Blog Articles

We need to expand our thinking, scale up our tourism infrastructure and make a ‘big’ effort to maximise the potential of this enormous market.  I’m convinced it will reignite key tourism centres, particularly Far North Queensland and the Gold Coast.
An imminent change to our visa system is also set to spark a surge of foreign investment in the $5-10 million range, particularly from China.  And it will come at a time when this market is already firing up.

Resort Brokers is increasingly active in this bracket.  We’ve just sold some bigger properties including Brisbane’s prime airport motel, Pegasus Motor Inn, for $9.5m, the Mercure Maitland in the Hunter Valley for $9.2m, and CBD Executive Apartments in Rockhampton for $6.8m.

Large properties just listed with us include the ‘Raffles of the North’, The Hotel Cairns, for $10.5m, Bowen’s Port Dennison Motor Inn for $6.4m, the Barkly Homestead on the Queensland – NT border for $6.5, and a 53-room Muswellbrook motel project for $10.4m.

Big things are also happening in the management rights market.  Recently settled was the sale of Sailfish Cove on the Gold Coast, by Glenn Millar and Alex Cook.  And we have a few more under contract...

You’ll read more inside about the positive outlook for management rights as we continue our series on the growth of this vital industry.  Resort Brokers is scaling up our specialist management rights division in preparation for big things.
A new agent has joined us on the Gold Coast, in response to rising enquiry, and we welcome David Janett, from a management rights background, to look after the southside of Brisbane.

A fantastic new Informer feature is our series on the many faces of the accommodation industry.  In this issue, we profile one of the biggest names in Top End tourism, Foxy Robinson – a great bloke whose working class origins didn’t stop him from doing big things and making big money.

Finally, having negotiated nearly 40 years in this industry, through three major booms and busts, I’m always asked the big question: ‘where are we in the current cycle’.  I reckon buyers are now itching to make their move, as the climb upward begins.  You’ll find a great article by Alex Cook on page 24 looking at what is motivating buyers.

As the upswing comes, Resort Brokers has launched a unique incentive package for vendors who list with us exclusively.  Offering valuable marketing bonuses, it underlines our commitment to work with you in a partnership.
Resort Brokers backs sellers with skin in the game.  Remember, we’re not ‘listing agents’.  We are selling agents.

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1. Are your PAMDA20’s signed by every owner?

Missing PAMDA forms are still the bane of every transaction. Without them you cannot charge commission. Purchasers (and their accountants) will ask for them. Be ready for that question if they are not all there and chase them down if you don’t have them. 

 
2. Are those PAMDA20A’s assignable?

If they are in the current form (effective from 1 July 2009), has the assignment section (section 4.4) been ticked AND initialled by all of the owners? If not, it is not going to be automatically assignable.

If you used earlier PAMDA forms (which is fine for appointments signed prior to 1 July 2009), have the owners agreed to making the appointment automatically assignable by a separate agreement?

Missing appointments, and those that are not automatically assignable, remain the single biggest issues on every sale.

3. Are there any outstanding due diligence issues from when you purchased?

Were there certain things that your lawyers recommended should be corrected in the agreements? Have you done these? If not, be ready to have that same conversation with the purchaser.

4. What is the status of the term of your management rights agreements?

Do you know the term remaining on your agreements? This is very important to any purchaser. Do you need to top your agreements up as part of the sale?

Have you exercised your options and documented that with the body corporate? Failing to exercise an option can have diabolical consequences.

5. Do you have up-to-date sales figures?

Are you having a ding dong battle with the committee? Are there building defects that have not been dealt with? 

These issues will normally be revealed in the purchaser’s due diligence when they look at the body corporate records. Our experience is that if these type of issues are managed up front and disclosed to the purchaser before the contract is signed, then the outcome will be a lot different to the position where the purchaser identifies it during due diligence and then asks the question as to what they were not told in the first place.

7. Are you being realistic on your settlement timing?

Almost all management rights contracts are subject to verification of figures, legal due diligence and finance approval. These usually take about 28 days from the day the contracts are signed to complete. You then need to seek body corporate approval.

A body corporate is allowed up to 30 days from when it gets everything it needs to consider an assignment to make a decision on the assignment itself. This can happen more quickly if the committee agrees.

Signing a contract and expecting settlement in under 2 months (unless you have a great working relationship with your committee), is potentially unrealistic. Making sure you have the right timeframes from the start of the transaction will usually save a lot of panic at the end. 

There are a lot of moving parts in every management rights transaction and the unfortunate reality is that it is rare to have a management rights transaction that is straight forward. That said, if you make sure you have sorted all of the above items we can guarantee it will take some of the immediate issues off the table from the start.

If you have any questions in relation to this article, please contact Frank Higginson.

Inflation is the rate at which prices rise and purchasing power falls.  It can be demand-driven, when the demand for goods and services exceeds their supply.  Or it can be cost-driven, when businesses raise their prices to cover higher supply and production costs, in order to maintain profit levels.

The latter is our current concern in relation to the carbon tax –  that the tax imposed on major emitters will be passed on down the line, increasing the cost to consumers for just about everything from food to fuel, equipment to electricity.

Most economists agree moderate inflation is a sign of a growing economy.  Yet research shows that just about everyone else views it as harmful, something to be feared and avoided.  Inflation is seen as pushing up prices ahead of wages and pensions, thus lowering standards of living.

The popular media is perhaps somewhat to blame for this widely-held perception.  Inflation is one of the most commonly used economic term in news bulletins.  Politicians, central bankers and commentators are always being quoted on the need to keep inflation “under control”, “in check” or “within the target band”.

While Australia’s current inflation rate is quite moderate, there have been numerous predictions that the introduction of the carbon tax, combined with rising wages in the resources sector and a weaker Australian dollar, will put upward pressure on inflation.
Most of us are already watching prices for utilities, insurances and fuel, to name a few, climb at a frightening rate while incomes do not seem to be rising to compensate.

No surprise then that financial advisers are warning us to be adequately protected or ‘hedged’ against inflation.  Put simply, this means investing in assets which reduce or negate the adverse effects of inflation.

Property, particularly commercial property, has long been considered a good inflation hedge.  Rental rates are either linked to turnover, which rises directly with inflation, or to the Consumer Price Index (CPI).  So income tends to rise along with inflation.
In our industry, owners of accommodation properties and businesses are even better placed to not only keep pace with inflation, but benefit from it.  Here’s how:

If you have a motel of 25 units, in the recent economic environment where inflation has bumped along in the 1% - 3% range, you would be hard pressed to put tariffs up by much more than $5 a year.

But, if inflation were to rise to say 6%, you could increase tariffs by double that – lifting them by $5 on 1 January, and again by $5 on 1 July.  Let’s look at the impact of a tariff increase somewhere in that range – say the mid-way mark of $7.50.
An extra $7.50 per unit per night at the average occupancy of 60% ($7.50 x 25 units x 365 days x 60%) equals a $41,000 increase in turnover.

Of course your operating costs will rise too, at the new inflation rate of 6%.  If those costs are assumed to be 40% of gross income, which is usually the case, they would rise by $16,400 ($41,000 x 40%).

That means, thanks to the higher inflation rate, your profit will be $24,600 higher.  Not only is that great news for your bottom line, it enhances the value of your property.  An extra $24,600 per year would add $80,000 in extra value to your lease!
So our message to the accommodation industry is this:  don’t be afraid of inflation. Inflation builds equity.  Harness it.  Put it to work for you. 

No formal qualifications are needed to enter the accommodation business.  Certain licence requirements must be met.  And training in hospitality and management can be valuable.  But no traditional career path really exists.

Resort Brokers’ consultants meet dozens of motel and management rights owners day in, day out.  We are always struck by the depth and diversity of the characters behind Australia’s dynamic accommodation industry.

Many come from senior public and private sector backgrounds – former executives, bureaucrats, bankers and professionals.  Some have hospitality backgrounds, but most have no previous experience.  From plumbers to pilots, tellers to teachers, they come from all walks of life, and often from very humble beginnings.

John ‘Foxy’ Robinson, for example, a titan of the Northern Territory’s accommodation scene, began his working life as a boner at the meat works.  After starting with a small caravan park in Katherine, he went on to develop a multi-hotel complex around Darwin Airport.  Last year, he sold two of the properties to a Sydney Hotel group for a reported record $70 million.

Another success story that springs to mind is that of Tony and Jackie Segat.  After entering the industry in 1978 with a small $30,000 motel lease, they went on to own multiple motels in New Zealand and Australia, before doing very well in management rights.  Tony started out as a migrant construction worker.

This month, informer introduces the first in a new series of articles exploring the many faces of our accommodation industry.  We hope you enjoy meeting some of your inspiring colleagues and hearing their stories.

The series begins with Richard Arbon, a straight-talking former farm boy turned management rights mover and shaker.

Richard Arbon left school mid-way through Year 11.  They were a man short for the shearing, and he was destined to be a fifth generation farmer.  His family’s farm near Balaklava in South Australia’s mid-north was a long way from Queensland’s coastal resort cities.

These days, Arbon Property Management commands a management rights portfolio which, at various times, has ranged from 15 to 25 properties and stretches from the glittering Gold Coast to tropical Cairns.

It would be easy to describe Richard’s story as a ‘rags to riches’ tale.  He has battled a few times to keep the wolf from the door.  But really, it is a story of determination driven by necessity, of self-belief and perseverance.

As a young bloke on the farm, being a Gold Coast businessman would hardly have seemed conceivable.  Not that you get the impression Richard would have been daunted by the prospect.  It’s just that it wasn’t on his radar.  “I was brought up to take over the farm,” he says simply.

Football, on the other hand, was on his radar.  “I was very keen on football, though.  So I moved to the city, to Adelaide, and played A-grade for Woodville in the SANFL.  That was 1987 and ’88,” he says, seemingly unaffected by this impressive achievement.

But country life beckoned again.  More to the point, Richard had his eye on the future, and he knew football stardom was not a secure long-term prospect.  “I saw some of my footy idols retire with very little money or prospects,” he said. “That’s not the future I wanted.  I retired, got married and bought a mixed livestock and cropping farm on the York Peninsula.”

Life on the land is never easy.  But the rough patch that hit the Arbons from 1989 was enough to break anyone’s spirit.  First they were in an horrendous car accident, then interest rates climbed to 22%, and drought ravaged the land, followed by flood and mouse plague.  One after another the live sheep trade, wool and grain prices collapsed.

“I’d borrowed heavily and the farm wasn’t able to support the debt and our growing family,” Richard said.  “We struggled to make ends meet. It was a turning point.  I had no choice but to look off-farm for our security.”

Always a strong shearer, Richard could make decent money in the sheds, and his wife was a nurse.  Over time he developed other businesses, including what turned out to be a successful venture, buying a liquid fertiliser franchise.

In fact, he did so well, the fertiliser company invited him to go to England to help set up the UK operation.  Now, this is where you might expect a young farmer with a wife and three children under four years old, to hesitate.  Not Richard.

“We leased out the farm, put all the machinery in the shed, took what money we had, and poured it into this business opportunity.  It was hugely successful …. until my business partner took me for everything I had!”

The Arbons were back at square one.  Worse than that.  They were on the other side of the world, penniless, with no family support, and a fourth child due in a matter of weeks.  Richard’s trademark determination was about to be severely tested again.

With difficulty, he managed to bring his family back to Australia.  At least, at the farm, they still had a home.  And, he eventually worked his way through the legal mire left by the UK crooks who perpetrated the elaborate swindle that blind-sided him.

“It set me on the back foot for four years,” Richard said.  It was also the catalyst for a big life change.  “I put the farm on the market straight away.  I just needed a new start.”

Looking for a way forward occupied most of the four years it took to sell the property.  He began business studies at university, but soon realised that a slow climb up the ladder was not the answer for a man in his 30s with four children to support.

“The prospect of a job, or placing our future in someone else’s hands, wasn’t something I knew or trusted.  In business, I felt I could control my own future.  So small business was my only real option,” Richard said.

“I looked at hundreds.  But my biggest problem was finance.  You have to buy goodwill, and not too many financiers would lend on the thin air that is goodwill.”

Then, by pure chance, a visiting family friend from Queensland introduced Richard to the concept of management rights.  “It just clicked.  I could see I would actually be able to borrow enough to buy management rights, and I felt sure it was something I could do.”  Furthermore, there was the back-up security of a caretaker’s salary.

Two days later, Richard hopped a plane to the Gold Coast and started his search.  It was early 2001.  By May, the Arbons had bought the management rights at a 217-unit residential complex, Sailfish Cove.

Even that was not without a heart-stopping hiccup.  “I arrived from South Australia, all our belongings in two trailers, my wife and (now five) children following by plane, drove in to settle the sale and the owner had changed his mind!”  In the end, the deal went through.

Living on site with five children wasn’t exactly ideal, though.  “The kids just thought the whole place was ours, and all the other residents were visiting us,” he laughed.  “They’d keep disappearing into other people’s houses.”  After 18 months, it was clear they needed to move off site.

But, with everything tied up in the business, they couldn’t afford to.  Richard’s solution?  “The only way to grow was to buy another management rights.  I bought Central Brunswick, a serviced apartment hotel in Brisbane’s Fortitude Valley.  Talk about chalk and cheese!”

While Richard speaks calmly of this time, it’s clear he was on a steep learning curve, and it was very hard work.  Still, he was not afraid of either.  And a pattern for growth was emerging.

After turning around the Brisbane property, he moved to sell it and signed up to buy another at Main Beach.  Again his mettle was tested.  Just as the purchase went unconditional, his sale fell over.  Nail-biting times.  In the end, a three-quarter share in Central Brunswick was sold, and Richard was yet again on the lookout for opportunities.

Arbon Property Management has flourished under Richard’s confident stewardship.  He still has his very first management rights and owns, either outright or in partnership, many others across the Gold and Sunshine Coasts, Brisbane, Whitsundays and Cairns – permanent and holiday, corporate and student complexes.

“I’ve always believed determination is the key.  You can always put in the hard work, and acquire the knowledge you need, but you have to have the belief and determination to succeed,” Richard said.  “In my case, need was the primary driver.  With five kids to look after, the farm just wasn’t going to do it.  My children gave me the energy to succeed.”

Always on the look-out for an interesting topic of conversation, I’ve recently been asking managers for their thoughts on a recent discussion paper put forward by Paul Lucas MP (Minister for Local Government and Special Minister for State) entitled ‘Management Rights in Community Titles Schemes’. Much to my surprise, very few managers had heard of it, even less knew much about the content.

Let me provide a quick background to the paper. Many have heard of the Unit Owners Association of Queensland (UOAQ), an industry association who according to their website aim ‘to advance the interest of unit owners’. One of their principal areas of activity at present is the lobbying of Government for a complete review of the management rights industry. In fact, some would argue that the UOAQ has been hijacked by a minority faction who takes issue with our industry and that the lobbying has become more of a vendetta than anything else.
Although no connection to the UOAQ’s lobbying effort is divulged, we are now presented by a paper put forward by a Member of Parliament that seems to point to exactly what they are looking for, namely a total reassessment of the principles that underlie the management rights industry as we know it. More importantly, rather than providing a balanced discussion of the industry, many feel that it leans heavily towards many of the drastic reforms advocated by the UOAQ.

There is insufficient space in this article to outline all of the views put forward in this paper, but for the sake of catching your attention I’ll mention a few of them.

One of the most potentially damaging suggestions is that the length of current regulation modules (whether Standard or Accommodation) are unnecessarily long. It states that ‘some lot owners….feel ‘bound’ by typically long-term contracts’. In a summary of ‘stakeholder views’ at the end of paper, it states that while some believe the regulatory framework to be ‘in balance’, some believe that major change is required such as limiting management rights contracts to 3 years. I’m sure there is no need to discuss the devastating impact this would have on the management rights industry.

Another ‘view’ is that the extension or topping up of contracts should be prohibited. It suggests that ‘bodies corporate grant such requests (for extensions) almost by default’ and ‘that it is extremely rare for a body corporate to vote against such requests’. We all know that the reality of the situation is quite different. An extension is granted in a democratic way by unit owners who wish to secure and encourage the ongoing efforts of a good manager. Plenty of scope exists for owners to deny an extension should they not be satisfied with the services provided by the manager.

It also expresses concerns that ‘the extension of rights is often a prelude to the sale of the rights, resulting in a windfall gain for the resident manager’. The author of this paper clearly has little knowledge of the current state of the management rights market. In recent times there have been very few sales that result in a large capital gain for the resident manager. When this is the case, it can usually be attributed to an extremely hard working manager turning a poorly run complex into a thriving one. More to the point, extensions are a critical way of securing a substantial monetary investment and creating an environment where managers, owners and committees can work proactively together without fear of their relationship coming to an end.

Don’t worry; there is no need to start losing sleep just yet. At the moment this discussion paper is just that, a discussion paper. Those that have instigated it are a small minority and will undoubtedly remain so. There are many times more stakeholders who will oppose the reforms suggested in this paper - RUM’s, solicitors, accountants, agents, politicians, financiers and unit owners themselves to name a few.

Nonetheless, it is important for everyone who has a vested interest in the management rights industry to read the paper, be aware of its content and respond to it. The nature of a discussion paper is to invite all ‘interested individuals and organisations to make a written submissions’. The paper and the submissions it receives will be discussed by people who may influence government policy. You can count on the fact that members of the UOAQ will be making submissions, please make sure you do too.

As a parting word, I’d like to push home the fact that the management rights industry in Queensland is something we should be proud of. Rather than having to endure misguided people pulling it to pieces, we should be showing it off to the world as the optimum model for how things should be done.

The discussion paper and contact details for submissions can be accessed at