12 Apr 2023
Words Trudy Crooks Informer 106

The art of the Seal

Well, what a difference a few months make. At the start of this year, I was a little cautious given the negative press regarding the economy, especially regarding interest rates and inflation.

However, I knew there was a lot of pent-up activity from owners and operators wanting to make a move based on what I’d been hearing on the ground. So, although a little cautious, I had a good feeling about the market.

But even I didn’t think it would be this good.

Hotel, motel and park operators are reporting not just a great Christmas but a bumper Christmas. Bookings are not just back to pre-Covid levels, they’ve smashed them. ADRs are better than pre-Covid, and yields are remaining solid. On the road ahead, Covid is now well and truly receding in the rear-view mirror. 

I was delighted to be invited by our good friends at Accor to speak at their recent conference in Sydney. I was pleased to learn they’re seeing solid bookings from international guests again. Given Accor’s global scale and incredible loyalty program this is a good sign of things to come. It’s not only a welcome trend for Australia’s largest hotel chain but for all operators, big and small. 

We’re also seeing the return to full health of the accommodation property sector in the number of enquiries ResortBrokers is receiving, which are up 22 per cent on this time last year.

All great, great news for our industry. 

There’s a few interesting anomalies though. While operators are reporting record turnover from a booking perspective, the trend of shorter lead times seems here to stay. Freak weather events haven’t helped, particularly the terrible floods we’ve seen across the country. It seems guests are being more spontaneous with their bookings and are reluctant to make reservations too far ahead. Can’t blame them, but it’s not something operators want to see because it makes it harder to manage and forecast revenues. 

This is the main question we’re hearing from buyers: “Is this profit sustainable?” While there’s no crystal ball, history has always been the best predictor of the future. Should tariffs remain strong and international guests return as expected, the answer will be a resounding “Yes.”

This is not only great news for buyers but for operators too. Australian tariffs have been too low for too long, which has had a negative effect on profitability and operators’ ability to refurbish and reposition their assets.

Staff shortages also remain an issue. We’re pleased to hear from operators this has eased a bit. They’re receiving more job enquiries and filling more vacancies. Hospitality staff complements were hollowed out during Covid, stretching operators to the limit. It’s great to see some improvement on this front, and a huge relief for operators.

By far, the main thing we’re noticing is the time it’s taking to see deals through to settlement.

I’ve been in this industry for over 20 years. If I look back, say, seven years ago to 2016 the time from contract to settlement wouldn’t take three months. Nowadays, it’s nearly five months.

On the plus side, it’s taking less time to get a deal agreed. Demand is driving this. There was a huge appetite for quality stock pre-Covid and that appetite has grown even more ravenous now. That’s a great thing and I don’t see it easing any time soon because of all the pent-up demand from Covid.

But the time it’s taking to settle deals is exceptionally long and it’s frustrating vendors and buyers. Vendors are keen to exit, whether it’s for a deserved retirement or to rejig their portfolio. Buyers are keen to get their hands on the asset they’ve bought and start operations. What’s more, the longer a deal takes to settle the more opportunity there is for things to go awry. That’s bad for all concerned. 

Settlement delays are being caused by a few factors. Firstly, due diligence is taking longer. Assets were traditionally sold on the previous 12 to 24 months, but the Covid interruption means we have to go back many more years which takes a lot longer to analyse.

But the biggest thing we’re seeing is that Covid has created a psychological effect where everything just takes longer. If our industry is suffering from “long Covid” in any respect, this is it.

Clients shouldn’t have to suffer inordinate delays. That’s where the skill and experience of the broker comes to the fore.

It’s your broker’s job to get things moving for you as swiftly as possible. If they’re any good, that’s exactly what they’ll do.

Being proactive is key. There’s no point burying your head in the sand — issues will arise in due diligence and the earlier they are discussed the more time and money is saved for all parties. So, it’s important to try to anticipate problematic issues before they arise so a deal doesn’t get held up by, say, a vendor’s local banker. Also, a good broker will line up all necessary third-party associates — and the right ones — as early in the piece as possible. It’s your broker’s job to make sure the right parties are on the court — and on the ball.

Specialist agencies like ResortBrokers are in an ideal position here. Because we deal exclusively in accommodation property we not only know the best associates in the business but also have the sales volume and longstanding working relationships with them to push things through. We’re glad to have this sort of clout with our associates because it benefits our clients. Our sway with our associates means they prioritise settlements for our clients and get them done as quickly as possible.

Of course, due diligence must be completely thorough with no corners cut. But due diligence shouldn’t mean overdue diligence.

We also make sure we have a really clear dialogue with our vendors and buyers on our strategy for getting a deal to settlement as quickly as possible. At the same time, we make sure there’s no slack with our associates in making our deals their top priority and keeping things moving along at pace. We work with urgency ourselves, and we expect the same from our associates.

There’s no getting around it. The three deciding factors in how long your deal takes to settle will be a broker’s experience and expertise in addressing problems before they arise, working with the right associates, and creating a sense of urgency with all stakeholders. It’s in your client’s best interests to be a little pushy and get them their desired results than be too friendly and see their deal fall through.

Looking ahead to the rest of 2023, I’m anticipating a lot of properties coming onto the market. Supply and demand is the biggest driver on price. The greater the supply, the lower the price vendors can attract. So, if you’re thinking of selling, get in early to reap the rewards. 

In this market, the broker who acts with urgency will be key to getting optimal results in as short a time as possible for vendors and buyers. In the end, that’s all that counts. END

Trudy Crooks, Managing Director
0477 882 210
trudy@resortbrokers.com.au