Kathryn House
He has been described as a trailblazer, a philanthropist, and Australia's very own Willy Wonka. Dr Jerry Schwartz, Australia's biggest private hotel owner, has 15 hotels across the country, including the landmark Sofitel Sydney at Darling Harbour. He also owns a Hunter Valley brewery, an events centre, a charter and training airline called Blue Sky, and recently took full ownership of Sydney Seaplanes. But he's far from your stereotypical multi-millionaire businessman. Indeed, one recent news article described Jerry as a long-haired larrikin who rarely wears a suit, can often be seen driving miniature trains around his resorts and has been known to jump into the pool at launch events. He also played an integral role in the recent State of Origin series after spending $500,000 to upgrade a training field and build a state-of-the-art gym to lure the Blues into training near one of his resorts.
Jerry Schwartz
Some families at the dinner table, they talk about religion, other families, they talk about politics. In our family, a lot of the discussion was about business and about hotels. So, it was really pretty much ingrained into me.
Kathryn House
I'm Kathryn House, your Talking Property host, and that was a little snippet from today's podcast. Jerry, thanks so much for joining me today.
Jerry Schwartz
It is my pleasure, Kathryn.
Kathryn House
And to complete today's lineup, I'm also joined by Wayne Bunz, a national director in CBRE's Australian hotels team. The Schwartz Family Company recently contracted to buy its 15th hotel, Leura Gardens Resort in the New South Wales Blue Mountains, through Wayne who's going to give us the lowdown on the current Australian hotel landscape. Welcome, Wayne.
Wayne Bunz
Thank you, Kathryn, and welcome Jerry. And firstly, thank you so much for your time.
Jerry Schwartz
It's my absolute pleasure, Bunzy.
Kathryn House
So, I'm very much looking forward to today's podcast because you're both fabulous characters in this industry and there is so much ground that I really want to cover. But first, to give our listeners just a little background. Jerry, your late father emigrated from Hungary after World War II, practiced as a dentist and turned his property investing hobby into the Schwartz Family Company empire. You followed in his footsteps by earning a medical degree while you were saving to buy your first pub - Sweeney's Hotel in the Sydney CBD. And, like your dad, you still juggle property investment with a medical career, in your case as a cosmetic surgeon. So, what drew you into property and why hotels?
Jerry Schwartz
As you pointed out, I guess one of the reasons that I went into properties and hotels is because it's a family business, Schwartz Family Company. Some families at the dinner table, they talk about religion, other families, they talk about politics. In our family, a lot of the discussion was about business and about hotels. So, it was really pretty much ingrained into me. That's the first thing. The second thing, what I really love about the hotel industry is its diversity. It's just got so many different components, whether it's the finance of buying hotels, the running of hotels, the food and beverage, IT, there's just so many different aspects into it and that's what's just drawn me into this industry.
Kathryn House
And so Wayne, you and Jerry go way back. Can you give me a sense of just how pioneering Jerry has been when it comes to the Australian hotel scene?
Wayne Bunz
Look, I think most agents that have ever sold Jerry a hotel would say the greatest attribute of Jerry is, firstly, he's a man of his word and he says what he will do, and he does what he will do. But I think also he looks at a property, and Jerry will correct me if I'm wrong, it's not an internal rate of return that he's seeking for. He looks at a hotel, he senses the feel of value and if it's the right time in the market to buy, and he's for that reason, been known to buy some hotels at exceptional value when other parties would not have seen that. One such instance is the Sofitel at Darling Harbour. I think in that particular market, at that particular time, there wasn't many people that saw the value that Jerry paid for that property. But hindsight proved everybody incredibly wrong. Am I right, Jerry?
Jerry Schwartz
Well, I hope so. Yes. Yes. I do remember the price per room at that stage was considered pretty high for a five star hotel. Turn the clocks forward a few years and there was really a fantastic price for buying five-star hotel rooms, let alone the opportunity of the location. And I think a lot of my hotel purchases are just Carpe Diem, seize the opportunity. You have the opportunity now, you may never get that same opportunity again.
Wayne Bunz
And Jerry, how much of that decision do you find is based on the actual current net profit of the asset and how much is based on gut feel looking at the asset, looking at the replacement value of it?
Jerry Schwartz
I've got to admit, Bunzy, that a lot of it is gut feel. One particular hotel, which is World Square, the Avillion, the vendors never actually gave out the profit and loss statements for the hotel. But because I owned a very similar hotel in a similar location, similar size, Mercure Sydney, I just had the gut feeling of what the potential income would be like. But in general, it is gut feel. I think I'm just a normal person and I think to myself, "would I stay at this hotel? Can I see that there's potential in improving the hotel so that it will have a good revenue and it will have a good occupancy."
Kathryn House
Your latest Blue Mountains purchase, what spurred that?
Jerry Schwartz
Why did I buy Leura Gardens? Bunzy, since COVID, has been having this huge effort to sell one of my Sydney hotels. He's been pushing and pushing and pushing, and I've been restraining. It wasn't that long ago during his last phone call, he said, "listen, Jerry, I'll just try again. Do you want to sell that hotel?" And I said, "Bunzy, you have more chance of me buying Leura Gardens Hotel than me selling this hotel." Funny enough, he was back on the phone 45 minutes later and he said, "yes, if you really want it, you can purchase Leura Gardens Hotel." And that is a true story.
Wayne Bunz
That is incredibly true. Jerry, we might just touch on there because technically we're waiting for you to settle that asset, which is getting close to, but it's probably a good time to touch on, if I could Kathryn, about finance with the hotels. And Jerry, you went through COVID, you were with the major banks and you had your share of issues. While your leisure assets were performing very well, your CBD assets were not performing well. You are obviously in the process of a major refinancing now. How did you feel during that time?
Jerry Schwartz
Pretty much like everybody else, concerned. But also realistic. We've got to get over difficult periods and certainly the hospitality industry, it feels the ups and the downs very strongly. Everybody was suffering during COVID, but somehow or other, amazingly, we survived. I guess as you're alluding to, one of my personal difficulties was my banks. Whilst most people were supported by their banks. I was really let down by a bank, which my family had been using for the last 40 years. And it was during COVID that they actually said to me, and they only gave me about 20% of my finance, they said, "we want our money back." Stock, lock and barrel. "We want our money back." In the middle of COVID. And that of course, caused a whole domino effect for the other Australian banks who were supporting me that they didn't know what to do. So in the end, I had to do a total refinance and went with Blackstone, who have been really fantastic and that three years has now expired and I'm going through again a finance. And fortunately, that's how I've been able to pop in the extra hotel, Leura Gardens, by doing the major refinance and putting in an extra hotel into it.
Kathryn House
It is interesting on that investment front, obviously we're talking about financing here, but Wayne, it was really interesting to see that the hotel sector was one of the only sectors really where investment volumes have risen in the last couple of years. We saw af big drop in office sales in particular. Why do you think that the hotel sector has been quite resilient during this period?
Wayne Bunz
Look, I mean, that probably was, other than the Ansett Airlines strike, probably the most troubling that industry's ever been through. But what it did was it shifted and refocused back into Australian leisure. And I think that Whitsundays, Cairns, the Blue Mountains, Hunter Valley, the Mornington Peninsula were all beneficiaries of Australians rediscovering their own backyard. So, while the CBD corporate hotels went very quiet, the leisure destinations probably had the best 12-18 months trading period I would say in the last decade or so. The hotel industry has seen so many year-on-year capital gains. If you look back through time, it's pretty rare that you will see a hotel get into financial difficulty unless it's been overgeared or built in a rather remote location. COVID has seen people recover back. If you look at 2019 versus 2023, 2024, you'll see that Rev Par and average room rates in the majority of cities is actually rebounded stronger than what it was pre-COVID levels. And obviously, the cost of construction is exorbitant. So we're still seeing hotels transact in some instances - we sold the Sofitel Brisbane for Brookfield to CDL for circa $178 million, I’d say the replacement value on that hotel would be $300-350 million. Leura Gardens that Jerry has bought I'd imagine would be still 50 cents, 40 cents in the dollar on the replacement value. So I think the other great part about hotels is as inflation has moved, hotels have dynamic pricing. So we're able to adjust average room rates, food costs, beverage costs. We can roll with that to try and protect the net profit of the hotel. Jerry, do you think that's a fair assumption?
Jerry Schwartz
Absolutely. And then what I would add to that too is that it's not only the replacement cost of hotels, but everything's just got so much harder now. Part of building a hotel is the application to council and the number of years that it would take for a new hotel to be built. So it's not only the replacement cost, but it's the hassle factor which is being diminished by the fact that you can buy a secondhand hotel and improve on it. So this really is why hotel values have just kept shooting up.
Kathryn House
You were talking earlier, Wayne, about leisure hotels and Australians rediscovering their own backyard. One thing that I was interested in Jerry is you've really been focusing a lot on family-oriented properties, which I guess feeds into that. And part of that is you coming into fatherhood later in life, I believe, that sort of directs you towards family-friendly properties.
Jerry Schwartz
Absolutely. When I purchased the Fairmont Hotel, Fairmont Resort, my son was just born then and two years later, which is when I purchased the Hunter Valley hotel, my daughters were born and it was pretty much a mandate of mine to add family facilities in. So they had trains and carousels and water parks and ice skating rings and all these sort of things just as my kids grew up and I could see the age increasing of facilities for kids. I've been introducing these facilities and I'll just go back to what Bunzy was saying about the change in travel activities of Australians, that its always has been a luxury to own a resort. When I purchased the Fairmont Resort, it was basically supported by my city hotels and then there was this amazing flip in COVID where we all wanted to travel in our own backyard and the leisure hotels suddenly became their own, which was an amazing change within the hotel industry.
Kathryn House
And it must be amazing for the kids, a very different backyard to what many kids would grow up in having ice skating rinks and carousels.
Jerry Schwartz
Oh, my kids are so spoiled and it keeps developing. I mean, at the moment they're in a horse phase. So we're building an equestrian centre at the Hunter Valley and all the facilities involved with that.
Kathryn House
Oh, fabulous.
Jerry Schwartz
So it just keeps developing.
Kathryn House
So changing tack a little, sustainability, it's a really huge consideration in our ongoing race to net zero. Jerry, how hard is it to balance your commitment to the environment with being a successful hotelier? I know you've been investing pretty heavily in renewables, and you recently spent I think $10 million building a private solar farm in the Hunter Valley.
Jerry Schwartz
Yes. To me it's an easy issue. Sustainability allows you to do two things. It allows you to do the right thing and it actually allows you to save money. So, when I first started in the sustainability space, it was all about changing light bulbs and making them more efficient light bulbs and cutting down on electricity and adding variable drives to filters and adding energy management systems so that you don't use energy when you don't need to use the energy. I established my own Sustainability Officer, and that's his job. That's his full-time job to do sustainability things. And it's grown. So we'll put solar panels on most of our hotels, that's grown. I've not only built one solar farm, but two 5-megawatt solar farms and we have plans in for a third megawatt solar farm, which will make us totally sustainable and that we'll be producing all the energy that we require for all my 15 hotels. And the offcuts of that are the fact that government now look very closely at NABERS ratings. We were one of the first hotel chains to introduce NABERS ratings for both power and for water. And not only did that manifest the fact that you were saving money, but it also manifested the fact that you're doing the right thing. And a lot of government agencies look at that. So it's, I think, part and parcel in the world today that you need to do the right thing.
Kathryn House
So Wayne, are you seeing that investors generally are really focusing on sustainability when it comes to making their hotel investment decisions?
Jerry Schwartz
Yes, look two of the biggest challenges we have with inflation is energy costs and insurance costs. Now, insurance costs, we don't have so much to be able to control over, but certainly in energy costs, we can. The challenge we find is when you're buying a lot of older hotels, we've currently got Pullman Cairns on the market. Now, these assets built in the 1980s, Sofitel Brisbane was the same. So the cost of making those large hotels more energy efficient is certainly a lot more challenging. But obviously the more energy you can save, the better the bottom line, the sharper the yield, the higher price per key. But I think to Jerry's point too, a lot of clienteles like CBRE, when we are contracting through our travel management people, a lot of the criteria that larger hotels like ourselves and the Fortune 500 are looking for that sustainability of that asset as that's wher CBRE want to be staying and investing into those assets that are investing in their energy and NABERS rating as Jerry has pointed.
Jerry Schwartz
I reckon though, to upgrade an older hotel is probably easier than to upgrade a newer hotel because a lot of the chillers, the air conditioning systems and all that, in the older hotels, they die at the age of 20 or 30. So you have to upgrade them anyway, and that's the opportunity to install energy efficient systems.
Wayne Bunz
And as we know, Jerry, those big hotels have a lot more room in the back of house than what they build the new hotels at standards today.
Jerry Schwartz
Absolutely. I'm always amazed at how spacious the old hotels are. When you take out these inefficient systems, you suddenly find yourself with a lot more space.
Wayne Bunz
Yeah, Kathryn for those that don't know, if you look at a lot of the big hotels like the Sheraton's that were all built in the '80s, there's like this little city underneath it for the staff to populate in. There's staff canteens and rest areas. It's quite phenomenal the back of house areas of the big hotels.
Kathryn House
So things have changed a lot in recent years.
Wayne Bunz
Yes.
Kathryn House
So we've talked about sustainability. Another thing I've heard you talk about, Jerry, is the importance of experiences for hotel guests. How much does that play into a successful hotel, do you think?
Jerry Schwartz
I'm a real stickler for experiences. I'm always advocating how important it is that people have to go to destinations and to hotels to do something that they're going to remember doing and that they're going to enjoy doing. And I think that's part of this whole concept that I've had with the family-friendly hotels, it's all about if the kids are happy, the parents are going to be happy. So that's the kids' experiences and I think it's also important for adults' experiences. And as you mentioned at the beginning of the show, I've now purchased 100% of Sydney Seaplanes because I think that will help bring about one of the most amazing experiences in Sydney to be able to fly over Sydney Harbour. It's an experience like BridgeClimb. BridgeClimb is something that not only tourists have to do, but all the locals have to do. And it is the same thing with flying over Sydney Harbour. So I think it's really important to give guests not only a great bedroom and good internet and good shower, good food and beverage, but also access to really enjoy their stay at the hotel that they're at.
Kathryn House
Yes, I actually did the BridgeClimb at Christmas and you sort of only think about it as being a tourist thing, but when you do it yourself as a local, you just realise what a beautiful city that we live in. Very lucky to live in Sydney, I think.
Jerry Schwartz
Yes.
Kathryn House
So one thing that I was really wanting to explore as well was, I was reading about an agreement you recently struck with Trilogy Hotels who've taken the reins of your Mercure Sydney, IBIS Sydney World Square, Mercure Canberra, and the Fairmont Resort, which you're going to complement via a franchise agreement with Accor, which plugs you into their global distribution systems. That's a big shift from the traditional hotel management agreement model in Australia where owners have typically engaged with a particular hotel brand for both distribution and operating capability, and it's much more in line with the US and Europe. What took you down that path?
Jerry Schwartz
Several things. This is a very complex question. I think first and foremost is taking the opportunity. To me, the opportunity was that I had four hotel management agreements expiring at the same time. In addition, Scott Boyes, who has been running our hotels through Accor for the last 29 years, decides to go out into this new concept of white label management. If you put the two of them together, that time and place was where I could go to this new concept of white label management and utilise a person or people and a company that I had the utmost confidence in and had the opportunity of the advantage of having a white label management company where they focus more upon your own particular hotel in this environment than the global concept. I think it's important to have global distribution, but you want to have your particular environment of a hotel followed through. If you put all that together, it just gelled and it took the opportunity of where the trend is now to hotels, which is having, on one arm, a global distribution, on the other arm, a management that's locally based. So it was a win-win.
Wayne Bunz
If I can jump in there, Jerry and Kathryn, I think it's important, you can have a lot of listeners on this podcast who aren't particularly hoteliers. So a lot of people still believe that Marriott owns the Marriott and Novotel's owned by Novotel. And the Sofitel's owned by Sofitel. If you went back quarter of a century, a lot of the hotel companies were owning and operating their own hotels. But the majority of them now, well actually all them except for EVT, Event Hospitality Group, who operate the Rydges and QT brand, still have about 50% of the hotels they run, they actually own. So the majority of the hotel management companies are all asset light. So I think that's an important thing for your listeners to understand that Jerry buys the hotel, Jerry opens the bank account, Jerry has the keys, the management companies put their brand on it and run it and charge you for that process. And then it's all about managing the net profit back for Jerry at the end.
Jerry Schwartz
And what's even more complicated is people think Expedia run hotels, the extension to that.
Kathryn House
Yes, it's a very interesting business and I guess that's why you’ve focus on it for so long now, Jerry.
Jerry Schwartz
Yeah. Yeah.
Kathryn House
So do you see any other emerging trends in the Australian hotel sector, Wayne?
Wayne Bunz
Look, I think Jerry's right at the cusp on it and talking about experiential travel and destinations. It's a bit of an old story now, but the lifestyle hotel and unbranded hotels are really a thing of the future particularly, here in Brisbane. We have the Carlile Hotel, which whilst is run by TFE, the brand is seen to be as the Carlile Hotel. Crystalbrook Hotels are running their own brand. So I think we're going to see a lot more in the lifestyle hotel where personally, I think the big cookie cutter hotel brands will dissolve. Well, there'll always be a need for them, right in the bigger cities. But I think people are looking for more of a tailored individual experience in the accommodation, in the food and beverage offering in the conferencing. But as also Jerry's saying is in the ancillary services that you offer, because we'll work so hard to get a guest into our hotel, Jerry and his management's team's job is to keep them there as long as you can for as many nights as you can and spending as much revenue as they can in the hotel.
Jerry Schwartz
And get them back and tell their friends to come back.
Wayne Bunz
Correct.
Kathryn House
Well, that's probably a really good segue to a question I wanted to ask you both. Then maybe I'll start with you, Wayne. What's your favourite hotel in the world and why?
Wayne Bunz
I would say The Ned in London, which is run by Soho House, is an amazing hotel. A good friend of mine, Peter Hill, we'd been to a hotel conference in Berlin and he got to this hotel before me and I got there and he was grinning like a Cheshire cat. It's such an amazing hotel. It has like six or seven, eight restaurants. It has a live band pretty much going for 12 hours of the day. It's such an exciting energetic property. We were there for three or four days. When I checked out I had to donate a kidney at the cost, but I still tell everyone how amazing it was. And recently, I had the pleasure of staying at the Sofitel in Hanoi, the Sofitel Metropole. So you've got a new world hotel like Ned's been run by Soho House, and then here you go back into absolutely one of the classic vintage, most amazing hotels. They'll experience there the old-world charm, the classic hotel rooms, amazing service, spectacular uniforms. That was an absolute pleasure. I only stayed there last October. So yeah, they're probably my two standouts amongst plenty that I've stayed at.
Kathryn House
I think I might have to visit both of those hotels at some point. And what about you, Jerry?
Jerry Schwartz
I guess I'll just practice what I preach. At the moment my son's favorite hotel is the Sofitel Denarau in Fiji because the Fijians are spectacular, fantastic for kids. It's on the beach side, it's got the Big Bula across the road from it. So we've been there three times. He's happy there. I'm happy there. Since Bunzy mentioned two hotels, my other, I guess keeping to the topic of experiences, are the hotels in Los Vegas. My wife and I loved going to Los Vegas because it was just literally out of this world as an experience.
Kathryn House
And so maybe one last question. Jerry, do you think you'll ever put the scalpel down and focus full time on hotels?
Jerry Schwartz
I have pretty much put the scalpel down a fair bit for three reasons. Number one, the Medical Council had given me a hard time, particularly as a cosmetic surgeon. They probably think if I'm successful in hospitality, how can I be successful in medicine? That's one reason. The second reason is that the hotel industry is overpowering. It is taking up my time so much. And the third reason is, forgetting about the altruism of medicine, money for time, I can save 10% on an invoice for $100,000 with one phone call and that money saved would be equivalent to probably spending 20 hours in medicine. And I find also too, with altruism, I can achieve so much in hospitality. I enjoy making improvements and making changes, and I think that's a really good use of my time as well.
Kathryn House
Absolutely. Well, thank you so much for joining, Jerry. It was a real pleasure to have you on Talking Property, and also great to have you on the podcast, Wayne. I know I've been badgering you for ages to join Talking Property, so I'm glad we finally made it work.
Wayne Bunz
Thank you, Kathryn. As everyone and Jerry will attest to, the hospitality industry is a pretty amazing industry. I don't know if anybody's watching The Bear?
Kathryn House
Oh, I love that show. It's fabulous.
Wayne Bunz
It's great, right? So what we get in this industry, and I was a chef and then I was a hotel GM before I became a broker so I've experienced both sides of it. What you get in this industry is a chance to be such a part of people's lives. You have their wedding in a hotel, you have your honeymoon in the hotel, you have special occasions. I mean, hotels are all part of experience that touch many, many people's lives. And fortunately for me, I've been lucky that I've worked in it for nearly 35 years. And you meet great people like Jerry, Bill and Mario Gravanis, Brian Flannery, even Clive Palmer Palmer. It's such an amazing industry, just like a big family. So Jerry, I want to thank you for being such a contributor to the industry, such a colourful character. You are very adventurous. You are very to the point in what you say. So congratulations to all your success.
Jerry Schwartz
Thank you so much. Thank you both of you for the opportunity to have a great chat with you.
Kathryn House
To our listeners, thanks for tuning in. If you like the show, you can subscribe through
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[email protected]. Until next time.
