Happy days are here again for Sorrento’s Continental Hotel, a heritage-listed landmark in the popular resort town on the Mornington Peninsula, a short drive from Melbourne.
Developer Nicholas Smedley swooped when the $20 million property hit the market less than two weeks ago. Its owner, prominent hotelier Julian Gerner, had decided the property needed a co-investor or new owner to realise the ambitious redevelopment approved for the site.
Now the two have formed a joint venture, with Mr Smedley’s Steller to fund the restoration of the colonial era hotel, along with a development of up-market apartments and an entertainment precinct.
For Mr Smedley, who has known the icon since childhood holidays on the peninsula, it was a second chance after the site was put on the market by its long-time owners two years ago.
“We actually tried to buy it when it came up last time but Julian had already put his foot on an option, so we knew it very well,” Mr Smedley said.
“Julian will have skin in the game. He’s staying in for a portion of the development. If he can deliver that iconic venue, it will be worth every penny to have him in there.”
Mr Smedley, the son of former Spotless and Arrium chairman Peter Smedley, has built up a large development business. About half of Steller’s $4 billion portfolio is focused on apartment development, much of it in Melbourne’s south-eastern suburbs.
In June, he struck a deal with Chinese conglomerate Great Aim Group to develop at least three residential projects in Melbourne, with an end value of about $300 million. But over the past five years Steller has diversified into retirement and retail property as well.
Mr Smedley expects as much as $35 million will be needed to fund the Continental project, eventually creating developed real estate worth $80 million to $100 million.
“For everyone involved at Steller it’s a privilege to have an icon asset like this,” he said.
“It’s a building that I relate to because I’ve been going to the Mornington Peninsula since I was little kid.”
The Continental is steeped in history. Built in 1875, it’s a rare surviving example from that era of a four-storey building constructed from limestone.
Its first owner was comedian, politician, philanthropist and businessman George Coppin, who in his later years focused his efforts on the development of Sorrento as a seaside resort.
Some of that entrepreneurial spirit may have rubbed off on Mr Gerner, who quit the Melbourne Pub Group for a sea change in Sorrento four years ago.
Before long Mr Gerner had three small hospitality businesses up and running and then the Continental opportunity came up.
“There was an element of fate involved,” Mr Gerner said.
“I’d stepped out of running hotels in Melbourne and the only undeveloped hotel in Sorrento hits the market. I went into overdrive to work out how I could secure it.”
Mr Gerner did secure it, acquiring as well an adjoining plot of public land and then overcoming some local objections to gain approval for a redevelopment proposal.
But, acknowledging the scale of the project needed moreclout, Mr Gerner appointed CBRE’s Scott Callow, Mark Wizel, Chao Zhang and Scott Orchard along with Sotheby’s International Realty’s Rob Curtain to broker the site this month.
Happily, he and Mr Smedley have come to an agreement that keeps the hotelier with a stake in the historic hotel.
“There was an opportunity to cash-out now, and put some money away and sit there as tenant. But when provided an opportunity to stay in through a joint venture, I jumped at it,” Mr Gerner said.
“The Continental is a true Victorian landmark. It’s one of the only hotels I know that sits higher on the hill than the church!
“I want it to be the best boutique hotel in the country. That’s the ambition.”