Pub Barons’ Sell-Down Ends 50-Year Reign


Melbourne’s Zagame family is capitalising on strong investor thirst for hotel assets as it continues the sell-down of its gaming-centric pub empire.

After recently offloading the freehold interest to Reservoir’s Edwardes Lake Hotel in Melbourne’s north for $28 million it has put the Boronia Hotel in the city’s east on the block.

Zagame Corporation, led by the sons of family patriarch Victor Zagame, Robert and Victor junior, has been a key player in Melbourne’s hotel sector for the past 50 years, owning some of the city’s best-known venues.

The Edwardes Lake Hotel was purchased by the Hotel Property Investments within 24 hours of the closure of the expressions of interest campaign.

The ASX-listed pub owner snared the asset on a tight yield of 5 per cent with an unconditional bid and short settlement term, taking the value of its portfolio to more than $1 billion.

JLL Hotel’s John Musca said the sale “highlights the astute market recognition of investment hotels as an asset class that delivers an IRR (internal rate of return) exceeding any other form of retail property”.

Musca negotiated the deal with JLL colleagues Will Connolly and Stuart Taylor, who marketed the property in conjunction with Steve Cropley and George Iliopulos of Cropley Commercial.

“The hotel industry is currently experiencing the strongest period of transactional activity in two decades and the fact that this sale was executed less than 24 hours after the campaign closing is testament to the feverish desire for freehold pub assets across the country,” Connolly said.

▲ The sell-down of its gaming-centric hotel portfolio marks the end of the reign of Melbourne's pub kings, the Zagame family.
▲ The sell-down of its gaming-centric hotel portfolio marks the end of the reign of Melbourne's pub kings, the Zagame family.

The Edwardes Lake Hotel attracted interest from both private and institutional investors with offers received from parties nationally.

Formerly known as Zagame’s Reservoir, the large-scale venue with 100 gaming machines and accommodation was sold with a 60-year, triple net lease to the Francis family’s IPR Hotels in place and an initial net annual income of $1.4 million. It sits on a 48,900sq m site.

IPR outlayed $99 million in July to secure the leasehold to the hotel as well as a trio of other Zagame venues.

The Boronia Hotel occupies a 7079sq m corner site in the heart of the eastern suburb’s retail precinct. It is being offered with a net annual income of $1.2 million from a 20-year initial lease with two further 20-year options in place.

It is the second round in Zagame’s bid to sell-down its pub assets. It previously listed six hotel properties in Melbourne and Vanuatu in 2018 with a combined price expectation of more than $300 million.

“Over the past 10 years, investment hotels have cemented their place as the national retail asset class of choice,” Connolly said.

“This is further evidenced with ASX-listed entities recently securing assets within the sector aggressively, despite varying degrees of Covid-enforced lockdowns.

“Their unique underlying value of the tenancy business, which attaches to gaming approvals and licences, delivers a huge reversionary uplift that is simply unachievable in any other form of real estate investment.”

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