Real Estate New hotels in Brisbane: between challenge and opportunity

During the coronavirus crisis, numerous industries faced new challenges – including the hotel industry. But these also had the potential to create new opportunities: Using the example of two hotels in Brisbane, Australia, which Commerz Real acquired for its institutional hotel fund, the company demonstrates how expertise and commitment ultimately brought about success. 

In 2017, Commerz Real decided to buy two 3 and 4 star hotels in Australia’s third largest city, Brisbane. Both hotels had aged and their leases were about to expire. Commerz Real’s aim was to recondition the two hotels and place them in the institutional fund “Commerz Real Institutional Hotel Fund”. Extensive renovation and repositioning of both hotels will help to raise the properties’ market value again and conserve valuable resources by conversion instead of new construction. 

Thanks to Commerz Real’s many years of experience and in-depth market knowledge, the project seemed to be on track. With ProInvest as the new tenant, a long-term lease of 15 years was agreed. As the new operator of the two hotels, IHG (with the brands voco and Indigo) stood out against the competition and also committed to a minimum term of 15 years. 

The lender, First Commercial Bank Brisbane Branch (headquartered in Taiwan), also saw the potential of the two properties – especially due to their high-quality location in the middle of the central business district on the Brisbane River. And thanks to the city’s efforts, which have been informed and driven by various city plans since 2012, the city’s international orientation in particular is to be further strengthened and economic growth boosted.¹ ² As a hub in the Asia-Pacific region, Brisbane is expected to become a new talent and tourism magnet. 

This growth also entails a noticeable increase in the population: The Urban Developer, Australia’s largest community of real estate and urban development experts, predicts an increase of 1.5 million people over the next 20 years.³ With the expansion of the tourism sector, which is already worth 23 billion Australian dollars today, the local labour market is also expected to offer new opportunities for the growing population.⁴ There is certainly no shortage of demand. The subtropical climate and variety of cultural attractions make Brisbane a popular travel destination worldwide. 

And, as the venue for the 2032 Summer Olympic Games, this hype will intensify even further. That’s why ambitious projects are already being implemented in Brisbane to optimally prepare the city for its role as an Olympic venue. This includes, for example, the 3.6 billion dollar Queen’s Wharf project comprising four luxury hotels, 2,000 accommodation units and a casino.⁵ The project is scheduled to be completed in April 2024. 

Due to the excellent location and the promising forecasts for urban development, the upcoming repositioning project of both hotels appeared to be more than promising. But thanks to the coronavirus, all plans suddenly came to a halt again. This is because particularly tough lockdown regulations were introduced in Australia in particular: with limited domestic travel, disrupted supply chains and international border closures for no less than 19 months, the planned renovations could not be implemented. 

Right at the start of the global crisis, extensive renegotiations were on the agenda to negotiate the financing, conversion and operation of the two hotels under the changed conditions. Finally, the coronavirus-related staff shortages were also a challenge for the implementation of the newly negotiated conversion and renovation measures. The operating business thus became a tightrope balancing act. 

The limits imposed due to the pandemic could only be successfully overcome with the help of maximum commitment and a high level of improvisation skills. However, this also included the trusting cooperation with financiers and partner companies in order to develop new solutions under these more difficult conditions. 

This enabled Commerz Real to successfully complete the conversion and repositioning of the two hotels, which opened in June and July 2022 under the brands “voco Brisbane City Centre” and “Indigo Brisbane City Centre”. The Indigo Hotel even received an upgrade from three to four stars plus after its opening. The location close to the river and wall paintings by local artists make the hotel a special experience for tourists from all over the world. 

With more than 50 years of experience in the field of tangible assets, Commerz Real has a broad competence profile to successfully overcome global challenges. The conservation of resources through the reconditioning of existing tangible assets is a particular focus here and also, yet again, resulted in the success of this project, too. 

The fallback solutions that Commerz Real introduced early on in the negotiation process with the investment and asset manager ProInvest were also helpful. In this way, Commerz Real demonstrated valuable foresight, which proved itself many times over in the subsequent process. The long term agreed with both the rental company and the hotel operator was also crucial to the successful completion of the project. 

This experience and foresight is also reflected in the selection of properties. Although both hotels had already reached an advanced age at the time of purchase, Commerz Real recognised the immense potential of the properties, which could be significantly increased thanks to the promising city plans. 

Despite previously unknown challenges, Commerz Real was able to add two high-quality hotel properties to its institutional investment fund, which received a new breath of life thanks to skilful conversion measures. In this way, it has created long-term added value in its portfolio, which its investors will now also benefit from in the future.