[+] Between the Sheets: Repositioning Hotels for Tourism Resurgence

While Australia’s tourism industry—both domestic and then international—bounced back from a global pandemic faster than most expected, few can have thought the charge would be led by the City of Churches. Yes. Adelaide. The country’s fifth most populous city. But on one warm spring night late last year, Adelaide recorded the highest number of rooms filled in a single night ever. On September 27, 9001 of the cities 9911 available rooms were occupied, beating the old record of 8967 rooms ... which was set the week before. To be fair, the city was hosting the AFL Masters Carnival, the World Indigenous Peoples Conference on Education (WIPCE) and several other conferences at the Adelaide Convention Centre. Still, the statistic won’t have been lost on Ross Pelligra, lately dubbed “the development king of Adelaide” because of his Pelligra Group’s fondness for projects in and around the South Australian capital. Just six months earlier the Pelligra Group had broken ground on the Holiday Inn and Suites in a northern Adelaide suburb—becoming the sixth hotel agreement between Pelligra and IHG Hotels and Resorts. Earlier this month, the group filed amended plans for 33-storey tower on Adelaide’s North Terrace with 240 new hotel rooms and conference facilities. And just last week South Australia’s State Commission Assessment Panel granted Pelligra planning consent for a 110-key hotel at the corner of King William and Grenfell streets on property he acquired in 2021 for a reported $25.5 million. ▲ A render of the tower Pelligra has been greenlit for in Adelaide at the corner of King William and Grenfell streets. Critically, and in keeping with the current mode within the sector, the latest project will be an adaptive re-use, where the prolific Melbourne-based developer will take the existing 13-storey office block built in the early 1970s, retain five levels of office space and refurbish six floors for the hotel. The $30-million development will include commercial ground-floor tenancies, a residence on the top floor and a new façade—green granite, anodised aluminium brass, and pre-coloured aluminium panels with bronze and gold glazing. “What owners or developers prefer right now is to have a hotel within a mixed-use development,” says Arnaud Millécamps from Minett Prime Square, consultants in hotel asset management. “They can then turn the hotel into a destination, within a residential building, within a shopping centre, or an office. Basically, multiple uses within one precinct. ▲ Crystalbrook paid around $100m for Rydges Sydney Harbour. “Obviously, they can mitigate the risk for the hotel, but clearly you can see the hotel and the food and beverage offering being a value addition to the overall mixed-use development.” According to Deloitte, Australia’s mergers and acquisition market boomed in 2021 with total transaction value of about $2.8 billion—a nearly 200 per cent increase on the year before—and reached $2.14 billion in 2022. Sydney’s tightly-held hotel market has been the strongest in Asia Pacific, in part as Chinese investors off-loaded hospitality properties they’d acquired over the past decade. Millécamps points to the sale of the Hilton in Sydney to Baring Private Equity Asia, Rydges Sydney Harbour acquired by Crystalbrook for about $100 million and the Salter Brothers acquisition of a handful of resorts under the Spicers Retreats brand for a reported $130 million. Last month Pro-Invest Group bought the Larmont in Kings Cross. Much of that capital, he says, is from overseas as Australia continues to tick a lot of boxes as an investment destination. “If we look at the most recent transaction in the hotel market in Australia, I guess everything above the $250-300-million mark involves capital from overseas, whether it’s through a private equity vehicle or an investment fund in Australia.” But it’s what owners and developers are doing with their new acquisitions that’s piquing industry interest. With construction costs continuing to rise, labour in short supply, development capital expensive, inflation yet to be tamed, and inner-city land in big capitals like Sydney and Melbourne hard to come by, owners and developers are looking to freshen up, rather than build anew. Suddenly, hotel refurbishment is a growing business. ▲ A render of part of the “mother of all refurbs” in the Intercontinental Sydney. In November last year, IHG Hotels and Resorts unveiled the mother-of-all refurbs in the Mulpha-owned Intercontinental Sydney, the 509-room, 32-storey hotel within the 1851, heritage-listed Treasury Building. Woods Bagot architects oversaw the $120-million redesign of guest rooms, restaurants, bars, club lounge and wellness areas. It’s what you do, says Millécamps, if you want to retain your position as the number one property in the business. “It really is quite remarkable,” he says. “The reason behind that refurb was because it is likely to generate a premium on the rates, but also take into account the new supply coming in the market.” Rydges, in George Street at The Rocks for example, is understood to be planning a refurbishment, and last month luxury hotel group Capella opened Capella Sydney within the sandstone outer walls of the heritage-listed Department of Education building. The restoration of the nine-storey, 192-key hotel took seven years. Meanwhile, the Margot Kimpton, which began life on Pitt Street in 1939 as the Sydney Water Board, opened in February last year after an 18-month restoration returned it to its former Art Deco glory. And the US hotel giant, Marriott International, has announced it will finally open the W Hotel in Darling Harbour in October (main image). Construction on the $1-billion project with the snail-like, curved-glass exterior came to a halt when Probuild went bust. With 45 built, or planned, hotel projects across Australia totalling nearly 6000 keys and 1413 serviced apartments, Melbourne-based DKO Architecture has made something of a speciality of hotels and hotel refurbishment. In the last year DKO director and head of interiors Michael Drescher has overseen interior renovations in Pullman on the Park in East Melbourne and The Lyall Hotel in South Yarra. “In the past, a lot of the hotels had such good occupancy rates they weren't being renovated, because they didn’t need to be,” Drescher says. “But all that has changed ... how people use hotel rooms has changed. And that might be as simple as furniture in the room. ▲ ▲ DKO director and head of interiors Michael Drescher and a bathroom in the Pullman on the Park in East Melbourne. “What we’re finding is people go on holidays, and then they work from their holiday—rightly or wrongly—because they know they can. “So that room has to go from leisure to work really easily. And if you looked in that room, there may be no desks, just a table. So, they can eat, drink, work, play, do whatever on that table.” The Pullman on the Park—a brand under the French multi-national hospitality company Accor—was built as a Hilton in 1974. It presented its own special challenges for DKO. About 30 per cent occupancy of its 419 rooms is given over to cabin crew from incoming Emirates flights. Apparently, the last thing all cabin crew do before leaving a hotel room is to check their uniforms. Which is why the mirrors in the refurbished Pullman are floor to ceiling, or about 2.1m high. Drescher made the bathrooms bigger. It’s not uncommon, he says, for the modern hotel bathroom to be half the size of the entire room. And with commanding views of the hallowed grounds of the MCG, the Pullman hosts a lot of professional sports men and women, and more specifically, visiting AFL teams. That meant bigger beds and sofas. Sixty per cent of DKO’s current hotel work is regional with projects planned for Thredbo, Launceston, Swansea, Traralgon, Bendigo and Ballarat. ▲ Motel Molly at Mollymook on the NSW South Coast. That’s no surprise to Millécamps, who blames Covid-19. It’s all about the “staycation’, he says. “On the back of the Covid crisis, regional tourism in Australia has been booming. But at the same time the offering has been limited to old, tired motels with not much love or, I guess, cash given to the property.” He cites the Motel Molly, the Mollymook beachside hotel recently re-opened again after a multi-million-dollar refurbishment by Knox Developments. Just two hours and 40 minutes’ drive from Canberra, and about three hours from Sydney, Motel Molly tapped into two capture areas for the surf destination. “The first thing they had to do was look at the guest visitation pattern and work out where there was a market gap,” Millécamps says. “But the cost to build a new hotel, get through the application process, get the construction permit, would take roughly a year or it might be up to two years before you can actually kick off. “So they really focused on refurbishing the rooms, making sure all the amenities, the equipment, the design of the furniture ... in that particular case, they were tapping into a 1970s Miami-style. “And that’s what we’ve seen over the last, I would say, 18 to 24 months. “A lot of acquisition, repositioning and redevelopment, to retrofit or redevelop some old motels.” Join us for exclusive insights into the latest trends, challenges and opportunities in hotel property development at The Urban Developer’s Hotel Development vSummit on Thursday, April 27. 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[+] Between the Sheets: Repositioning Hotels for Tourism Resurgence

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