29 Nov 2013
Words Tim Admin

Positives Emerge From Testing Times

PART 4 IN OUR SERIES COVERING THE GROWTH OF MANAGEMENT RIGHTS Resort Brokers' Informer continues our series on the evolution of the management rights industry. Valuable insights are provided by industry advocate, SP&G Lawyers partner John Punch. The management rights industry was pumped during the 2000s. Aggressive corporate buying sprees pushed multipliers skywards, and banks were only too keen to keep the river of finance flowing. But we all know what came next. Last month marked five years since the global financial crisis struck. The accommodation sector, like most, has spent these years dealing with the fall-out. In the wake of the demise of the corporate players, 2010-11 saw more management rights sold under receivership conditions than ever before. But the period of pain and readjustment seems now to be largely over, and a consolidated, somewhat strengthened industry has emerged. Reality has returned to the market, says management rights legal expert, John Punch. “In many ways, the post-GFC rationalisation affected the industry positively. The lenders who’ve been supportive of management rights over the long term, are still true to the industry, and will provide finance readily, which is not the case in other sectors. “The shake-out has provided opportunities for strong, long-term operators to pick-up prime management rights – for example the Picone family at Chevron Renaissance in Surfers Paradise – and use their knowledge to reinvigorate the businesses,” he said. “There has been a build-up of knowledge among the people who have stayed with the industry for the long haul, and now they can see the opportunities.” Arbon Property Management’s Richard Arbon, profiled in the July Informer, and Dave Ruxton of Dreamtime Resorts spring to mind. With public companies no longer dominating the market, the door has also opened too for partnership and syndicate ownership models. “People like Steve Burton of the PCS Finance Group and Mark Ryall of MRM Finance have been doing it – marrying up investor-managers on the ground with passive private investors – which provides the wherewithal to buy high value buildings.” Mr Punch also observed that the post-GFC slowdown in the development of new apartment projects had allowed existing operators to re-group and build their businesses without pressure from new competition. The durability and resilience of the industry, he says, is manifest in the participation of management rights owners in their peak industry body, ARAMA. “Another positive has been the growth in the strength of ARAMA. It now presents a very strong voice and solid industry base to the public and to government. “ARAMA has developed to a point where, on the Gold Coast, in Brisbane and on the Sunshine Coast, it is not unusual for monthly get-togethers to attract 150 people, demonstrating a very organised and supportive industry,” he said. “We are seeing many more long-term management rights people – those who tell me they’ve had their building for eight or 10 years. Turnover has reduced and this adds to the strength, stability and expertise of the industry.” Despite the growth and consolidation, probably 80 per cent of the management rights industry is still based in Queensland. This owes largely to the lack of supporting and enabling legislation in the other states. “We are still in a position where Queensland is the only state providing a strong legal framework for the industry,” Mr Punch said. “Other states have made some effort to follow the legislative lead of Queensland, but they have a long way to go.” He said issues such as agent licensing and letting agreement terms had not been resolved satisfactorily outside Queensland. “I’m very pleased to see the change of government in Queensland appears to have also allayed the recent potential threat to our laws which reared its head in a discussion paper issued by former Attorney General Paul Lucas,” Mr Punch said. “New Attorney General Jarrod Bleije has been reassuring, saying current laws are well balanced and there will always be responsible legislation in Queensland.” Less supportive and understanding, however, are Federal bureaucrats seeking to standardise various regulatory systems across the nation. Ever the crusader for management rights, John Punch is now advocating strongly on two Federal fronts. The first relates to the National Occupational Licensing System (NOLS), which is about to nationalise real estate licensing. “Because other states have no knowledge of or provision for Residential Letting Agent licenses, we must fight to ensure Queensland’s system is catered for in the nationally-based legislation,” he said. The second issue concerns a Federal push to change building classifications under the Building Codes of Australia. At contention is whether Class 2 buildings (multi-unit) are suitable and safe for use as tourist accommodation. “It is ludicrous to suggest any change to Class 2 permissible uses,” Mr Punch said. “In Queensland, there has never been an incident of any Class 2 building being unsafe. So why change anything? We must stand our ground and fight to retain the status quo. “Thank goodness we have strong industry organisations such as tourism authorities and ARAMA who are making sure politicians get a real perspective. There are promising signs the politicians are receptive and amenable.” So, from this solid base, where to now for management rights? According to Resort Brokers and John Punch, the future looks very strong for the industry as serviced apartments take an increasingly large share of the accommodation market. In the decade from 2001 to 2011, the number of room nights sold in serviced apartments grew by 72%. Australian Bureau of Statistics figures show, based on earnings, serviced apartments now command 26% of the accommodation market, level with motels (26%) and fast closing in on hotels (46%). According to IBISWorld, the estimated value of the serviced apartment sector in Australia is $8 billion. “There is a growing acknowledgement by hotel groups that management rights is a good market for them to be in,” Mr Punch said. Next edition, we will look in detail at the serviced apartments sector, which one industry analyst has forecast will outperform the hotel sector over the next three years. To catch up on previous articles in this series, go to http://resortbrokers.com.au/informer-archive.htm