This "7 Star" hotel is the pinnacle of luxury. This 202 suite hotel, sitting in the Arabian Gulf adjacent to downtown Dubai, cost $230,000,000 to construct. Each room, the smallest being larger than most Cairns apartments at 170 sq meters, therefore required an investment of $1.13m "per key". That's how hotels are bought and sold - "per-room", or "per-key" - because it is the most reliable way to value an income property like a hotel.
This smallest of rooms at the Burj Al Arab will cost you about $2000 PER NIGHT. It's not known if breakfast is included.
Of course, hotel values go up and down depending on their age, their location, and additional amenities. Convention hotels in hot convention locations have the most value. And despite what you might think is logical, casino hotels are not valued much more than non-casino hotels. In the United States, the highest-valued hotel rooms are in New York, at $597,188 per key. Las Vegas, coming off an extended downturn, sees their rooms valued at $154,343 - and they've never been much over $250K per key.
It therefore makes little sense to invest much more than the actual appraised value of the hotel on a "per-room" basis. Invest more than what you can get in income from the room, and you lose money. Business 101. (Pay attention Andrew G!) NO major hotel operator is going to sign on to a project that cannot be profitable.
One of the first things that troubled us about the EIS and project description was the amount of floor space dedicated to the hotel rooms. The EIS calls out 625,000m2 as the gross area of the rooms, not including back-of-house and hallway areas. This suggests a room size of 87m2 - not the Burj Al Arab, but twice the size of any other hotel room in Cairns - and indeed all of Australia.
However the "per-key" valuation method applied to this development has us completely confounded. The so-called $8.2billion Tony Fung & Associates investment in this property pencils out to:
wait for it:
$1,093,333 per room!
Just a shade under the Burj Al Arab, but with no hope in attracting anywhere near $2000 per night, you've got to wonder what investor in their right mind would put money into this financial white elephant.
Even this Abbott Street hotel, currently listed for sale, follows the "per-key" rule, with the adjusted price asked at about $184k per key.
Clearly, the amount of money budgeted for Aquis includes huge sums to make this seaside flood-guaranteed site ready to carry the massive size of this project. How much? Those in the construction field say $2B minimum on site works before any above-ground construction can begin.
Indeed, we're now a year since all the "Chinese hoopla" began - the purchase and rehab of the Sheraton Mirage in Port Douglas by Chinese Fullshare. The purchase of Double Island and the Acacia Court hotels by Benny Wu, both which have resulted in - well, nothing. Not a hammer has been lifted to fix any of these tired properties over a year after they were snapped up. Mackay Council also reports that the Fullshare purchase of Laguna Quays there has resulted in no development action, either.
Additionally, Wu purchased the fully-approved Kewarra Beach Retirement Village, and in a city with strong demand for this kind of elderly accommodation, Wu has done nothing.
None of this makes sense unless regular economics isn't important. This can happen for a variety of reasons, including the laundering of money with less than honorable origins. There is no indication that anything like this has happened in any of these cases.
But the numbers just don't stack up. If the government is concerned about getting a VIABLE project, there's got to be some questioning of these numbers.
UPDATE: During a private, closed meeting last night at
|FUNG REPRESENTATIVE MICHAEL KING, HIMSELF|
SUBECT OF FRAUD INVESTIGATION BY ASIC
It apparently involves a float on (ASX? Shanghai? Elsewhere?) a stock market. First we've heard of that - nothing mentioned about public ownership in the EIS.
And Fung representative Michael King, formerly head of the now defunct MFS/Octaviar Gold Coast property fiasco, is still under criminal investigation by the ASIC himself for forged and backdated documents. Seems like an odd choice for Fung who's already suffering from massive credibility problems.
Thanks to Tony Hiller for the additional information.