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Management Rights, it all started in Queensland
Australian Valuers, leaders in Management Rights Valuations
Management Rights are a unique beast in that they were ‘invented’ in Queensland’s Gold Coast to provide an on-site management service within the then newly built high rise holiday let apartment buildings. From there the concept has spread to New South Wales, (also under State Legislation), Victoria and Western Australia.
The majority of Management Rights businesses have the business and the real estate components, but within these are many variations as to type and who owns what real estate.
Examples of Management Rights Businesses
1. Permanent Complexes
A typical permanent let complex is an apartment building where the on-site manager has a pool of units under his management on behalf of landlords/investors. The Manager rents those units to tenants for 6 or 12 months periods under a standard Residential Tenancy Agreement.
They will manage the tenant, collects rent, arranges repairs & maintenance as needed and charges the landlord at the end of month a percentage (8%) of the collected rent for his service.
2. Holiday Complexes
Similar to the Permanent complexes in that there is a letting pool but the units are let out as holiday accommodation. The term of stay by the holiday maker varies, but often the unit is let on a weekly basis. The larger complexes do allow over nights or one night stays and sometimes run the businesses closer to the hotel model with 24 hour reception and the ability for the guest to order local take-away delivered to his room.
The remuneration to the Manager is at a higher percentage (12%) plus charges to the landlord for linen and room cleans and other sundry expenses.
This style of business generally returns a significantly higher reward for effort, but holiday complexes are not for the first time buyer of a Management Rights. These businesses are in the Australian Tourism sector, which can be exposed to external forces such as the Australian Dollar, Bali/South East Asia competition and the general state of the Australian economy.
In summary these can be very rewarding businesses and well sought after in good times, but they come with an inherent level of risk.
3. Corporate Complexes
Corporate complexes are generally located in capital city Central Business Districts and can vary in size from smallish boutique to hotel style. Often these complexes are located on the CBD fringe and offer a cheaper option than the traditional international chains.
The ‘standard’ corporate complex is a hotel style of business with a letting pool that provides one night stays for guests or longer if required.
A higher percentage of the collected tariff (12%) is charged together with linen and cleaning charges. Other sundry lines of income, which can add up are also part of these businesses.
Like all Management Rights businesses these are susceptible to market forces and other dynamics. Here are some examples:
- The price of airfares can positively or negatively affect the occupancy of the complex and achievable tariff;
- Federal and State Tax/Charges increases are generally not conducive to growing or maintaining the Net Operating Profit;
- Economic factors;
- Age and condition of the common areas and units.
4. Student Accommodation
These are mostly purpose built where an individual apartments can have 3 or 4 bedrooms which are let separately to a student or student couple.
The Tenancy Agreements in these situations are generally under a Rooming Accommodation Agreement (Form 18) wherein the tenant agrees to rent the room and acknowledges the kitchen, lounge and bathroom are treated as common areas for the residents to share.
The risk exposure for this style of business is primarily the extended Christmas break for university of around 2 to 3 months (risk of long vacancies). However it is now reasonably common now that Student Accommodation providers only offer 21 or 50 week tenancy contracts, therefore allowing only minimal vacancy and potential a good time for maintenance.