Is the Tourism Industry Bouncing Back?

by Vanessa Lovie 9th of November, 2020
Is the Tourism Industry Bouncing Back?
Is the tourism industry bouncing back?

Australians love to travel. Our country is dotted with accommodation that range from 10 rooms to multi-storey CBD locations. In response to the Covid pandemic, many businesses faced government-enforced restrictions. With a freeze on overseas travel, the number of tourists and business travellers entering the country dwindled. Conferences, weddings and events basically halted with a limit on people at gatherings. The enforced fines made most businesses in the hospitality and tourism sector freeze and rethink their operations. Motels for sale and hotels for sale stalled as people tried to figure out how long this pandemic would last. 

We spoke with Matt Davidson from Tourism Property based in Wollongong  NSW. A specialist business broker focused on accommodation businesses valued from $5m to $25m. With 25 years of experience in the tourism industry, he has a wealth of knowledge that is valuable to business owners, investors and prospective buyers.  



Vanessa: So, Matt, tell me a bit about your background. You started out on a resort in Dunk Island; what is it that attracted you to the tourism industry? 

Matt: Yes, Dunk Island, that’s right. To be honest, I was more attracted to the water skiing than the tourism industry.  

I actually started there as Kids Club  Supervisor, however in my four years on the island I set about learning the trade and very quickly found a love for the service and hospitality side of things. It was an amazing lifestyle, I worked really hard to learn everything there was to know about hospitality. 

That was 1996, so we’re going on 25  years now. That was the start of my career, I’d found what I was supposed to be doing and I’ve just built from there. I also met my wife Kellie on the island (ok, I employed her) and we moved to Wollongong after the 2000  Olympics to start a family. 

I then worked at Best Western for three years and that was what really pushed me out into the regions to gain a real understanding of regional tourism. I  headed up the Brand Development team and we onboarded over 100  motels into the Best Western group in that time. That’s certainly where I cut my teeth in terms of sales processes and deal brokering. Before Best  Western I was much more familiar with corporate, larger hotels and resorts,  but there’s a burgeoning regional tourism industry out there with the smaller accommodation businesses that are quite valuable in their own right. 

Vanessa: So you worked in hotel management then transitioned to be a business broker? 

Matt: My first company, “2T” was a  startup in 2005 with Craig Hardy, also ex Best Western. Over the course of  10 years we consulted to developers who were building hotels. It was really successful and we ended up with, I  think, 14 hotels under management and various forms of consultancy  - in the 50 to 150 room space. We employed a heap of staff and were racing around the country. My role was to keep expanding the company, so we were constantly out there looking at deals, looking at what was for sale,  who was selling and how it was done.  I became really interested in the hotel broking process and felt there was a  gap there to improve service in that same sort of motel - that 30 plus room motel and the rest is history. 

Vanessa: So you specialize in tourism. Do you think it is important for a broker who is in a specialized field, to have that history?  

Matt: Absolutely! That’s really how I’ve built the business - on credibility. We generally don’t sell businesses below  $4m, so you’re working with a vendor who often has considerable business and investing experience - they’re savvy and they pick if you don’t know what you’re on about. With Graeme  Sutherland and myself, between us we have over 50 years of hotel management experience. That in itself is not enough to be a great broker,  although it’s certainly helpful. 

Where are you focused?

Vanessa: Do you mainly focus in New  South Wales? 

Matt: We’re licensed in NSW and ACT.  We are in that middle regional market,  the $3m to $25m. We add a lot of value to that, say $10m asset. You can’t sell an asset like that on hopes and dreams - there’s a lot more substantial understanding required and buyers expect that too. We generally deal with a very sophisticated buyer – moteliers and hoteliers are often not interested in other types of investments, so we really have to be on the ball. 

Vanessa: Let’s say someone is new to the industry. Is there anything that they should do before buying that  business? 

Matt: Great question. Yes, there is training that’s necessary but not all  that readily available. Motel businesses as a leasehold are the cheapest way  to be in the industry, but it’s far more expensive to purchase than say a cafe or a hairdresser business. What I’ve found since my Best Western days back in 2002, is there are a lot of new participants in the tourism industry,  some of whom probably underestimate what it takes to actually run a motel. If you’re in a small business, a “mum and dad” operation, you will find yourself doing an awful lot of work. Buyers for this type of motel might sell their house in Sydney for example, and might move to a regional town to buy a leasehold motel which comes with a residence,  but what we found is that training and support is difficult. I’m a big fan of branding, which comes with those type  of services. If there’s been a year that  business owners needed more support,  education and training, it’s certainly  been 2020. 


Leasehold vs Freehold

Vanessa: What is the difference  between buying leasehold or buying  management rights? 

Matt: Management rights is a very  common structure in Queensland, less  so in New South Wales and the other  states. Management rights is probably  more focused on a leisure product  where you might be on the beach,  managing a series of apartments in  your building. Management rights is  often a one-person business with a  team of housekeepers, although there are hybrid models out there with  more substantial operations in food,  beverage and conferencing. There are  also management rights businesses for  permanent residential buildings. 

In terms of leasehold motels, you are generally in regional towns and cities.  Leasehold motels generally have 20 to  30 rooms, rarely more than 50 rooms,  and are fairly manageable with a small number of staff. So there are some  similarities in terms of value, but return  on investment is much higher in a  motel leasehold. 

Vanessa: Are there any kind of hidden elements that a buyer needs  to look out for when they’re buying,  say a leasehold motel? 

Matt: I guess one of the things that  a new motel buyer needs to get their  head around is the way the industry  calculates value. Living on site creates  some grey areas with business versus  personal expenses and these can be  substantial. A lot of these businesses  are turning over millions of dollars,  so accounting-wise, we have a  bit of a standard that takes some  understanding from buyers and that’s  certainly something that brokers assist  with. To the outsider it looks a bit  weird - you start saying, well, here’s a  business that’s making a nett loss, but  in actual fact, when we start adding  back hundreds of thousands of dollars,  the normalized profit is quite healthy  and genuine. 

So, there’s some learning to do on that  but it’s also understanding the way the  business operates. You may have one  staff member, or you may have 10. Like  most businesses, the directors or the  owners don’t necessarily take a wage  and to calculate value, so we take that  back out. Understanding how to read  financial reports or asking for advice  from qualified parties helps too. 

Vanessa: Is it worth a buyer to  engage with a specialist broker or  accountant to help them navigate  through the sale?  

Matt: Yes, for sure. I mean, from the  buyers side, there’s not a lot of brokers  who specialize as buyer’s agents in  our sector. Quite often a bigger player,  a listed company for example, might  appoint a broker to handle a hotel  acquisition, but most buyers generally  do not use buyer’s agents for motels. 

So as motel and hotel brokers, we  are engaged by the vendors. It’s an  interesting one as buyers tend to rely  on us to learn about what they’re  getting themselves into. There are no  deals without buyers, however make  no mistake that the broker is working  for the vendor. 

We recommend if a buyer hasn’t got an  accountant that’s familiar with those  processes to get one. 


$5m - $10m Hotel and Motel Buyers


Vanessa: Who do you find are the most common buyers in your sector,  who are buying those $5m - $10m  plus businesses? 

Matt: That’s a really interesting  question. I mean right now we’re in a  super low-interest rate environment which creates these low yields. What we’re finding is, there are new industry participants all the time. Folks who would never have considered owning a motel or a hotel are now looking at these assets in the chase for yield.  The share market is all over the shop,  there’s a huge amount of risk there.  Yields on all classes of property and  investments are very, very low. So,  what we’re finding is people who are looking for an 8% yield are scratching their heads saying well that’s about 10  times what the bank wants to give me,  what could I invest in? Honestly, we see more and more folks considering an investment in the tourism sector. 

Other than that, there are long-standing traditional moteliers who understand what they’re doing and they’ve had motel after motel, or there’s a number of small groups that have emerged with five or six properties each, which is quite substantial, I mean five or six properties, that’s $10m  - $15m each. It’s a huge amount of investment that requires a level of risk management as well. 



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Vanessa: Are these new buyers choosing to work within the business with management or is it purely an investment? 

Matt: Yes, great question. It’s really interesting, let’s say, for example,  you’ve got $5m dollars to invest, you’re probably not going to sit behind the front desk and check people into a motel. So there is quite often a  management structure in place, or this is where motels get “split” into leasehold and freehold investment. 

There’s a question of scale, a small motel in a small regional town that may be worth $3m to $5m is a tough gig. How do we find someone who has access to that much money, AND wants to move to that location, AND wants to do that type of work? Is there enough scale for the new owner to replace their efforts with a management team? 

So, there’s a tricky area in this price range. Of course, $5m doesn’t get you an awful lot in the capital cities, so the problem is amplified. 

A freehold motel normally carries a  fairly substantial land value and often has potential for redevelopment or re-creation of those assets into something else that is attractive for motel buyers.  Clearly, that doesn’t apply with leasing but by the same token, management structures can often be replaced by leasehold structures as well. So investors often buy a freehold asset and lease it to a tenant using a 30year lease, which is a long-standing structure in Australia & New Zealand.

Vanessa: Let’s say a seller is sitting  on a $5m freehold hotel and it’s a  bit run down. What would be your advice to these business owners?  

Matt: The answer is renovations take time to pay off. You can have the prettiest looking motel that’s got a really rubbish business and the value will predominantly reflect the latter. We’re yet to meet a buyer who’s prepared to pay for business potential. What we suggest to owners is, if you are embarking on a program of capital expenditure, you need to have a longterm view – back it up with one to two years of improved trading performance to achieve a value upswing. Motels are  always valued as a going concern, so the value is all about profit first and condition and appearance second.  Renovations certainly will unlock better profit, but that value upswing also relies on marketing and management skill. 


Are Renovations Worth the investment?

Vanessa: Should people invest in renovations? 

Matt: Broadly I’d say that Australia is full of 1970s motels and very few have actually been updated to today’s standards. So, it’s a huge risk for the industry there. I’d hate to see 50% of motels knocked down and converted into townhouses in towns and cities around the country. But, who really  wants to stay in an old motel if it hasn’t  had its bathrooms fixed for 40 years? 

So we really encourage people who have long-term views for their assets to invest in them. Quality accommodation drives strong room rates and occupancy and therefore profit, so certainly will add value to the business. 

I think there has been a chronic under-investment in regional motels for a long time and what we often see is the one or two properties who have invested can really dominate the market. You’ll see huge discrepancies in towns that have multiple motels, from the $90 a night stuff through to $300  a night. Corporate travel (which will come back one day), expects a level of comfort and quality and will pay for it.  I really would love to see the industry,  government and funders get their heads around reinvestment, and not just hope that someone’s going to buy up the old motels to bulldoze them one day. 

Vanessa: When valuing businesses,  obviously hotel and motel businesses are quite complex. How do you go about valuing them? 

Matt: We would say obviously that a  motel broker is the only person that  can properly value a motel. We would  suggest that if you want to sell a motel,  you work with a motel broker and  the main reason for that other than  getting proper advice, is that motel  buyers hang around motel brokers. So,  we’ve got the right people ready to buy  the right assets – it’s a very targeted  process. 

For a leasehold business, ultimately  the valuation is about profit, the rest  is secondary. The term of the lease is  important – a cafe might have a 5 plus  5 lease term, but motels are generally  a full 30 years at commencement. So,  if you’ve only got 10 years remaining  on a motel lease, that has a huge effect  on the overall value. The terms of lease  and rent ratio are also very important  in motels - leaseholders can be paying  as much as $500,000 a year in rent, so  this needs to be sustainable against  repeatable income.

Valuation methods are fairly standard  across the industry, the yields on offer  in a motel lease range from 25% to  35%. I’ve got to say, this year those  numbers have crept up for all sorts  of reasons. I guess the other one for  a leasehold motel is location and  liveability. If one was to have a motel  with a nice ocean view, a premium  location, you would probably expect to  see a lower yield / higher price to live in that location. There is a bit of a saying,  about “coast for show and country for  dough”, so the further west you go, the  more cash you would expect to make.  

Matt Davidson Tourism Business Broker

Image: Matt Davidson, Tourism Property


With freehold property you’ve got to factor in underlying land value and  potential for alternative uses.  

Quite often motels are surrounded by  residential development and zoned  the same. Here in Wollongong there’s a  number of motels around the CBD that  are exceptionally valuable because of  zoning and height limits. If you can build  a 40-storey commercial or residential  building, your 2-Star motel in its own  right can never be anywhere near as  valuable as the land that it sits on.  


Vanessa: What is the biggest mistake  vendors make when they have that  initial thought of selling their Motel  or Hotel? 

Matt: I guess vendors can become very  emotionally attached to their assets.  We might have an Airbnb that’s got six  rooms and it’s on the beach or it’s got  50 acres and it’s been their labour of  love for decades. So, for us to come  along and be realistic about what the  value actually is, those conversations  are hard but necessary. It’s hard to call  someone’s baby ugly - we tend not to  use those words of course. Vendors  should be having those conversations  with expert brokers about what market  value really means. In theory, a valuer,  or a broker, or a bank, or your next  door neighbour can tell you what they  think your asset is ‘probably’ worth.  But the truth is, an achieved price in an  open market is effectively the only true  market price.  

Quite a few folks have unrealistic  expectations and that applies to all  businesses. If you’ve got a trustworthy broker who has genuinely marketed  the asset, then we quite often see  offers in excess of expectations  as well. We prefer to have honest  conversations upfront, rather than tell  vendors what they want to hear and try  to change their mind when the market  delivers market value. 

Vanessa: How long does it take to  list, sell and settle? And what kind of  factors can stretch that out?  

Matt: It’s a great question. You can  spend a year marketing a motel, to  get the right buyer, but if things are properly priced and the market is  normal (which I’m not sure it is at  the moment), you should be able to  transact the motel in two to three  months. Beyond that you start getting  a bit stale and the buyers who should  be looking at the property would have probably seen it by then. So, if you’ve  got a good broker who’s actually  going to be in front of proper motel  buyers, and has done the right sort of  marketing and nothing’s happening,  then the price has got to be wrong  or there’s some other fundamental  problem. 


Tourism Businesses For Sale


How has COVID affected the tourism industry?

Vanessa: For business owners,  within the tourism industry who  have been hit hard by the COVID  pandemic, what advice do you have  for those who are panicking? 

Matt: There’s never been a year with  more fear I guess. What we’re seeing in  the last two months is this emergence  of a “Tale of Two Cities”. We’re seeing  anything within a three-hour drive  of Sydney is doing really well. I’ll  emphasize that by saying only in leisure  travel. There’s a lot of media about the  South Coast locations, Central Coast,  Blue Mountains. They’re all doing fine  seems to be the rhetoric, but you  know, those markets quite often only  rely on weekend travel anyway, and  that business has come back strongly.  Australians want to get out and support  the industry and they desperately want  to travel domestically. So, that’s great. 

The other side of the coin is of course  your capital cities, your major cities  that rely on conferences, events,  international travel, corporate and  government travel and none of that  is happening any time soon. So, the  majority of our industry across the  country is made up of those major  hotels in major cities and they are  struggling, there’s no doubt about  it. So, I find it quite amazing that the  rhetoric seems to be that everything’s  okay. Many tourism businesses are worth as much today as they were 12  months ago. Selling in a hurry is always  going to result in a less than perfect  outcome. All business owners have an  exit strategy, if it’s changed this year  then talk to an expert motel broker  about your options. 

Vanessa: Is the government offering  any sort of support outside of say,  JobKeeper? 

Matt: To be honest, no. There’s a lot of  calls from the industry, who are starting  to co-operate better. We are now  six months in and we are reviewing  business performance, and in many  cases there is six months of real pain.  In some cases, that’s come back fairly  quickly to previous levels. Anywhere  near the borders that are closed, they  are struggling but you know, if things  improve quickly, I think we’ll just look at  this as a blip. Valuers and financiers are  prepared to be realistic about the value  of an asset when we can normalize and  review six months in the context of the  past 10 years, but if six months goes  to 18 months, then we’ve got a real  challenge on valuations. 

Vanessa: Do you think increasing the  number in group settings is going to  help some of these CBD based bigger  hotels with function centres? 

Matt: Yes, no doubt, and I know that  lots of those operators are really keen  on reopening, but there’s a lot of  misunderstanding about what those  rules are. There is now the potential  to have 300 people at a wedding,  but the asterisk is, you need to have  a 1,200 square metre venue, which  hardly anyone has. So, everyone  wants to do a 300-person wedding  but you are probably more likely to  be able to do a 100 person wedding.  So, it helps but you know, in terms  of the tourism economy, we need to  get the convention centres back open  and it’s going to be a long time before  we see international flights starting  to fill up those major hotel rooms in  capital cities again, which filters out. If  inbound travellers come into Sydney  or Melbourne or Brisbane, then, they  filter out, travel up the coast, down the  coast, into the Blue Mountains, so it  helps everybody. Hopefully we’re on  the back end of this thing. 

Vanessa: Do you think if the borders reopen there will be more interstate travel? 

Matt: Without a doubt. It will have to and I know there’s been a lot of calls from folks to reopen borders and we’re not getting into the safety and health  stuff, but it’s really hurt the tourism sector without doubt. 

The industry is resilient and I’ve seen things like hospitality, food, and restaurants pivoting into deliveries and  pop-up food trucks and doing whatever is possible to keep themselves going and keep folks employed. JobKeeper is running out in just a few months and that is going to have a massive impact as well. I would hope that we’ve got some further recovery before that happens. The next challenge will be that the currently strong domestic leisure travel will be at risk when  Australians can again travel overseas. 

Vanessa: Hopefully, the borders open at least. It’ll be very interesting if things don’t start to turn around.  What happens to the whole industry? 

Matt: I think we’re at a tipping point.  As I said before it’s critical that folks understand that things aren’t okay  for the tourism industry. If you talk  to the person in the street, the media  seems to be saying the tourism  industry is booming and you quite  often see words like that being used  about regional tourism. I just don’t  see it myself. I see an absolute strong  performance in surrounding areas of  capital cities without a doubt. Are they doing as well as last year or better?  Yes, perhaps they are. But if you in a  metropolitan area, or are more than 3  hours drive from a capital city, I doubt things are going to improve in the short  term. 


Matt Davidson Director - Tourism Property

P. 0400 200 139


About the author

Vanessa Lovie

CEO Bsale Australia

Vanessa is the current manager and CEO of Bsale Australia. Over the past 11 years as a business owner, she understands what it takes to grow a ...

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