More hotels could become hospitals in wake of ailing leisure sector

Philip Smith, the Colliers agent who helped facilitate the transformation of a Wollongong Hotel into a psychiatric facility, says similar transformations could prove beneficial for struggling regional tourism operators by providing alternative income streams. 

“We understand there are some Sydney hotels trying to deals with some major hospitals to take on post-natal mums with infants for the first days following childbirth,” says Smith, Colliers national director of transaction services for health care and retirement living. 

While he says such transactions are not common, he suspects more could follow, “particularly in relation to older properties that are no longer ‘fit for purpose’ or up to expectation standards. 

“There are some fundamental changes coming to the aged-care industry in Australia, and public hospitals are really stretched from post-op and medical patients. This may present an opportunity. 

“I worked in the UK for a long period, and saw some small hotels and B&Bs open up their properties for emergency housing and interim care, key worker accommodation or even asylum seeker temporary accommodation.” 

Smith brokered the deal between Australian Property Trust, owner of the Rydges Wollongong and new tenant Evolution Health Care. 

Since the APT made the initial hotel investment in 2005, Smith says many new competitors have come in, effectively making Wollongong “over-bedded” in terms of hotel beds. 

At the same time he says the healthcare market has long recognised that the Illawarra region is poorly served in terms of private mental health facilities, but the costs associated with new build hospitals are generally prohibitive. 

“There is no private mental health facility in the Illawarra, and given the location near the city centre and public hospital or health precinct, it was logical that the property was better suited as a health facility, “he says. 

“Conversion of existing accommodation facilities are generally more cost-effective,” he says. 

“With APT, we explored this concept of a number of operators, and got a long way down the track with negotiations with another major operator, but final terms could not be agreed. Evolution Care then came in and both parties showed enough flexibility to ensure a sensible agreement could be reached,” he says. 

Smith says it took only around two months from beginning to end to complete the agreement. 

The trust weighed up the current value of the hotel against the cost of conversion to a sub-acute private hospital with a secure lease in place. 

It also undertook discussions with mental health specialists in the region to gauge the demand in the community for such a facility. 

“From there, it was a question of whether the lease payments were affordable,” Smith says. 

APT will undertake a $4 million refit of the hotel, and Evolution Care has committed to a long-term lease arrangement.