15 Nov 2021
Words Martin Kelly Australian Financial Review

Mandala raising $200 million for regional accommodation fund

Stiff competition for regional motels and hotels that has sent prices soaring is set to intensify, with industry player Mandala Asset Solutions planning to raise a $200 million war chest it will use to buy many more.

The raising is part of a bigger plan, potentially involving other parties, to achieve scale that may end with a public listing several years down the track, joining the likes of Elanor, according to Mandala co-founder John Zeckendorf.

Mandala already has $150 million in regional accommodation assets under management through a variety of investment vehicles, and the new fund is off to a strong start, with a $16 million cornerstone investment from a large family office plus other smaller contributions.

It is being seeded with three assets including the 57-room Powerhouse Hotel Armidale, which Mandala has just bought in an off-market deal from well-known regional hotelier Greg Maguire through ResortBrokers for a price understood to be about $13 million.

“This was a landmark regional sale and price, highlighting the strong demand for these types of quality regional assets,” said ResortBrokers’ managing director Trudy Crooks, who worked with colleagues Jason Vogler and Ian Crooks on the transaction.

Mr Zeckendorf said the property, rebranded Rydges Armidale, is Mandala’s 20th asset and the fifth it has bought this year.

“We have plans to continue our strong growth in 2022. We have always preferred the regions to the major capital cities for superior returns, stability of income, low correlations of returns, less competition and far less volatility,” Mr Zeckendorf said.

“This has been our mantra since we started 14 years ago. It has definitely become more popular of late as other investors have caught onto this asset class.”

He doesn’t expect the sharp asset prices in some regional locations to continue as domestic tourism demand normalises.

“We believe that domestic tourism will have a sugar spike as people can travel but don’t want to go overseas,” Mr Zeckendorf said, adding that Mandala tends to buy properties with a diversified customer base.

“But beyond that, it will fall to a normalised level.

“That might be a different normal to what was there in 2019, particularly for the regions, but we don’t think the sugar spike will continue indefinitely.”

He said Mandala has so far raised a total of $22 million for its latest fund, TARHF III, which is aiming to own 20-35 properties.

The target size is 30-plus rooms, a minimum $1.5 million in revenue and a purchase price of between $5 million and $25 million.

“The likelihood is we’ll raise $100 million fairly soonish and that will keep us going for most of next year, and we’re OK with the second $100 million coming after that,” he said.

”We’ve got a few people saying ‘we’ll come in for the lot’ so it may go to a single party than multiples, either way we’re OK.“

In terms of an exit, Mr Zeckendorf said Mandala would be open to merging with other sector-specific funds such as the one run by MA Financial, for which it already manages assets, to gain scale and either list or sell to a super fund.

“Bigger is better in wholesale exits,” he said.