How Management Rights Benefit All Stakeholders

When considered and properly established, a management and letting rights’ (MLR) operation delivers clear advantages to all stakeholders within a new development—from developer to operator, and from lot owner to tenant and guest.

Launched almost four decades ago, and with more than 30 brokers on the ground in all states and territories, ResortBrokers is Australia’s leading agency specialising in the sale of accommodation businesses.

Management rights transactions account for roughly 40 per cent of ResortBrokers’ annual sales volume and positions the Brisbane-based firm as clear industry leaders in this ever-growing niche sector.

One of ResortBrokers’ areas of specific expertise is in its regular work with developers to assist in the establishment and sale of management rights operations over new developments—in other words, off-the-plan (OTP) MLR transactions.

Although ResortBrokers’ OTP specialists, directors Alex Cook and Tim Crooks, have worked on many of the largest, most high-profile off-the-plan transactions—think FV by Gurner (pictured above), Signature by Little Group (below), Collins House by Golden Age—they also work closely with local agents to secure numerous smaller MLR transactions.

The advantages of establishing a viable MLR operation are clear across a wide range of residential developments, particularly those with a significant investor profile. Although there are some exceptions to this rule, ResortBrokers would typically recommend an MLR operation to be most suitable for developments of more than 40 lots.

The most obvious commercial advantage for developers in establishing an MLR operation is the additional revenue added to the bottom line of any given development. Although value will vary depending on the type and scale of a development, some in-house analysis conducted by ResortBrokers suggests that MLR will add 2.7 per cent to 9.1 per cent of GDR to developments in Queensland.

Depending on the metrics of any given development, this additional revenue—sometimes not even considered in initial feasibility calculations—can make the difference between a development coming out of the ground or being scrapped. ResortBrokers is certainly aware of instances where the value of the MLR contract allowed borderline developments to continue.

This is particularly the case in prime corporate and tourism locations, where development metrics can be more difficult to stack up but where MLR operators are willing to pay significantly more for MLR operations successfully established to facilitate short-stay usage.

Quite simply, ‘short-stay’ MLRs are worth considerably more than ‘permanent’ MLRs on a ‘per-key’ basis.

Aside from the obvious commercial advantages to developers, what is often overlooked is the far superior service offered to lot owners (and tenant-guests) moving forward, from both a value and a quality perspective.

When executed correctly, MLR is an extremely balanced and successful model, which helps ensure the long-term viability of a scheme and the financial investments of those who purchase into it.

It should be explained that, with the vast majority of OTP MLRs marketed by ResortBrokers, demand for these assets far outweighs the supply.

In other words, there are a lot more buyers than there are opportunities.

This is important to understand because in most situations ResortBrokers is able to present developers with a few different offers from different parties.

This results in a developer not only being able to secure a good commercial outcome but also in being able to choose from a range of highly professional and experienced operators.

Increasing professionalisation in the MLR sector, particularly over the past decade or so, has resulted in the quality of operator (and therefore the quality and value of service offered to lot owners) continuing to strengthen, from smaller ‘mum and dad’ type operations all the way through to large-scale.

What does this mean in real terms? The day-to-day, onsite interaction of an MLR owner with the scheme that they manage and the people who live-invest in it, translates to more attentive, far-sighted and efficient caretaking, and a far more focused and dedicated letting service (which invariably leads to superior rents, lower vacancy and better-quality tenants/guests).

It should be remembered that an MLR owner is almost always the biggest investor within any given scheme and therefore has the largest vested interest.

The value of an OTP MLR business is underpinned by the term of caretaking-letting agreements that are assigned to the MLR operator.

In order to maintain the value of an MLR business, caretaking-letting agreements must be ‘topped-up’.

This can only be achieved via a successful vote from lot owners and an EGM or AGM. So, in short, MLR owners must provide an excellent service and keep owners happy to maintain the value of their business.

It is this highly vested nature of an MLR structure, with the long-sighted viewpoint and high level of professionalism that it facilitates, that makes management and lettings rights such a successful model for all stakeholders.

If any developer is considering or planning a strata development and wants some advice on the best way to set up an MLR operation, or an appraisal on its value, please contact ResortBrokers specialists Tim Crooks or Alex Cook (pictured below).

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