John Spence is one of a handful of operators prepared to invest in WA tourism despite difficult market conditions.
John Spence is one of a handful of operators prepared to invest in WA tourism despite difficult market conditions.
When John Spence first set foot on Rottnest Island he questioned where all the hotel and restaurant options were. Fourteen years later with a newly signed lease for Rottnest Lodge and plans to reinvent it, he is set to fulfil a long-term goal of injecting new life into Perth’s island playground.
His luxury resort company, Karma Royal Group, took over the lease of the lodge in December and is embarking on a three-stage facelift for the site.
Some might be put off investing in a tourism industry that is feeling the pinch of a high Australian dollar and sagging leisure tourism figures. Others have steered clear of Rottnest claiming it is too expensive and logistically difficult to operate a hotel on the island.
But not Mr Spence – he is not shy of investing in his long-held vision.
“I always thought Rottnest was a fantastic place, but I couldn’t figure out why there weren’t any hotels on it,” Mr Spence said.
“It is mad, there is nowhere else in the world where you have got a semi-tropical paradise of an island a 30-minute boat ride away from a metro with a million people and it isn’t teeming with hotels and restaurants and bars.
“I have scratched my head ever since.”
The economic viability for a site like the Rottnest Lodge is reliant on quality, according to Mr Spence.
“It is not that difficult, if you had a good restaurant and hotel, people would go and eat and drink there. It is as simple as that,” he said.
The lodge will come under the company’s new 4.5-star brand Chakra Resorts, which was established to cater to a market in between the value-driven brand Royal Resorts and luxury villa brand Karma Resorts.
Chakra’s rates will be a quarter of Karma’s, made possible by either building Chakra resorts next to existing Karma sites and creating access to Karma amenities or buying existing hotel properties and renovating to establish standard Karma amenities (like the kids club, bars and restaurants and spa offerings).
The rooms are also smaller than villas and resorts are not on large blocks, so the plot ratio is higher for Chakra.
“We are a great believer in accessibility with Chakra Resorts. We are not particularly pioneers, we’re not looking at places which are really difficult to get to, they are all quite near to major cities or metros but in quite unique locations,” Mr Spence said.
“A lot of people want the sex appeal of Karma, but just can’t afford $1000 a night.”
Reinvention of the lodge will start immediately with the first stage renovating the restaurant with a $200,000 budget and broadening the spa offering. That will be completed by the start of the next peak season in November.
The second stage will have the rooms upgraded to the standard of the current superior rooms.
The third, if approved by the Rottnest Island Authority, will swap the Quadrangle space the Lodge presides over for land on the other side of the lake, to create additional rooms. Mr Spence will look to extending the lease significantly in order to complete his plans.
Mr Spence is not the only one investing in new hospitality ventures in Western Australia despite the state’s weak tourism industry.
While Chakra Resort’s strategy has been to invest close to metropolitan Perth to tap its population, on the other end of the scale, investment is going into remote Kimberley resorts.
Kuri Bay is a three-suite resort 220km from Derby, developed by joint venture partners Wild Bush Luxury and Paspaley Pearls. The site was originally the first South Sea pearl fishing site in Australia and was refurbished before opening for business this month.
The resort is only accessible by seaplane or helicopter and packages include accommodation in Broome at Marilynne Paspaley’s Pinctada Cable Beach Resort before three or four nights’ accommodation at the remote Kuri Bay site.
Wild Bush Luxury chief executive Charles Carlow said the Kuri Bay venture was in line with the Wild Bush Luxury philosophy of reconnecting guests to the landscape through inspirational experiences.
The plan is to lure guests who want to escape the mainstream tourism destinations and experience a unique wilderness location.
Ms Paspaley’s business, Pinctada Hotels and Resorts, was named by the Rottnest Island Authority in 2010 as the successful bidder for a resort development in Longreach Bay but Pinctada pulled out in November, citing constraints that compromised the commercial viability of the development.
The Berkeley River is another resort for the Kimberley and is in its final stages of development, set to open this month on the remote northern coastline.
It is a 20-suite resort, accessible only by air or water, owned by Martin and Kim Peirson-Jones, who moved to the site in July 2010 to oversee the development of the property.
At $897 per person per night, and with Kuri Bay’s four-night packages at $4799 per person, these resorts are aiming for the top end of the market that is looking for remote luxury outback holidays.
Kimberley Wilderness Adventures is also expanding and is set to take over the Mt Hart Wilderness Lodge in the King Leopold Ranges Conservation Park this week, after the state government selected the Kimberley touring company to run the site under its Naturebank program.
Naturebank aims to promote WA as a renowned tourism destination by assisting to expand the number of eco-tourism sites in WA.
The planning and preparation of the Mt Hart site was initially funded through the Royalties for Regions program and Kimberley Wilderness Adventures is now set to invest $3.5 million in the lodge.
KWA is a partnership between Kimberley-based Aboriginal corporation the Wunan Foundation and Australian Pacific Touring. It has a 21-year lease on the Mt Hart property, making a large investment in property development more viable.
APT general manager of experiential touring development Dino Magris said tourism in the Kimberley had been challenging in recent times, but he expected it would pick up.
KWA operates four lodges in the Kimberley across national parks and indigenous land and its charter is to provide independent income for indigenous people.
“It is a little tough, we didn’t start the year too well and we are a little bit behind last season. There are some ups and downs but we are now seeing some movement,” Mr Magris said.
“We believe it is only a glitch at the moment, a function of several factors but the interest in the Kimberley is very high. It is a place Australians want to go to one day.
“It is a continual investment in infrastructure to keep it up to speed and up to date and to meet market demand, so we are not shy about investing where we think there is scope to grow the business.”
As for Mr Spence, who was named Australian Ernst & Young Entrepreneur of the Year in 2010, Rottnest is not the only location being developed under Karma Royal Group’s rapid expansion plans.
Three Chakra sites, including Rottnest, have already been established taking the existing resort numbers to 18.
Three more Chakra Resorts are being built in Tuscany, Japan and Bali, with a plan in place to develop 20 beach clubs around the world within the next two years. Mr Spence is currently based in Europe and taking advantage of the opportunity to buy property at a steal thanks to the difficult economic conditions in that region.
“We are thriving, we are well positioned and very geographically spread,” Mr Spence said. “There are certainly areas which go up and down but in general, because we are so spread we weathered the storm quite well.”
Royal Resorts was the first brand started with Mr Spence’s life savings in 1993 and, since establishing his first resort in Goa, he has never used loans or leverage to grow the business, instead using retained profits and cash flow.
With turnover of more than $110 million this year and the business’ rapid growth plan, he is considering taking on board controlled debt.
“We are very much buying assets and we are very acquisitive,” Mr Spence said.
Karma Royal Group has owned property in WA’s South West for 10 years but it has not fitted into the business’ strategy.
“I love Margaret River as a place to go, but in the short term I don’t think it is a place we would go to develop,” he said, adding that tourism numbers to the region were not high enough to warrant investment. “We have a piece of land there and we are sitting on it at the moment. One day we will do something there but I don’t have plans in the short term.”
Mr Spence had tendered to develop the Longreach Bay resort site that Paspaley Hotels and Resorts bailed out of last year but, when asked if he would look at tendering for the project again, he said there was nothing to tender for and would only begin to consider it if the site were made available again by the Rottnest Island Authority.
When Mr Spence was named entrepreneur of the year, he flagged listing the Karma Royal Group on an international stock exchange but told WA Business News he did not have plans to list the company at this stage.
“I enjoy the flexibility of the company being private, especially in the current economic environment,” he said. Mr Spence is the majority shareholder of Karma, with a small amount of shares held in a trust for senior management in the business.
“I am sure any listing would change the ability we have to make quick decisions and moves,” Mr Spence said.
