By Vanessa Cavasinni, editor Australian Hotelier
Bondi Asset Management (BAM), headed by Stuart King and Andrew Lazarus, has made its first asset purchase for investors, the Vauxhall Inn of western Sydney.
The newly established, unregistered fund is headed up by CEO Stuart King, and director Andrew Lazarus, who also heads up the Eastern Hotels Group (EHG). BAM purchased the Vauxhall Inn in Granville from the Eastern Hotels Group as its seed asset for investors, who pooled together over $15 million for the purchase. The difference was made up by debt funding.
While EHG offered up the Vauxhall Inn as the seed asset for BAM’s first fund, King insists that the two companies remain separate businesses.
“It was very much an arm’s length transaction with the asset moving into the fund based on an independent valuation.
“EHG is a completely separate entity. Some of EHG’s assets will be interesting to BAM; some will not,” King told TheShout, adding: “I would expect the relationship to remain at close quarters as BAM looks to leverage EHG’s management skills to maximise the returns from the gaming assets in BAM’s portfolio.”
The fund for Vauxhall Inn was settled last week, with the team at BAM already looking to set up a second fund for another hotel. While King would not comment on which asset BAM was interested in, it will be another western Sydney hotel, which is currently its main area of interest.
“It is the growth of Sydney as a major city that we are investing in and the urban sprawl pushing for greater development and infrastructure spending out West," King said. "Population growth is a key determinant here with a marked increase in the number of people living and working in centres such as Parramatta and Liverpool. The time is ripe for a significant upgrading of infrastructure assets (both public and private) in western Sydney and this in turn will bring increased residential and commercial opportunities.”
BAM’s plans for 2016 include maximising returns for investors of the Vauxhall Inn fund, securing a second asset to offer investors before identifying more assets for the portfolio, which may also include other assets besides hotels.
“Hotels are currently our main focus, but we are certainly not going to be limited to hotels. Hotels still offer very attractive running yields which, in an ongoing low interest rate environment, we believe will offer significant scope for cap rate compression on these assets,” explains King.
By all accounts, shareholders at BAM are expecting the Vauxhall Inn fund to do quite well for its investors. While before settlement the hotel had a running yield of more than 10%, King suggests that the ROI could be much higher.
“We believe that this yield, combined with development opportunities and an expected compression in capitalisation rates on these types of assets will see an IRR in excess of 25-30 per cent.”