Melbourne’s Olsen and Cullen hotels sold in a $146m landmark deal to British major M & G Real Estate

Melbourne’s wealthy Deague family have netted $146m selling Melbourne’s Olsen and Cullen hotels in a landmark deal to British investment giant M & G Real Estate.

The family’s property and hotel investment outfit Asian Pacific Group has offloaded the two hotels in Prahran and South Yarra, which are managed under its Art Series Hotels as it assess opportunities to take the hotel brand offshore.

“I want to be very clear that we are not selling the Art Series brand. We are very proud of all that we have achieved, the success of the hotels to date and we will continue to grow and expand the brand. We are currently in talks about sites in the UK and Los Angeles,” Asian Pacific Group chief executive Will Deague said.

“The sale comes at an opportune time in the Australian hotel market with record low yields. We have committed to a very long lease back on all properties, which we will continue to develop and operate as normal.”

The Cullen on Prahran’s Commercial Road and The Olsen on South Yarra’s Chapel Street have 343 hotel suites between the two, and generate an initial base rent of $10.8m a year with other facilities including 1565m in retail space and basement parking for 123 cars.

The two hotels come with a 30 year head lease to the Art Series Hotel Group, with options, which is a wholly-owned subsidiary of Asian Pacific Group.

Pepper Property Advisory’s Christian McKelvey and Alex Edwards handled the off-market deal on behalf of Asian Pacific Group, which has a track record for hotel development and property investment, alongside its hotel management activities.

The deal represents a sizeable addition to M & G’s growing Australian portfolio and its first investment in the local hotels sector at a time when a swag of large-scale international investors are showing more interest in core hotel assets.

Australian hotels have shown substantial leaps in occupancy and turnover throughout the year, with revenue per available room growth in Melbourne up almost 5 per cent during the year to date, according to CBRE, while room rates throughout other regional capitals including Singapore, Jakarta and Hong Kong have rolled backwards.

Also throughout the year, Melbourne ranked alongside Sydney and Japan as the region’s top performing hotel markets.

“Given investor sentiment remains positive and limited supply of saleable quality assets in major cities, prices are expected to continue appreciating,” CBRE hotels analysts said.

“Investor preferences for the hotel sector have increased from 1 per cent in 2014 to 12 per cent in 2015, due to the growth of regional tourism and the rising [travel plans of China’s] middle class. However, investment appetite is shifting towards prime core assets.”

The move comes at the end of packed year for M & G, which has emerged as one of the most aggressive bidders across a variety of property sectors as it looks to build a diversified portfolio across industrial, office and other commercial property sectors.

In September, the group paid more than $80m for two industrial assets, including on in Erskine Park from the listed Dexus Property Group and another in Ingleburn offloaded by Quintessential Equity. The transactions were made on behalf of M&G Real Estate’s core Asia strategy managed by Singapore-based Erle Spratt.

The group also emerged among the frontrunners to nab a half stake in Brookfield’s $1.2bn Souther Cross Towers complex in Melbourne, before losing out to Blackstone.

Source: The Australian, Ben Wilmot & Samantha Hutchinson, 21^st December 2015