The private Iris Capital group is to use the cash raised from the sale of its non-core pubs to tap into the booming residential apartment sector.
As part of that strategy, the group which owns the former Crest Hotel in Potts Point, that operates as the Mercure Hotel, is selling its refurbished Oxford Hotel Drummoyne and an adjoining commercial property.
Dan Dragicevich of CBRE Hotels and JLL's John Musca have been appointed to steer the tender campaign for the landmark hotel, formerly known as PJ Gallagher's, which has just undergone a $3.5 million complete renovation and extension, including a new beer garden.
The agents declined to comment on any price expectations but hotel commentators estimated it could be worth more than $40 million.
The campaign closely follows the off-market sale by CBRE Hotels of the Royal Hotel, Ryde to well-known publican Patrick Gallagher, of GHM Hotels.
Pubs have become the hot property for operators who see the growth potential by offering better food and less gaming.
For seasoned owners such as Sam Arnaout, the chief executive of Iris Capital, the current climate is good for selling and using the cash for new developments, such as residential near the hotels and other retail businesses.
Iris has also received approval for Wentworthville 52 apartments and three retail sites, and bought the Palms Hotel, Chullora and the 888 Hotel, Hay Market, among other deals.
Mr Dragicevich said the Ryde hotel deal was the latest in a spate of recent A-grade, Sydney metropolitan hotel sales. It will provide the latest addition to GHM's expanding portfolio, which now totals 13 properties.
"This sale and the yield is a further sign of the strength of the market and the current optimism in the hotel sector," Mr Dragicevich said.
Other recent pub transactions include JLL's off market sale of the Waterworks Hotel in Botany for $8.25 million to the Lantern Group.
Ray White Hotels and Knight Frank Hotels also sold the Northies and Mona Vale pubs for a combined $57 million to the Laundy family and Fraser Short consortium.
"The investment fundamentals of the hotel asset class will continue to drive private and public market equity interest when high barriers to entry coupled with a low interest rate environment deliver a return on equity that simply cannot be matched in other forms of property," JLL's Mr Musca said.
Mr Arnaout said in the past two years, Iris Capital has broadened its focus to include substantial residential and mixed-use developments in recent years and is currently undertaking the conversion of the Mercure Hotel in Potts Point to 178 apartments and a retail component.
"It certainly hasn't been an easy decision to divest the Oxford as we haven't had the opportunity to benefit from the just-completed 12 month renovation, but the equity will be redirected to the $300 million Mercure project, which is our focus for 2015," Mr Arnaout said.
The Drummonye property occupies a high profile corner site and includes a ground floor bar, gaming room, TAB and beer garden as well as completely renovated first floor bistro, restaurant and function space.
Also included in this offering is the property located adjacent to the hotel at 15-17 Lyons Road which is currently occupied by a freestanding two-level retail/office building.
"The diversified nature of this opportunity affords the incoming purchaser a plethora of future development options as well as significant earnings potential," Mr Dragicevich said.
A draw card for prospective purchasers will be the property's affluent catchment area, the concentration of sporting clubs and teams in and around the hotel, high disposable income, combined with the limited number of competing hotel venues.
