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Management Rights Critical In Times Of Strong Unit Supply

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HOW the supply pipeline of apartment buildings in our capital cities will be managed to safeguard investors is a critical question facing developers, according to one of the country’s leading experts in off-the-plan management rights.

Tim Crooks from Resort Brokers Australia says management and letting rights (MLRs) – the business of on-site caretaking and letting within strata developments – have remained in strong demand, despite bearish pronouncements about high apartment supply levels.

But, understanding operator selection and how to structure caretaking and letting agreements to benefit to all stakeholders have become crucial issues demanding greater attention.

Management rights have emerged as an asset class on the rise, regarded as secure, income-producing businesses sought by investment syndicates and private and corporate accommodation operators.

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Beach Apartments

“Recognition of the management rights model as an appealing and strongly-performing asset class is significant in Australia’s maturing residential and short-term accommodation markets,” Crooks said.

“It is more important than ever for unit developers to understand the model, particularly at a time of escalating supply when unit investors will most benefit from the security of a quality on-site management presence.

“There has also been rapid growth in the serviced apartments segment of the short-term accommodation market and acknowledgement by hotel groups and major accommodation operators that management rights is a market they need to be in,” he said.

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Coorparoo Square

Probably the best-known owner and operator of management rights is the listed Mantra Group, with a significant proportion of its 125+ properties and 20,000+ rooms operated under the model.

The value of the industry in Queensland alone is now estimated to be greater than $5 billion, with some 3,000 businesses generating annual sales upwards of $600 million.

Other states are following suit, with high profile apartment developers like Sydney’s Harry Triguboff and Melbourne’s Tim Gurner acknowledging management rights add value to their projects and greater security for investors.

Resort Brokers Australia is the name behind recent large-scale off-the-plan management rights sales, many of them record-setters.

These include Gurner’s 970-unit FV sale to Mantra, Honeycombes–Australand’s 362-unit Coorparoo Square and Mirvac’s Art House and Lucid towers (total 358 apartments) bought by Dreamtime Resorts, and the Metro portfolio of 710 apartments in Newstead.

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Gurner's FV Tower

Elsewhere Resort Brokers has negotiated The Beach Apartments Gold Coast sale to Minor Hotel Group for the Australian launch of its upscale AVANI brand, and a 20-story Box Hill project management rights in Melbourne to an as-yet undisclosed operator.

Management rights packages generally comprise long-term caretaking and letting agreements, a body corporate salary and real estate associated with the business operation.

Revenue streams come from the body corporate salary, commissions and leasing fees, plus any additional service fees such as for cleaning.

“There is still a very strong appetite for quality off-the-plan management rights as long as the rental expectations are realistic, which translates to credible income projections,” Crooks said.

“In a challenging rental market, when there is a rising supply of competing rental properties and an expectation that rents may soften, it is more important than ever for unit investors to have professional on-site management.

“They need to be in the internal letting pool, with a dedicated manager who can better drive occupancies than an outside agent and, at the same time, protect the quality and brand integrity of the development for the future.”

The Urban Developer is proud to partner with Resort Brokers to deliver this article to you. In doing so, we can continue to publish our free daily news, information, insights and opinion to you, our valued readers.

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Article originally posted at: https://theurbandeveloper.com/articles/management-rights-critical-times-strong-unit-supply