MELBOURNE PUB FREEHOLDS SETTING NEW RECORDS

In Property by Clyde Mooney

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As the hotel sector continues to shine amongst investment options, Melbourne CBD commercial real estate is seeing unprecedented yields on strategic properties.

Luxury car dealer Bobby Zagame has divested another A-grade freehold at a bustling auction last Thursday.

The Marine Hotel in Brighton holds 50 gaming machines, and fetched $13 million at a sharp yield that impressed agent Steve Cropley.

“No gaming investment has ever sold for anything like a 3.8 per cent return.”

Cropley Commercial’s John Bahen told PubTIC the unnamed buyer was a well-known Melbourne hotelier that operates one pub and leases several others, which will now include the Marine Hotel.

In the Melbourne CBD, two more freeholds have transacted on even sharper returns.

The historic 1850s Metropolitan Hotel was snatched at auction by “a local investor” for a cool $8.61 million, representing an extremely tight 2.38 per cent yield – reportedly the “strongest ever received for a Melbourne CBD pub”. The lease expires in 2020, and the block has little potential for redevelopment.

It was the Hotel’s first time to market in more than two decades, and 200 onlookers watched nine bidders – including several owners of multiple CBD sites – push up the price.

CBRE’s Josh Rutman and Scott Callow marketed the hotel in conjunction with Killen Thomas’ David Marks. Rutman reports widespread interest, with locals competing “head to head” against several offshore parties.

“Despite the short lease on the property and limited development potential, buyers have clearly recognised that these corners are in very short supply and are willing to bid aggressively when they come up for sale.”

One under-bidder on the property, Lazaros Papasavas, owner of several other CBD properties, remarked that “as experienced owners of CBD real estate for over 40 years and seeing the appreciation in this asset class first-hand, we are continuing to actively seek out high quality CBD freeholds”.

Less than half a kilometre away, the Great Western Hotel on King St sold through Burgess Rawson for $6.5 million at 2.9 per cent yield.

No information was disclosed on the buyer, but agents state the prices being seen this year reflect the low cost of debt and undersupply and are “eclipsing” even the heady days of 2007.

“We are experiencing the strongest selling conditions in the Melbourne CBD in more than 30 years, and there is no fundamental indicator pointing to why it should slow down,” said Rutman.

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