Iconic live music pub The Sando went into receivership this week with a debt to Bankwest of $3.6 million.
The Sandringham Hotel in Sydney is now in the control of receiver Ferrier Hodgson, which is looking to sell the pub immortalised by The Whitlams in the songs God Drinks at the Sando and Blow Up the Pokies.
The Whitlams started off playing at The Sando and Blow Up the Pokies referred to the decision by the pub’s previous owner to replace the stage with gaming machines.
Tony Townsend, owner of The Sando, told SmartCompany the receivership was “all a bit of a surprise” after BankWest called in a $3.2 million loan facility.
“We had only informed the bank the previous week that we thought we had a solution for refinancing that would take a week or two weeks to settle,” says Townsend.
“On Monday I went to the bank to bank the weekend takings, I paid all our suppliers, and then I was on the phone to my broker about the refinancing when I got a call from downstairs to let me know that three suits were downstairs and they served me their notice.”
Townsend says the appointment of receivers means refinancing is very unlikely, which is “very sad”.
“The problem is The Sando is actually profitable but we were leveraged very high, we were around 65% when the bank called in its facility and instead of rolling the bill over they decided to call it in,” he says.
Once BankWest called in the facility, Townsend was given seven days to pay $3.2 million.
“After the global financial crisis all the loan to value ratios were lowered by the banks from 75% to now the standard is 65% to 50%, and we were well over that, so couldn’t refinance in that time,” Townsend says.
“Within four weeks of that notice we were then in breach and our interest rates went from $16,000 to $48,000 a month because of the penalties and it just became something we couldn’t service.
“We were in a position where we could not even service the penalty interest.”
Townsend says he tried to save the pub through a failed bid to sell the building and lease it back but he now owes BankWest $3.65 million and is 12 months down the track with receivers in place and personal assets tied up.
“I spent way, way, way too much money trying to save the hotel,” he says.
“Since the introduction of the smoking legislation there has been a heavy pounding on the hospitality industry.”
Townsend says the receivership of The Sando is a symptom of the tough times the hospitality industry is experiencing, particularly in Sydney.
He points to Icon Hospitality, which went under, and Woolworths’ application to the Australian Competition and Consumer Commission last week for approval to buy 30 hotels from another group.
“You have got those big corporations out there with propensity to buy those assets at fire sale prices,” says Townsend.
“You look at the restaurant trade thinking about closing Sundays because it is too expensive, real estate and real estate owners are seeking more from their properties so rentals are going up, which is pushing the costs up while people are looking for a bargain,” he says.
“The market is driving the prices down but the costs are going up. The taxation system hasn’t helped hospitality either with the introduction of GST; we have become an enormous collector of GST.”
Morgan Kelly, of Ferrier Hodgson, told SmartCompany the Sandringham Hotel business would continue to trade on an as-usual basis for the time being.
“I’m trying not to look like the fun police,” he says.
“At the moment we are stabilising operations and continuing to operate in the ordinary course of business, including booking live bands.”
Ferrier Hodgson has had a number of initial enquiries about sale but Kelly says it is very early days still.
“We need to think about how we are going to take it to the market. It has been on the market before over the last 12 months, so we need to assess what happened there and engage with agents who have previously been involved,” he says.
Kelly says the intention is to continue to trade and provide a live music venue, although he concedes “what any purchaser does with it remains to be seen.”
He says it is difficult at this stage to identify the cause of the administration.
“With live music you always run the risk of attracting the attention of the council for fines and that has been a problem for The Sandringham,” Kelly says.
“That’s certainly had an adverse impact on cashflow.
“We’ll have a clear direction on the marketing strategy and campaign within the next two weeks.”