Sydney pub owners cling to assets amid economic boom

Sydney’s Colombian Hotel has been sold.
Sydney’s Colombian Hotel has been sold.

The number of inner-city pub sales in Sydney’s CBD has slowed to its lowest in years, as owners hold on to the valuable assets and banks restrict lending to the ­sector.

The sale of The Colombian Hotel on Sydney’s Oxford St last week for $15 million was a headline in a market that is struggling because a lack of ­supply of new hotels coming up for sale.

Hotel brokers in regional areas outside of Sydney say banks are becoming increasingly unwilling to lend to new buyers, especially if the pubs don’t have gaming ­machines, which are seen as a key source of steady revenue.

Well-known watering holes like The Royal Hotel, The Four in Hand, both in Paddington, The Woollahra Hotel, and The Dolphin Hotel, in inner-city Surry Hills, have been sold over the past two years. But the number of transactions has slowed dramatically over the past year, with just one sale worth over $20 million.

The market has been skewed with the Redcape portfolio of hotels, more than 20 assets across NSW and Queensland, and Keystone, including The Winery, the Sugar Mill and a number of Jamie’s Italian restaurants across the country being placed on the market.

The Sydney market is currently the tightest that I have ever seen it

JLL national director of investment sales, John Musca, says pub owners, especially in Sydney, are holding on to assets because of the state’s strong economic performance.

The number of hotels being built, he says, is also low except if they are in new housing developments in the city’s outskirts.

“The Sydney market is currently the tightest that I have ever seen it,” he says. “There is the lowest volume of transactions in about six years. There’s a real ­supply issue unfolding.”

Ray White’s Asian Pacific director Andrew Jolliffe, who oversaw The Colombian sale, says Sydney’s inner-city development, especially the light rail construction, means the pubs being placed on the market are attracting a premium price.

The low price of debt, he says, is giving some buyers extra ­confidence to pay above the odds for some assets.

“Sydney is undergoing an investment and development renaissance,” he says. “People here are seeing that  unfold and that is giving them confidence; they want to ride the momentum in the city.”

There is the lowest volume of transactions in about six years. There’s a real ­supply issue unfolding

Jolliffe says a number of the pubs in Sydney sold over the past year have been bought by well known hotelier families.

“The real publicans are always in the mix, and because we have seen the property prices increase so much there are always funds in there,” he said.

CRE Brokers sales director Paul Harley says some major Australian banks are ­scaling back their exposure to the local hotel industry.

He says the banks are tougher on due diligence and recent buyers had to find finance from the non-major institutions.

“Five years ago the banks were looking just at the valuations and if there was a problem with the inspection report then they would work through it,” he says.

“Now the lending criteria is very tight. I say to people who are looking to sell to concentrate on their core business. Make sure the beer is cold and the steak is good then there shouldn’t be a problem.”

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