Facelifts for tired resorts

A resurgence in luxury resort development is being driven by some of Australia’s wealthiest business people as they move on opportunities in the beaten-down sector.

Tourism investment generally has been a poor investment for listed companies, with the GPT Group the latest player to exit with losses in the volatile industry.

It sold down a portfolio (including the famed Ayers Rock Resort) that was once valued at a total of nearly $900 million at a deep discount over the past two years.

But that’s not to say a dollar can’t be made. And private players are stepping into the breach as they are able to bear the short-term risks in the hope of more long-term gains.

This group of millionaires is banking on factors ranging from a hoped-for lift in tourist arrivals – lately thanks to the promotion of US television show queen Oprah Winfrey – to an eventual decline in the commodity-driven Australian dollar.

This should make offshore destinations less attractive for Australian holidaymakers and put the country on the map for a new wave of foreign visitors from emerging middle classes in markets such as China and India.

Those staking out positions range from Jerry Schwartz, who has built up one of the largest hotel portfolios in Australia, to mining millionaires and old-time property developers.

The resorts they are developing range from exclusive islands to turnaround jobs on faded properties in historic locations.

The individuals behind the projects include such compelling figures as Sydney cosmetic surgeon Schwartz, who is planning to restore the Fairmont Resort in the NSW Blue Mountains to its former glory and entrepreneurial Melbourne developer David Marriner, who wants to overhaul 1980s icon the Sheraton Mirage Resort in Port Douglas.

Others undertaking hospitality projects include cashed-up coalminer Brian Flannery, who bought the controversial Club Med site in Byron Bay and Marilynne Paspaley’s Pinctada Hotels and Resorts, which was named the preferred proponent to build a new hotel on Rottnest Island, near Perth, last November.

“They’re the lucky Australians,” says one real estate adviser. “They’re swooping on bargain assets. That’s where the smart money is going.”

Hotel transactions in Australia jumped to $1.3 billion in 2010 – a 62.3 per cent rise on 2009 and the fourth-biggest year on record for transaction volumes.

In the latter half of 2010, successful hoteliers and developers, and some wealthy business people, expanded their hospitality holdings.

Well-heeled local buyers faced stiff competition from foreign buyers such as Singapore-based tycoon Michael Kum, who picked up the Swissôtel Sydney last year after buying the Four Points by Sheraton in Sydney’s Darling Harbour in 2009.

One of the most notable buyers is Schwartz. He bought the Blue Mountains resort for just $26 million – it had sold for $45 million in 2006. Now, with partner Debbie Feyn, he intends to turn it into a pet-friendly luxury resort and is in the early stages of a $20 million overhaul of the 210-room hotel.

His vehicle, Schwartz Family Company, is the third-largest owner of hotels in Australia, with 2613 rooms and nine hotels in addition to its office and retail property.

Only two institutional owners, Mirvac Investment Management, which runs a wholesale fund, and the unlisted Tourism Asset Holdings Ltd, own more hotels. TAHL sold properties last year.

Schwartz’s hotels are operated by major hoteliers including Accor, Rydges and InterContinental Hotels Group but the tycoon is known for his hands-on approach.

Jones Lang LaSalle Hotels executive vice-president, investment sales, Mark Durran, says Schwartz is an expert at rehabilitating properties.

“They are proven turnaround investors and have grown through improving hotel assets through refurbishment and repositioning strategies,” he says.

Industry sources say Schwartz is able to move quickly to capitalise on opportunities and does not have to buy properties that immediately generate a high yield. So he can buy hotels that are perceived as loss makers and then take the risk of turning them around through his operational expertise.

By contrast, institutional investors focus on buying hotel properties with operators in place who will deliver certain yields and on generally de-risking their purchases.

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