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4CA - Queensland's Home for Fake News Led by John "Cueball" Mackenzie

15 July 2014


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
Brothers, packed with salivating real estate leeches, the Cairns Post reported that Tony Fung's representative, Michael King, assured everyone that Fung was fully capable of funding the $8.2B project.  

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.


shanghai said...

well pilgrims buy into the great northern better value and u get inner city lifestyle aquais is a dream...... china is in a property bubble like us 25 years ago it will go pear shape for sure and cans will go in recession... again first to get hit but first to recover that's life in our humble town we have two world class assets that save us reef and rainforest lets protect that hey Australia needs us

Anonymous said...

Ella Bay not going ahead either so far. AQUIS may be killing off those other projects because it is so Cairns centric that Port Douglas and Innisfail may be losers. Especially if they all want contractors at the same time, will not happen.

I am surprised that local business do not demand more in detail and explanation. Does not seem much confidence in the region but the hype keeps on coming.

What is Cairns main industry? Hype lol.

Anonymous said...

Oh HBW ... please stop writing such negativity.

Just let a dumb Chinese investor snap up what Fung offers, especially after he's done the leg work and the DA's are all in place.
Then when it goes broke a couple of years later, I can pick it up for a cool 2 billion.

Tony Hillier said...

A report in the Cairns Post's on-line edition states that at a recent forum attended by real estate agents and urban developers "Aquis representative Michael King was questioned whether Mr Fung had the financial capacity to fund the project". Interestingly, Mr King's own financial record has been in the news recently.


Anonymous said...

a story about the newsagent fellow in lake street is one that many lake street traders can relate. hbw is it even legal to compromise the financial viability of someone's business with consultation?

Anonymous said...

my error hbw, without consultation I meant?

KitchenSlut said...

The involvement of Michael King was reported at the City Beat column in the Courier-mail last month. Strange how this stuff never makes it into the Cairns Post o_O


HAS failed Gold Coast businessman Michael King been secretly working behind the scenes as a key consultant on the proposed $8 billion Aquis mega-resort for Cairns?

City Beat spies report that King – who presided over the $2.5 billion collapse of the MFS tourism and finance group in 2008 – got involved through his association with Robert Bryett, a former Aquis executive.

Hong Kong billionaire Tony Fung, who has just scored a green light for his Aquis casino licence, is understood to have wanted to keep King’s role quiet.

No wonder. King is among five former executives at MFS (later renamed Octaviar) defending allegations of corporate wrongdoing brought by the Australian Securities and Investments Commission. ASIC alleges the group misappropriated $147.5 million from its Premium Income Fund and reallocated the money through multiple entities in an effort to pay debts in late 2007 and early 2008. False and backdated documents were allegedly used to justify the transactions.

King and the others face fines of $200,000 per breach and bans on managing corporations if found guilty in the on-going trial, which started last year. Neither King nor an Aquis spokesman returned calls yesterday.

Anonymous said...

Makes perfect sense going to the stock market as he is good at "selling" and he would need part funded by speculators to buy equity. They then can approach a lending institution.

Just cannot see it happening so quick if he needs to go through all that. Take ages.

Observer said...

I can't understand why the Labor Party candidates for Cairns and Barron River aren't saying anything? Why aren't they putting pressure on the LNP to announce what infrastructure the Newman and Abbott governments are going to provide? It's alright to ask why the LNP members are silent, but where is the ALP on this?

Anonymous said...

Labor got into debt supporting the mining industry so they know how hard the question is. LNP are quick with the slogans but now find that growth requires public investment so are tongue tied. LNP won in a landslide so ALP do not need policies. yet.

Anonymous said...

WTF Shanghai did you say.

KitchenSlut said...

"Ella Bay not going ahead either so far. AQUIS may be killing off those other projects because it is so Cairns centric that Port Douglas and Innisfail may be losers. Especially if they all want contractors at the same time, will not happen."

That's a good point. I did have a discussion with a strata unit developer who featured in the Cairns Post earlier in the year and posed the question of how they are going to budget for cost escalations coincident with Aquis. He specifically suggested that attracting construction labour out of town and particularly to Port Douglas could be difficult.

Anonymous said...

Aquis will probably qualify for a development infrastructure charges discount. (see earlier report from HBW- 7 July 2014) and that will leave the ratepayers to subsidise the development's infrastructure.

The whole developer's discount scheme (as reported by HBW)needs a thorough investigation by external auditors.

Anonymous said...

So our rates will escalate? It's what we all thought, that we would end up coughing up some of the enormous $$$$$$$$$$$$$$$ required for infrastructure.