The highs and lows of risque businesses

Outside of the Netflix series Ozark, sex and drugs are not things you usually associate with commercial property investment. But brothels and even cannabis farms can have their place in a legitimate property portfolio.

There are some basics to remember when investing in these, as in any kind of commercial property.

Attractive returns and long lease terms are two of the obvious one. Location as well. And is the tenant in a secure or potential growth industry?

Quality is king

Ray White Commercial’s Head of Research, Vanessa Rader said commercial properties – no matter what they’re used for – all have something in common.

“It’s about the quality of the asset,” Ms Rader said. “Investors are always looking for yield, long term potential and land size.”

The sale process has been a challenge for a cannabis farm in Victoria.

A  104 hectare property at Mountain View in Gippsland  has been on the market since March 2021 and has yet to find a buyer.

This medicinal cannabis farm has been on the market since March 2021. Picture: realcommercial.com.au/for-sale

It’s not for lack of interest or trying. Agent John Patterson, of One Agency Country to Coast, who took on the property “300 days ago” said he fields around four enquiries a week and has had 45 inspections.

But things tend to grind to a halt at the contract stage. Still, Mr Patterson is optimistic that as Australia’s medicinal cannabis industry grows, sales of such properties should become easier.

“There is potential in this area,” he said. “Australia is still at the embryo stage of medicinal cannabis farming.”

Sex sells

If potential buyers of cannabis farms wish to be discreet, so do buyers of brothels.

Theo Tzimas of Australian Business Brokers has four Melbourne brothels on the market, including three which come inclusive of the freehold property.

While reluctant to reveal too much about each -“this is a very discreet business” – one is in Melbourne’s west and two in Melbourne’s south, with listed price tags around the $1 million mark.

Potential buyers would have to have deep pockets. And who are they? “Mostly people in the industry who no longer want to pay rent,” Mr Thizmas said.

While brothels have struggled due to the pandemic, some still offer promise because of the nature of the building and its location.

17 Hugh Ryan Drive, Garbutt, will not be returning as a brothel Source: realcommercial.com.au

A brothel in Townsville listed for sale in May has been sold to a fire protection business, according to Ray White Commercial Townsville agent Adrian Pascoe, who said the 260sqm property was now under contract.

“It will be a commercial business and nothing to do with a brothel,” Mr Pascoe said.

“It will be turned into a fire protection business with an office and warehouse.”

In April the owners had posted a notice on social media announcing that the business would be sold as “due to certain Covid restrictions and legislation, we are no longer able to sustain our fun and exciting operations”.

Inside the Crystal Lodge brothel in Coburg North.

In March, the building which houses the Crystal Lodge brothel in Coburg North was listed for sale with an asking price of $2.6 million.

Agent Rahul Malik of Skad Real Estate Thomastown said the owner was retiring and happy to give the property’s pool table, desks or office items to the new owner. The brothel continues to operate until a new owner can be found.

The property remains listed for sale.

This purpose-built brothel in Ballina is in a discreet location in an industrial estate. Picture: realcommercail.com.au/for-sale

The only brothel in Ballina in the Northern Rivers region of NSW was put on the market in March.

Ballina Exclusive Company was purposely built as a brothel and the 415sqm property was being sold as a tenanted investment.

The property remains listed for sale via an expressions of interest campaign. The selling agents didn’t return calls from realcommercial.com.au for this story.

Northern Belle was sold earlier this year to to Autism Queensland. Picture: realcommercial.com.au/sold

In April, Cairns’ only legal brothel, Northern Belle was sold to Autism Queensland.

Northern Belle had opened to great fanfare in 2006, but was forced to close its doors in 2020 and was put up for sale in mid-2021.

Selling agent Rob Macfarlane of Frank Knight said the owner “had decided to retire”.

“We did have one enquiry from someone in the sex industry but they never followed through,” he said.

Autism Queensland did not respond when contacted by realcommercial.com.au for comment.

The pink-painted brothel at 31 Wells Rd, Seaford features a spa and plenty of visitor parking spaces.

In May the Paradise Angels brothel and adult entertainment venue in Seaford was listed for sale with price expectations of $1.6m-$1.8m.

CoreLogic records show the 31 Wells Rd property last sold for $1.15m in 2012.

The current operator, Paradise Angels was renting the property under a 10-year lease signed in 2018 with options to extend for a further two 10-year periods.

The property sold at an online auction on June 23 for an undisclosed sum. The selling agents didn’t return calls from realcommercial.com.au for this story.

Trigger happy

Location was vital in the recent sale of Frank O’Reilly’s gun shop in Thornbury, in Melbourne.

This gun shop sold for $2.1million. Picture: realcommercial.com.au/sold

The property, which is in a strip of shops on the high street, sold for $2.1 million after strong interest. But there were challenges, said agent Mario Lionetti of Woodards.

Being a gun shop, buyers had to adhere to O’Reilly’s requests for confidentiality about what they saw inside.

“We could only show certain aspects of the business,” Mr Lionetti said.

Chet Al of Savills in Adelaide, is the agent selling another gun shop in Christies Beach.

This gun shop in Adelaide is currently on the market. Picture: realcommercial.com.au/for-sale

The former bank is now home to The Gunnery and Mr Al said the shop owner is happy to stay put for a lot longer, having invested heavily in security and extras inside the store.

Mr Al had some timely advice about anyone unsure about investing in properties of this nature.

“If the tenant is paying rent why would you kick them out?”