by Alex Cook - ResortBrokers
12th March, 2021
Tried and tested rules remain post-COVID
To say that the last 12 months have been among the most tumultuous periods ever witnessed by the modern world would be an understatement.
The seismic impacts of the pandemic have undoubtedly had untold knock-on effects across the globe. Although Australia emerges comparatively unscathed, it is fair to say that certain things are somewhat different.
Well, when it comes to buying management rights, I’m happy to say that most of tried and tested ‘rules’ for purchasing a management rights remain much the same. We work in an industry fortunate enough to have long-standing and pre-determined processes in place. When buying, if you follow the processes and take appropriate advice, your chances of going off track are drastically reduced.
Although processes and tips for buying management rights remain much the same, I would point out that it is more important than ever to ensure you follow them. There really is no room for cutting corners when making management rights purchases these days. Sellers, banks, and committees simply will not allow it! I would also point out that there are a some post-COVID nuances to keep an eye out for… but I will get to those later.
What do we all know already?
Well, it pretty much boils down to two key things. Number one: be prepared. Number two: surround yourself with trusted industry professionals. Generally speaking, the two go hand-in-hand, which makes life easier. If you can comfortably say you have covered these two areas, you are well ahead of the game.
What first? Well, unless you are that 1-in-1000 buyer fortunate enough to be making a cash purchase (there are some, believe it or not), understand your financial position before you do anything. What is the point in starting to consider options if you do not know your purchasing capacity? LVRs and interest rates vary from month-to-month and buyer-to-buyer, so it is next-to-impossible to know exactly where you stand without dealing with a specialist in the field.
For long-standing players in the industry, it is understandable to have direct relationships with specific bankers. Long-term relationships produce great results. But, and definitely for those towards the start of their management rights career, we would always recommend dealing with a specialist finance broker. Remember, different banks have different policies for different assets and different buyers. Use a specialist broker to shop things around for you – it will save you a lot of time and probably get you a better deal.
Then get the rest of the team around you. True, you will not necessarily need your accountant and lawyer until you’re proceeding from an agreed offer to a contract, but that doesn’t mean you should wait until then. Not only will these specialists be able to give you valuable third-party advice while you are considering MRs, but it also makes you come across as prepared and professional to brokers and sellers. At the end of the day, for in-demand assets, brokers and sellers are always going to favour buyers who are clearly prepared.
And what about your broker?
Well, I am obviously a bit biased here, but I would recommend developing a solid and trusting relationship with a broker that you like and operates in a location/field that matches your requirements. There are many subtle nuances to buying management rights, and a good broker should have a solid grasp of all areas. In other words, they can look at the bigger picture for you. This is not to say that you should not look at other brokers’ listings. If you did not, you would be restricting your search – it is impossible for one broker to control all the good listings. But if you have got a trusted relationship with a good broker, he/she will be more than happy to give you advice on other brokers’ listings.
What goes around comes around!
One area of preparation for buying management rights that is not new, but has certainly grown in importance in recent years, is the assignment process. Or, in other words, getting yourself ready to impress a committee.
What to do? First, join ARAMA.
Not only do they have a wealth of useful information to share with managers, but they also advocate for our industry. At the end of the day, our industry is built on legislation. Legislation can be changed. So, we need someone to key an eye of this for us. Think of a membership as an insurance policy for the industry or your industry karma contribution!
ARAMA run the Management Rights Induction Training Program (MRITP), which is well worth doing. The BCCM online training is also worth completing. These courses are increasingly expected, and even required, by committees. Get them done early so you have one less thing to think about when going through the assignment process. It will help you to look professional and prepared in a committees’ eyes. I would even recommend these courses for experienced buyers buying a new MR. First-time buyers might also consider using specialist consultants to assist with assignment (particularly business plan preparation), handover and supervision in the first few months.
Is there any new advice I can give to those looking to buy in the post-COVID era? Well, I would break it down between permanent and short term MRs. The permanent MR market, particularly at the larger ($400K+ NOP) end of the market is very competitive. There simply are not enough assets to meet demand. Let us be honest, if you’re looking for a $800K+ NOP, business-only, permanent, in a Brisbane inner suburb and you’ve got limited experience... you could be looking for a long time.
Everyone started somewhere, and if you look slightly further afield or ‘outside the box’, you can secure great businesses that will build your skillset and quite possibly give you a better return on your money. So, keep your options open!
With short-term MRs, bear in mind that the rule book is still being rewritten in regard to how they are valued and financed. I am not suggesting for a second not to consider short term. The future of Australian tourism is exceptionally bright, and if you are looking to get into this area, follow your dreams.
Largely speaking, the short term businesses that we have sold and settled since COVID are those that basically didn’t have a COVID, such as parts of Noosa, Stradbroke Island and Byron Bay. But for those that are in areas still recovering, there is likely to be some fairly complex analysis when it comes to verifications and valuations. Make sure you are dealing with a broker who really knows what he is talking about and has his finger firmly on the pulse of valuers’ and financiers’ thinking.
I think that is enough from me… happy hunting!