enthuses: “Judging by the number of Sunshine Coast transactions we have seen in recent months, it is apparent that the market is powering ahead. While the Gold Coast and Brisbane markets may have had stronger growth in the past couple of years, activity on the Sunshine Coast has increased significantly in the past six to 12 months.”
Statistics to June 2016 suggest the coast has enjoyed a rise of 26 percent in expenditure to a record of $245.3 million. The growth in the international market is predominantly dominated by our Kiwi cousins (up eight percent) and, surprisingly, the USA (+36 percent) but is showing an incredible 10-night stay average!
“This should see managers looking at how to target this sector. And the domestic market rose by 7.8 percent to 209,000 visitors. Resident managers are telling us they haven't seen it this good for a long time,” Millar enthuses.
The tourism figures are certainly creating an atmosphere of optimism, enhanced further by the massive developments underway, proposed and mooted.
Headlining the future is Aura (formerly known as Caloundra South), the largest residential city development project in Australia at present and, when completed over a 30-year timespan, will provide around 20,000 dwellings to accommodate a population of approximately 50,000 people – that’s the size of Gladstone.
The Sunshine Coast's largest-ever residential development - the $3 billion Harmony residential development of 5000 homes for 15,000 people – was recently launched and will be the second-largest new master-planned residential estate in 12 months, meaning homes for an extra 62,000 to 65,000 residents on the Sunshine Coast in a collective $8 billion investment by two property developers.
Covering approximately 62ha, the Maroochydore City Centre Priority Development Area is intended to create a new central business district for the region creating a plethora of commercial opportunities in the area. It will comprise approximately 75,000m² of retail, 165,000m² of commercial space and around 2000 residential dwellings. Around 53ha will be available for further development over two decades.
Sunshine Plaza in Maroochydore has gained final approval to commence construction of a $400 million redevelopment, which is jointly owned by the Australian Prime Property Fund Retail (managed by LendLease) and the GPT Group.
Affirming its position as the largest retail centre north of Brisbane, Sunshine Plaza will expand from 73,000m² to over 107,000m².
On top of these are the landmark Sunshine Coast Public University Hospital and the airport redevelopment. The Sunshine Coast Airport expansion will provide a significant boost to the local commercial property market, with the potential to bring two million passenger movements a year to the region – up from the present 900,000.
The airport is also looking for a $500 million buyer with IFM/Palisade’s Airport Development Group (owners of Darwin Airport), Queensland Airports Group, AMP Capital, Northern Queensland Airports Group, Colonial First State and Queensland Investment Corporation all said to be circling the asset.
Sunshine Coast building approvals are at their highest level in seven years, with the Sunshine Coast Council issuing $1.29 billion of approvals in the 2015/16 year - 11 percent higher compared to the 2014/15 financial year.
Headlining tourist development is the $1 billion Sekisui House development at Coolum.
This much needed project to offset the disastrous Palmer Coolum Resort fiasco, has been plagued by minority opposition and inept council policy since the Japanese real estate giant Sekisui House bought the land from LendLease in 2010. Earlier plans for a much bigger development, including a 450-room luxury hotel, were opposed by parts of the community forcing a rethink.
The new 220-room Westin Coolum Resort & Spa will be the centrepiece of a mixed-use development comprising apartments, shops and restaurants on a 20ha site overlooking Yaroomba Beach. The Westin will be the new first luxury hotel built on the Sunshine Coast in 27 years. Apart from guest accommodation, the resort will offer four dining venues, a spa with six treatment rooms, 850m² of conference and event space and direct access to the beach.
Starwood will open the $100 million Westin by 2021.
Also at Coolum, and developed by Coolum Terrace Holdings, the $35 million oceanfront Illoura Coolum will feature a selection of 37 apartments in two boutique buildings with subtropical landscaping, lagoon style heated pool, spa and sundeck. RCQ Construction has been named as the project’s builder and KHA Project Management has been appointed project manager.
Other tourism projects include:
- · Bernie McGovern-owned Ocean Isles Property’s glamping Big 4 Rivershore Resort overlooking the Maroochy River has recently opened and is the first new park in South-East Queensland since the late 1970s. It offers a vast range of activities including a café/restaurant and bar, large heated pool, complete with two waterslides, spacious picnic areas, a mini-golf course, kayak/canoe hire, bike hire and more.
- · Kim Carroll and Heidi Meyer’s 125-suite Eco-Luxe Resort on Buderim Mountain is anticipated to be complete by 2025.
- · The $40 million, 80-unit The Rhythm on the Beach at Maroochydore was announced in April.
A change of ownership happened earlier this year when Wyndham Hotel Group acquired the 130-room WorldMark Resort Golden Beach renaming it the Ramada Resort Golden Beach following a $5 million refurbishment.
Another major change was the ending of Sheraton’s 27-year association with Noosa's premium hotel on June 13 with the resort transferring to Accor's premium Sofitel brand. Arthur Laundy’s Noosa Pacific Hotel P/L paid $110 million for the Sheraton Noosa Resort & Spa in late 2014. The 176-suite resort has been rebranded to Sofitel Noosa Pacific Resort.
The coast’s property experts confirm the buoyancy of the market. Glenn Millar, regional sales consultant for Resort Brokers Australia opines: “The Sunshine Coast market seems to be enjoying a halcyon period. We are starting to see a number of new developments, especially short-term let that seem to have come out of a long hiatus. Developers are becoming more confident in the strength of the market. We have a number of new off-the-plan developments right across the coast launching in the next few months, which will be eagerly contested. Multipliers for these remain strong.
“Buyers are coming from all walks of life and destinations with a strong return of Kiwi buyers now the dollar [exchange rate] has improved. We are seeing the demographic of buyers slowly changing from the baby boomer generation, to a number of 30-something couples and couples with children moving into the industry,” Millar says. “The corporate buyers and public companies are extremely active in the market snapping up large complexes as soon as they come on the market, often at above market prices. We are now seeing these groups entering into the permanent market such as the recent purchase of the 788-unit Southport Central to be rebranded as Mantra Residences.
“There are a number of hot spots on the Sunshine Coast, especially in those with beachfront locations. Noosa is and will always be a sought after destination, with Mooloolaba a close second,” Millar maintains.
Lindsay Petty of Lindsay Petty Management rights concurs: “Buyers seem to be attracted to more populous areas and can appear cautious about the more remote ones. The holiday accommodation sector is doing well right across the Sunshine Coast region so a lot of what I do is about education on the region and the business model.”
Petty points out: “There appears to be more demand for higher net income properties, which has seen multipliers maintain or increase in this sector, mainly investor buyers looking purely at ROI and then location. However, in other price ranges sellers may need to consider meeting the market to gain a sale and this market is not where they would like it to be. Buyers appear to be attracted to hotspots such as Noosa Heads, Mooloolaba, Caloundra; the main centres or perhaps more boutique set-ups very close to the beach, etc.
“These main areas may be more attractive but sales are still occurring across the region in general. There is no rhyme or reason in multipliers in today’s market and although we try to benchmark in this way it really depends on the seller’s individual circumstances, and what buyers are prepared to pay.”
Millar agrees. “The age-old question of what multipliers are doing is a tough one to answer. Multipliers tend to vary from location to location and are really dependant on how many boxes have been ticked when vendors are listing; Noosa seemingly being able to attract the higher end of the scale,” Millar stresses.
“The exception is buildings with high net incomes circa over $475,000, right across the Sunshine Coast, can command a premium purely due to supply and demand. During the past 24-36 months there have been an exceptional amount of sales that have taken place across the coast that has caused a shortage of stock coming into the market. High quality businesses will be keenly sought while buyer demand continues to be strong.
“Hasting Street in Noosa, especially beachside is likely to come in a few points above the norm due to the scarcity of them and the high net return per unit to managers. There has been a recent sale in the street that has exceeded the record for a number of years,” says Millar.
“Banks are still supporting the industry albeit with a bit more caution and due diligence taking place. The Gallery Vie decision is still an issue, so it's critical buyers seek the right advice before choosing a lender. This has never been more important and this is where finance brokers come to the fore as they know whose policy is what and understand how to navigate effectively through the process. The period for finance seems to be taking longer now so its pertinent for brokers and advisers to extend the finance period to avoid extensions in the contract process,” Millar advises.
Petty believes: “Buyers are still cautious although visitor numbers are strong and there is some real positivity out there in the business community. I believe buyers are more astute whereas at one time many may have bought on emotion, now it is purely about return provided to them. The manager’s residence still plays a big part and is something we cannot change. As houses get larger it can be a difficult decision to sell and move into a smaller unit when buying management rights. It is important that vendors are well prepared when they wish to sell.
“Presentation is a key factor, along with a good term remaining on their agreements and net figures being up-to-date and accurate. Pricing will always be a key issue although I do currently have a number of sales happening across various price ranges,” Petty says.
“There is not a lot of permanent management rights on the Sunshine Coast, compared to some other regions so buyers looking for permanents may wait, look in other areas or consider holiday [properties]. All buyers are different and some feel the volatility and time required to run a holiday building is not something they wish to deal with. Once again, I try and educate buyers about the pros and cons of each. I have been involved in both and it really is an individual choice,” Petty maintains.
On new developments, Petty sees: “Definitely more happening with some developers retaining their management rights although some are selling. It is good to see growth in this area and this along with other development is seeing buyers consider the Sunshine Coast as an option whereas they may not have previously.
“The last 12 months has seen a relatively slow market. Sales have been occurring; however, there is still more supply than demand and buyers are very aware of this. Where this is more supply than demand, pricing will be always be affected. As growth continues throughout the region, I believe there will be more activity sales wise, albeit not necessarily at pricing that some desire. I am hoping that sales numbers will improve over the coming years leading up to and beyond the Commonwealth Games in 2018,” Petty says.
Sasha Jancevski, management rights specialist with RAAS Group, is very positive about the MR situation on the coast. “The Sunshine Coast management rights industry is experiencing some of the most positive vibes I have seen in almost 20 years. Whether it be in management rights sales, holiday bookings or long term permanent rentals, a very positive experience is being relayed to me as I chat with both experienced and new operators. I dare to say, there is no ‘norm’ when entering the industry… but right now it seems to be strong.
“Many managers that I meet and chat to in the holiday game are enjoying record takings when comparing to last year, and excellent booking periods for the future. Positive, positive, positive,” enthuses Jancevski.
“On the permanent lettings side, there seems to be a slight shifting in re-lettings, with some managers indicating vacancy periods between tenants are becoming more competitive to fill. Nonetheless, most are experiencing very high occupancy rates and waiting lists still seem to be in place in areas more central to the coast.
“All of this said, the general positive mindset of managers is rubbing off on management rights sales and, more importantly, onto buyers. The earlier months of 2016 saw many properties change hands and I have been lucky enough to have been part of the selling process,” Jancevski said. “The midyear of 2016 produced a somewhat of a lull in buyer activity with the election and EOFY blues a major factor.
“Buyer activity moving into the last quarter of 2016 seems to be coming back.”
Jancevski stresses, “Servicing management rights from Noosa to Caloundra, can be quite difficult at times to determine the buyers’ perception of true value for buying parameters. Some of my recent sales have had five-plus multipliers achieved with net incomes a tad short of $300,000. These types of properties are beautiful in presentation, rare in location and limited in supply. From waterfront holiday properties to small permanent rentals, activity seems to be across the board at present. There is still high demand on the Coast for properties with incomes in excess of $400,000+, however some movement on properties netting less than $100,000 are still happening.
“Multipliers from 2.93 to 5.6 have been experienced by RAAS in the last 12-month with everything in between.”
Jancevski cautions: “Managers looking to introduce their properties to the market are being aided more so now than in previous years on price setting. This is due to the amount of recorded sales history RAAS has on the Sunshine Coast in the last 12 months. The ‘hit-and-miss’ pricing that seemed to be around 18 months ago is not so evident these days.
Off-the-market sales have been recorded for a number of properties recently, indicating buyers’ confidence is growing for the right-priced property.
“The enormous potential to increase the bottom line on holiday properties bodes well for the future of capital gain; however, the usual process of high standards of servicing guests, ensuring maintenance is proactive and not reactive and tapping into the ever increasing expertise of marketing streams will need an astute operator to be mindful of.
“With a limited supply of ‘permanent complexes’ when comparing other regions, I believe this market is still strong and steady,” says Jancevski.
Wayne Stoll of Think Management Rights told Resort News: “There is no better time with the current boost in tourism to be in management rights on the Sunshine Coast.
“In the last two-to-three years, we have seen a lot of sales to the baby boomer buyers, this demographic has a lot more disposable income and are wanting that lifestyle sea change. There has also been a younger demographic entering the industry due to access through available equity, either through financial support from family or being made redundant from the mining sector and corporate industries that were employed in highly remunerated positions,” Stoll explains. “The management rights industry on the Sunshine Coast is attracting a vast range of people from overseas such as Asia, South Africa, UK, NZ and others.”
We are also seeing Australians on a national basis entering the industry that have previously been involved in farming, public servants, manufacturing and white collar employee’s accountants, bank managers, hoteliers and moteliers…”
On the issue of finance, Stoll confirms the general view: “Management rights like any other business has risks but banks and financiers that have specialist knowledge in management rights financing consider them to be at the lower end of the risk scale. However, due to some recent events, especially the Gallery Vie issue we have seen a tighter credit environment in which bank lending guidelines have become slightly stricter. The banks require a more comprehensive review of the business than most other businesses.
This is borne out by the fact that they will lend up to 65 percent to 70 percent of the goodwill component of management rights,” Stoll explains.
John Mahoney of Mahoney Lawyers told Resort News: “We have seen a variety of transactions from one end of the Sunshine Coast to the other with the typically higher end of the market in Noosa performing particularly well. Multipliers being achieved for high net profit levels in quality Noosa complexes are around the six mark and in the high fours for those with net profit of around the $200,000 mark.
“In other sought after locations, such as Mooloolaba and Alexandra Beach, multipliers are not as strong but have still lifted above the lows of two or three years ago. We are also finding that complexes in other areas that may have sat on the market for quite some time are now starting to move,” says Mahoney. “Unlike the Brisbane and Gold Coast markets though, we have not seen the rapid and probably unsustainable acceleration in multipliers caused by the huge Chinese push into the market.
“Like other parts of South East Queensland, there has been a substantial amount of residential development happening on the Sunshine Coast with little apparent problem in finding buyers for off-the-plan management rights purchases. It is likely that there will remain a strong market for these with investors attracted to the opportunities they present,” says Mahoney.
Finance expert Mike Phipps agrees there is strong support from the banks for MR with high confidence in the Sunshine Coast and insists 70 percent lending is still available. “Hastings St Noosa commands the highest multiples albeit not many sales as properties are tightly held,” the Mike Phipps Finance boss says. “There is strong demand for permanent rights, particularly in the vicinity of the new hospital at Kawana but there is a lack of quality stock.”
Phipps agrees: “There is not much demand for lower net profit (up to $100,000) buildings and are hard to sell. But multiples for good holiday properties with strong nets at more than 5.6 times are in demand as long as agreements are long-term.
“Buyers are coming from Brisbane, Sydney, Melbourne and NZ with a smattering of UK buyers and a few Chinese,” Phipps says.
Of the future Phipps “can’t see any dramas on the horizon provided exchange rate and interest rates stay low”. He reckons there is little prospect of rate rises. “Buyers perceive value on the Sunshine Coast based on the Gold Coast market being very, very, strong with six-times-plus multiples! Many say they buy here because its seen as a safe destination.”
Phipps also believes: “Redevelopment of the Maroochydore business centre now under way will focus some attention back on Maroochydore after lots of focus on Kawana.”
The really optimistically positive outlook from all I spoke to in compiling this report confirms that the Sunshine Coast is one of the great performers at this time. Buoyed by strong and sustainable visitor arrivals and tourism expenditure plus the massive infrastructure developments happening the length of the coast, it is hard to see the growth plateauing any time soon.
John Mahoney goes even further: “Despite the political turmoil and the uncertainty that brings and a seemingly lacklustre economic picture for Australia, other economic indicators such as low unemployment figures, steady investor confidence, low interest rates and strong tourism numbers suggest to me that the management rights market on the Sunshine Coast will continue to perform strongly over the next year or two.”
Wayne Stoll of Think Management Rights on multipliers
Multipliers in management rights is one of the key areas that people are keen to find out more about. We have seen all areas of the Sunshine Coast achieving good multipliers especially businesses with net incomes in the higher bracket (mid $300,000 to $800,000+).
So what are the factors that influence the multiplier when buying a management rights
- - Body corporate salary, subject to annual increases usually CPI.
- - The module type of the caretaking and letting agreement.
- - Accommodation versus standard 10-25 years - with management rights it can only be terminated under a legislated process and this rarely happens. This certainty offers strength to the model and security in your investment, unlike general industry jobs you can be terminated with short notice (one to four weeks).
- - Return on investment can be very rewarding personally and lucrative financially through capital gain.
- - Management rights returns on investment are attractive in comparison to current bank interest rates offered by lenders, or in the current volatile share markets.
- - Management rights has no debtors due to the tenants whether they are long or short-term (holiday makers) pay up front and this is held in a trust account.
- - Manager’s commissions and expenses are paid monthly once the unit owners have been paid and, in addition, managers are paid their monthly BC salary.
- - Trust accounts are a legal requirement and are audited as necessary by regulatory requirements. This in turn offers certainty to the industry.
- - Having minimal stock and basically zero stock write-off compared to other industry businesses.
- - Staffing - many management rights businesses are capable of being staffed by a two-person team, generally being the purchasing couple with contracted cleaners or other service people to assist.
- - Work hours in management rights provides flexibility. Time can be taken off at your discretion, within reason. The business can be managed by you, and only you. Yes, there are stakeholders and like any business relationships and trust are an integral part to the success of the business.
- - Sunshine Coast provides management rights owners in permanent or holiday with certainty as people will always need somewhere to live. Holiday makers will always need to have a holiday, the current environment with Australian dollar, terrorism and our green natural status is an attraction to international and national visitors.
- - Regular income, although the holiday market can go up and down across a 12-month period, occupancy rates are reasonably consistent across the board and this has been the case over a number of years.
- - You may be restricted to a building but not a territory. Some MR owners own more than one operation. Also there can be options to earn additional income by completing sales in your complex.
- - You are buying real estate or a manager’s residence also. Bricks and mortar that you own. You live where you work so travel costs are reduced also.
So the multiplier is simply the accountant verified net income multiplied by a factor of anywhere between two and six.
The more certainty or legislated a business, perhaps safer for want of a better word is, then the more value it may hold. A recent trend has seen buyers pay a higher multiplier if a complex fits their own criteria and personal circumstances (location, manager’s unit, body corporate salary, net income, growth opportunities, the caretaking and letting module, ability to live off site, no set office hours).
Got to be good for you.
Buoyed by impressive tourism returns, the Sunshine Coast is entering “a halcyon period”
The coast has enjoyed a rise of 26 percent in expenditure to a record of $245.3 million
There are a number of hot spots on the Sunshine Coast, especially in those with beachfront locations. Noosa is and will always be a sought after destination, with Mooloolaba a close second