32 posts tagged “aurora”

Oaks Hotels & Resorts Ltd net profit was down 33.3% to $9.8 million in the year to June 30, 2009, on revenue up 11.5% to $120.9 million.

• 38 properties under management
• 4,788 serviced rooms under management (12% increase over last FY)
• occupancy rate down 2.11% to 84.38 for CBD properties
• average room rate $151 for CBD properties
• new central reservations team -- I wonder what owners are being charged for this?

I spoke with some Oaks managers recently.  They were not keen to take on new apartments into their rental pool in Brisbane, and the rent that they offered/guaranteed is not as great as last year.  So if you invest in an Oaks building, take care, because as time goes on, you may not get as good rent as you would like.

If you are thinking of buying or renting in an apartment managed by Oaks, then you should read the online reviews written by people staying in the building, who are short stay "hotel" guests. The problem with Oaks buildings is that they were built as cheap apartment buildings (not as hotels) but a large number of rooms are rented out (often for a night at a time, via Wotif) to people who think they are staying in a hotel. Thus, both residents and "hotel" guests are often not happy.

Example Reviews:
Aurora
212 Margaret
Festival Towers
Casino Towers
Charlotte Towers
Felix
Lexicon
River City

Similar issues for M on Mary.

A reader kindly sent me this note, in response to a prior posting:

I am concerned about trends in the industry, whereby the Oaks are flouting the law by operating a hotel in a Classification 2 building.  The Oaks has more money than any Owner’s Corporation, and they know as long as Brisbane City Council and the State Government of Queensland turn a blind eye to them, they can out spend any Body Corporate in our legal system.

I went to a recent auction run by LJ Hooker in Aurora, and the agent was late because he could  not get up and down the lift (the Oaks closes two of their five lifts down between 10:00 am and 2:00 pm).  When we finally got into the building, there were hotel guests unpacking and repacking their bags in the lobby.   The lifts were crowded with students, overnight stays ....

 It is no surprise to me that the auction of a $1.1 Million plus unit did not attract any bids.  The vendor made a bid of $725,000, and about 12 people stood around, hands in pockets.  After the auctioneer consulted with the owner and got instruction, the vendor’s bid was lifted to $770,000 and again no bids.  I don’t know if this property ever sold.  It was passed in on the day.

The presence of any hotel group, in my opinion devalues the units and lowers the general feel and look of a residential building and diminishes the lifestyle of resident owners.  Other factors to consider are:

Don’t Owners get Higher Rents for Hotel Guests/Short Term?

Your committee and the Manager might try to tell investors that they will earn more money.  Yes, their rents might be a bit higher, but that is only part of the story. With higher rents, come higher risks, such as risk of vacancy, more tenant churn, more wear and tear on common property and much higher Management Fees.

Management Fees are Higher

The Oaks tend to return to investors about 48% to 50%  of the total rent collected, when the high management fees, charge-on costs and miscellaneous costs are all taken into account.  I believe this to be in line with any other hotel group’s figures.  Perhaps someone from the Oaks could confirm these figures.

Rental Pools – How do they work?
As an investor in a ‘hotel’, your unit is most likely going to go in a ‘rental pool’.  It is impossible to tell how often your unit is let out, as the agreement entitles you only to a portion of the total pooled funds. That means that if your unit is a superior one, and is let fully, you will be subsidizing other units which may be inferior and not let out fully.

Hidden Costs?

There are lots of hidden costs to any investor from their hotel manager.  One horror story involves an owner who double checked his statements, and each month they would be buying ashtray, glasses, microwave, mattress protector, etc.  The Managers did not need to give any proof that the item was damaged or broken, they simply went ahead and bought these items, added a hefty commission and merrily went about spending the owners’ money, despite instruction from the owner that she would replace any items in the unit herself.  Another horror story involves a man who went straight to the manager’s desk and asked if there were any vacancies.  Yes, the manager said, just go to that phone over there and ring this number.  The unassuming man went over and used the phone, the manager answered and earned 30% commission (out of the owner’s pocket) for the exercise.  There are more stories where these come from.  This is just scratching the surface.

Fire Regulations?

As indicated already, regulations appear to mean nothing to the Oaks.  They run a hotel in Aurora, which is a Classification 2 Building, with inferior fire safety protection for the occupants.

How do Hotel Groups and bad Managers devalue units?

There are many drawbacks to a hotel group taking control of a residential building.  Investors need to be aware that although it may seem that rents increase, their net income will drop.  Aurora has shown us that units will be significantly devalued by the presence of the Oaks, or any other hotel group.  Colin Archer was recently quoted at the Unit Owner’s Conference as saying that “if owners want to buy into a hotel, they should buy a hotel.  If they don’t wish to live in a hotel, don’t buy in a residential building managed by any hotel group”, because he well knows the massive and negative impact a hotel operation has on the permanent, resident owners.    One owner stood up and asked Colin Archer what owners in Aurora could do to protect themselves, because the Management Rights were sold to a Hotel Group to the detriment of owners.  He started squirming in his seat.  He is a director of the Oaks, and he was sitting on the panel with Michael Teys who sold him the Management Rights.  They seemed to think it was quite a funny joke.  After some good natured squirming, Colin Archer said that owners need to ensure a bylaw is in place with a three month limit on leases.  To his credit (I think he wants to retain his right to practice law), Michael Teys stood up and corrected Colin Archer.   He told the crowd that such a bylaw would offer absolutely no protection to owners.

Take also into account that backpackers, suitcases and crowds in the lobby negatively impact on any residential home.  In Aurora, I believe that two of the five lifts are closed off to residents because of the cleaners activity between 10:00 am and 2:00 pm.   Cleaners block not only the lifts, but the corridors of all of those unfortunate souls who live on the ‘hotel’ level.  There is more wear and tear on common property, and the end result is that all owners pay a price – investors pay the financial price and resident owners pay the price of a diminished lifestyle.   

Is there any upside to a Hotel?

No, not that I can see.  Hotel Management Rights are there for the sole benefit of the managers, and to the detriment of both investor owners and resident owners.  If someone can convince me that the Oaks have increased the value of the units in Aurora, or enhanced the lifestyle of all occupants, I will happily listen.  Until I hear a good case for owners, I won’t be changing my mind anytime soon.

Oaks has sold the management rights for 212 Margaret Street and Lexicon Apartments.  The sale was to a newly created company partly owned by the brother of the CEO.  I feel sorry for owners of any apartments that Oaks manages.  You can read reports in previous posts about how Oaks is turning apartment buildings into short term stay buildings.  I feel even more sorry for the owners that are now dealing with this new entity. 
At the recent Oaks AGM, there were reports that angry Aurora owners questioned the CEO of Oaks, and that he could not provide sensible answers.
See ASX Release and follow-up.

Auction on Saturday:  Aurora, Apartment 609, 3 bedrooms, 60th floor, passed in.  Previously listed at $915,000

• Breeze at Indooroopilly,41/8 Belgrave Road:  3 bed, highest bid at auction was $400,000, auctioneers bid of $780,000, passed in, now listed for $900,000
• Admiralty Quays, 144/32 Macrossan Street, Brisbane, 3 bed, sold for $1,885,000
• Skyline, 62/30 Macrossan Street, 2 bed, passed in at $563,000, now listed at $600,000
  
• Dockside Hotel, 601/44 Ferry St, Kangaroo Point, 2 bed, no bid
• Dockside Hotel, 510/44 Ferry St, Kangaroo Point, 2 bed, no bid
• MacArthur Chambers, 104/229 Queen Street, 2 bed, 2 cars, passed in at $720,000, now listed at $790,000
• 95/260 Vulture Street, South Brisbane, 2 bed, passed in at $645,000, now listed at $675,000
• Aurora, 117/420 Queen Street, 2 bed 1 bath, sold for $395,000
• 7/146 Macquarie Street, St Lucia, 2 bed 1 bath, sold for $500,000
  

Most of the above were auctioned at the Ray White Sunday Auction

There are some buildings where there are a large number of owners who have not paid their body corporate levies for some time.  Typically, the owner is trying to sell the apartment, and so stops paying body corporate fees.  When buying, I recommend that it is good to search to see if the seller is behind on body corporate fees -- as this may indicate that the owner is desperate to sell.  I would also avoid buildings where there are a large percentage of owners behind in payments.  For example, there are a number of apartments in Aurora where body corporate levies have not been paid.

Skyline - Apartment 344 - Level 34 - Two bedrooms - $600,000
Aurora - Apartment 439 - Level 43 - Two bedrooms - $460,000
Club Lodge - Apartment 51 - Two beds, two cars - $440,000
Vue - Apartment 2409 - Two beds - $445,000
River City - Apartment 3802 - Two beds - $403,220
Flow West End - Apartment 80 - Four beds - failed to sell at auction

Have a look at:  http://www.dip.qld.gov.au/resources/newsletter/newsflash-327-guideline.pdf

How will this impact Oaks, and buildings that were designed for residential use but that are being run as hotels (such as Aurora and Charlotte Towers)?

See also:  Oaks

See Courier Mail blog

• Felix:  342/26 Felix St, 2 bed, 2 bath, sold for $495,000.
• Festival Towers, 1901/108 Albert St, passed in $450,000
• Festival Towers, 3508/108 Albert St sold prior to auction, reported at $555,000 or $445,000??
  
• Charlotte Towers, 1502/128 Charlotte St, 2 bed 2 bath, passed in on vendor’s bid of $420,000
• River Place River Terrace House:  1/82 Boundary St was passed in at $1.35 million, now listed at $1.5M
• Skyline, 12/30 Macrossan St, three bedroom unit passed in at $900,000, now listed at $1,240,000
  
• Aurora Tower Penthouse:  651 and 656/420 Queen St passed in at $2.4 million, now listed at $2.6M
  
• Soho, 416/8 Cordelia St, 1 bed, South Brisbane was passed in at $280,000
• SoHo, 615/8 Cordelia St was passed in for $465,000, looking for offers above $500,000
  
• SoHo, 108/8 Cordelia St passed in at $505,000
• Euro, 1308-2-6 Manning St, South Brisbane, 2 bed 2 bath, passed in at $400,000
• Trilogy, 336/51 Hope Street, Spring Hill, 2 bed, 2 bath passed in at $540,000, sold after for $550,000 (vendor was off the plan owner who had paid $595,000)
  
• Stradbroke Tower, 74/2 Goodwin St, Kangaroo Point passed in at $875,000
• 1/24 Brisbane Street, St Lucia, sold for $414,000
• 6/211 Baroona Rd Paddington, 2 bed, 1 bath, sold for $431,000
• LeftBank, 64/35 Buchanan St, West End, passed in at $1.15 million

"Hundreds turned out to the convention centre on Sunday to see 80 properties offered for sale as part of the Ray White Property Auction Spectacular.  There was a wide range of units and houses was on offer but properties sold under the hammer for prices well below what would have been expected six months ago.
Chief auctioneer Philip Parker said he pleased with the lacklustre clearance rate of almost 30 percent but said those who sold at auction realised they were not going to get what they thought their property was worth before the economic downturn.  He said while no-one was happy with the current economic climate, sellers realised if they wanted to move a property they had to meet the market.
``Out of those that sold today, only one buyer didn’t go down on their original (minimum) price,’’ Mr Parker said.
He said the vendors who didn’t budge, didn’t get a sale.  Negotiations are continuing on several properties offered for sale."  http://blogs.news.com.au/couriermail/publicproperty/index.php