Sydney airport hotel expansion hits turbulence

The publicly-listed Sydney Airport Corporation’s plans to develop up to five hotels at Sydney airport could be stymied by a group of wealthy investors who hold the first right of refusal over any further hotel development at the airport’s international precinct.

Sydney Airport Corporation has called for expressions of interest to develop a range of hotels near its T1 international terminal and T2 and T3 domestic terminals, investing as much as $350 million on the hotel infrastructure.

Listed hotel group Mantra and US hotel giant Starwood are ­already jockeying to win the operating rights to some of the hotels, which will be wholly owned by the corporation upon completion.

However, property developer Phillip Wolanski, solicitor and property investor John Landerer, and a third business partner, own the first right of refusal over any further development of hotels or similar accommodation at Sydney airport’s international precinct.

The trio own the bricks-and-mortar assets to the Rydges Hotel, a 318-room 4.5 star hotel developed at Sydney airport two years ago, negotiating at the time the first right of refusal over any further hotel development on the airport international precinct until about 2023.

“We have a first right of refusal,” Mr Landerer, a director of company Sydney International Airport Holdings, told The Australian.

“When they (Sydney Airport) have something we will consider it. It’s an important asset of ours this first right of refusal.”

Apart from Rydges the only other on-site hotel at the airport is the 199-room budget Ibis which opened in 2005 and is also owned by Mr Wolanski, Mr Landerer and a third party.

Sydney Airport said there was demand for the development of more on-site hotels because of passenger needs following unanticipated flight cancellations. It also needs more on site hotels at the airport to cater to flight crews.

Historically, on-airport hotels have had higher occupancy than hotels in the areas surrounding the airport, Sydney Airport said.

However, a demand study co-commissioned by Sydney Airport Corporation reveals there is limited necessity for new hotels at Sydney airport given its proximity to the Sydney CBD.

Private developers are poised to build four to five hotels within 2km of the airport over the next few years. These include a new TraveLodge and new IBIS-branded hotel.

The demand study states that: “In the context of significant new supply plans in the airport precinct and the potential impact thereof on room occupancy performance, and subsequently on average room rates, there is no requirement to add more hotel rooms to the market to accommodate demand growth ... until after 2022.”

However, the report noted that the likely impact of further supply on the overall market will be a further reduction in room occupancy and room rates. The reports also said if the property itself provides a unique selling point it may provide a viable development proposal.

The report says the only opportunity that would fulfil this requirement is a property within convenient walking distance with luggage of the domestic terminal.

Sydney Airport Corporation refused to comment on the first right of refusal issue yesterday.

Mr Wolanski could not be reached for comment.

Source:  The Australian - 1st October 2015