Exploring Commercial Property Opportunities 

Understanding Hotel Financing 

Versatility of the Term ‘Hotel’ The term ‘hotel’ encompasses various commercial property types, including accommodation facilities, pubs, clubs, motels, and live music venues. While these ventures can be lucrative, success hinges on effective management. 

Borrowing Limits and Loan Terms 

Financing a Hotel/Motel (Accommodation) 

• Freehold (with Gaming): Up to 65% of the purchase price. 
• Freehold (without Gaming): Up to 50% of the purchase price. 
• Leasehold (with Gaming): Up to 70% of going concern valuation by a bank-instructed valuer. 
• Guarantor Assistance: Borrow up to 100% of the purchase price with a guarantor. 
• Loan Terms: 
• Principal and interest repayment: 5 years (debt to reduce to 40%). 
• Interest-only: 3 years. 
• Loans Over $5,000,000: Assessed case by case. 
• Documentation Requirements: Business plan, including business forecasting, may be requested. 

Financing a Pub 

• Freehold (with Gaming): Up to 65% of the purchase price. 
• Freehold (without Gaming): Up to 50% of the purchase price. 
• Leasehold (with Gaming): Up to 50% of going concern valuation by a bank-instructed valuer. 
• Guarantor Assistance: Borrow up to 100% of the purchase price with a guarantor. 
• Loan Terms: 
• Principal and interest (P&I): 5 years (debt to reduce by 40%). 
• Interest-only: 3 years. 
• Loans Over $5,000,000: Assessed case by case. 
• Documentation Requirements: Business plan, including business forecasting. Preferred 3 years’ experience as a successful publican if managing the business. 

Lending Criteria and Risk Assessment 

Factors Assessed by Banks Hotels and motels, classified as ‘specialized’ commercial properties, face reduced borrowing limits due to their susceptibility to poor management. Key considerations include: 

• Serviceability Ratio: Typically 1.5 to 2 times the proposed interest expenses. 
• Experience: Banks consider industry experience. 
• Income Type, Credit History, Asset Position: Factors influencing loan eligibility. 
• Valuation Methods: Banks assess real property and business value, lessee’s interest value, net gaming takings, gaming machine commissions, total revenue, gross margin, and wages. 

Security for the Loan 

• Mortgage: Over hotel property (or lease for leasehold). 
• Charge or Bill of Sale: Over business assets. 
• Directors’ Guarantee: Ensures personal liability. 
• Specific Charge/Security: Over the hotel’s liquor license and related licenses. 

Insights for Potential Buyers 

Leasehold vs. Freehold: Considerations 

• Leasehold Agreement: Seek expert advice for business and tax implications. Offers higher yield/ROI. 
• Lease Term: Optimal terms are 17 or 18 years with a ‘lease-option’ for stability and establishment. 
• Lease Arrangement Considerations: Clarify responsibility for required fixtures, fittings, and services. 

Making an Offer and Managing Risks 

• Letter of Offer or Heads of Agreement: Outlines intentions and conditions. 
• Risk Mitigation: Commercial buyers’ agents or business brokers assist in drafting agreements, providing a refundable deposit for due diligence. 
• Liquor and Gaming License Application: Apply early to expedite business commencement. 
• Settlement Duration: Typically 45-60 days, considering liquor and gaming license processing time. 
• Permit Requirements: Vary by state; liquor license, nominee courses, food safety permits, accommodation permits, and outdoor seating permits may be needed. 

Operational and Locational Considerations 

• Operational Benchmarks: Determine costs by considering turnover, location, and operational benchmarks. 
• Locational Advantages: Nearby suppliers, complementary businesses, and tourist attractions enhance profitability. 
• Vacancy Rates: Obtain information from the landlord, commercial buyers’ agents, or city information centers. 
• Environment and OH&S Issues: Address waste management, recycling, kitchen equipment, and public safety. 

Legal and Zoning Considerations 

• Wheelchair Access: Negotiate responsibility for installation per Disability Discrimination Act. 
• Zoning: Understand Commercial 1 and Commercial 2 zones; be aware of dry zones and restrictions. 
• Expert Advice and Industry Associations 
• Seek Professional Advice: Engage business brokers, solicitors, and accountants specializing in hospitality. 
• Industry Membership: Join the Australian Hotels Association (AHA) and Tourism Accommodation Australia (TAA) for guidance and support. 
• Conclusion: Informed Decision-Making for Success 
• Investing in hotels, pubs, or motels requires comprehensive understanding, strategic planning, and engagement with industry professionals. Navigating financing intricacies, legal considerations, and operational nuances enhances the potential for a successful venture in the dynamic hospitality sector.