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Extending Motel Leases

Further to last month’s column “What is a Long Term Lease”, this issue we look at extending existing leases.  The extension of motel lease terms is such a hot topic that every week it comes up in discussion with people in the motel industry and those looking to enter. 

As mentioned previously, often the extension of an existing motel lease is a positive for both Lessee and Lessor.  However, there are those times where one may not wish to extend a lease when the other does, such as where the site is ripe for redevelopment, or a motel is no longer the highest and best use for the site, or where the rent has become excessively higher than the fair market level.  It is important to note that both Lessee and Lessor will have their own agenda when it comes to extending leases and those agendas may not always be compatible. 

Leasehold tenure is obviously not the same as freehold.  Predominantly they do not go on in perpetuity, they have an end date.  This is one of the main elements of a lease, such as paying a rental, that makes it what it is.  Therefore, leaseholds can be purchased at a much lower price level than a freehold motel allowing motel operators to access the market and industry on a lower capital investment.  Extending leases pushes that end date out further effectively providing more security to both the Lessee and Lessor. 

In general terms the main benefits to both Lessee and Lessor are largely the same in principle: - 
  • Higher security of tenure 
  • Greater value added 
  • Easier to sell in the market 
  • A stronger financing or refinancing position 
When selling a motel lease the term of the lease will play a role in determining the value of the business and the time it takes to sell that business.  Short term leases often take longer to sell and the return on investment demanded by the market is much higher.  Security of tenure for those buying is under question with a short term and therefore the market diminishes and consequently they require a longer marketing period.  Those motel buyers demanding a longer term lease often have a longer term vision for the business, which is beneficial for the Lessor as well. 

Financing or refinancing is an important reason to maintain long term leases for both parties.  The security of a longer term lease that can be offered to a financial institution can mean a much stronger bargaining position from a lending perspective.  A very good client of mine since 1997 who has owned numerous freehold motels with leases in place over that time, has always looked to extend his leases.  The reason he does this is he is continually putting pressure on his financiers for better interest rates and lending terms.  The longer term leases that he keeps in place give him additional bargaining power when he is chasing even the smallest interest rate reductions on any of his loans.  He does not like his leases to fall below 15 years remaining, instead preferring them to be above 20 years remaining, giving a better product in the eyes of his financiers. 

In the majority of cases extending lease terms involves a consideration being paid by the Lessee to the Lessor.  Either party can request an extension of time from the other, being a demand for a product, and the other can supply that product being the extension, if they wish.  That request is most often from Lessee to Lessor however it can be vice versa also, depending on the circumstances.  Usually the Lessee requests an extension and a negotiation will commence between the parties.  The amount of this consideration is not set in stone and the “sales evidence” in the marketplace varies greatly.  It comes down to a negotiation between the parties, often based on, “at what level is it worth to us to extend or not”.  A financial decision ultimately based on the value of the asset/benefit acquired. 

As always, when both parties act reasonably, matters of discussion between Lessee and Lessor can be resolved to the benefit of both.  The extending of motel lease terms is one of those matters.

Written by Andrew Morgan, Specialist Motel & Accommodation Broker

What Constitutes a Long Term Lease?

What is a long term lease?  In a commercial, retail or industrial property a long term lease is accepted as a 3 year plus 3 year lease or maybe a 5 year plus 5 year lease.  This is the norm and is accepted.  In the motel industry a 5 year plus 5 year lease is considered a short term lease.  Why?

One argument is that a motel business cannot be easily picked up and moved to another building/locality.  This is also the case for many retail, commercial or industrial businesses, for example a convenience store cannot be picked up and moved to another locality, yet a 3 year plus 3 year lease in a convenience store is normal practice.  Many industrial businesses require large tonnage cranes in their buildings.  This is not easily replaced without hundreds of thousands of dollars to install a new crane or cranes as per the requirements.

Another argument is that one is buying a business (inclusive of the lease document) and has a capital outlay to buy the assets of the business.  These assets diminish in value rather than appreciate once the lease reduces below a certain level of time remaining.

It is often the case when a motel lease is being sold a potential buyer will say for example “there is only 15 years left on the lease”.  If run for 5 years there will only be 10 years remaining.  This may be the case but the return on investment of a lease is high, and will increase the lower the term of the lease for obvious reasons.

At the end of the day a 10 or 15 year lease is a long term lease.  No one knows what they will be doing in 10 or 15 years or where they will be.  People have goals in life and directions they would like to head in, and places they would like to be, but no one can guarantee where life will take them such a long time into the future.

It is generally in the Lessor’s interest to extend a lease for their security of tenure and to provide them with more options when refinancing, etc.  It is reasonable to believe that the longer the term remaining on the lease, the stronger the position/security of both the Lessee and Lessor.  This may not be the case when the land is situated in highly desired positions.  The site may be ripe for redevelopment with a higher or better use or the motel may be in need in major refurbishment and be deemed that it is more cost effective to be demolished rather than renovate.  This sounds good in theory but what happens when the lease is close to expiration and the development market is poor.  Timing is everything.

Due to most Lessor’s owning a motel property that is leased as a passive investment, it is often the case that the Lessor will not want the Lease to come to an end.  The majority of the time the purpose of ownership is a passive investment, not the day to day operating of a business.  Lease extensions are a saleable commodity in the market place.  Most Lessors whose lease term has run below 15 years, will have been asked at some stage by a Lessee to extend the lease.  The result should be a mutually beneficial transaction for both parties.

It does not happen often but sometimes a Lessor when asked will not extend a lease.  Often they ask “why extend the lease when there is still 14 years to run, which is still a long term lease?”  Fair point, however a Lessee will argue if either party wants to sell their interest at some stage a longer lease of say 20 years will be more attractive to a potential buyer on both sides.  Also a fair point.

Written by Andrew Morgan, Specialist Motel & Accommodation Broker

Target Marketing

Where to find potential customers, how to get directly to them and determining the market one is trying to attract are not easy things to do.  Further to this relevant questions include: -
1. Are we targeting the right market for this property?
2. Which type of customer should we be aiming to attract?
3. Where is the motel positioned in the market?
4. Is the motel more suited to the high tariff traveller, the middle of the road traveller or the budget conscience, cheapest room available guest?

These are questions that need answers if a business owner does not have a bottomless pit of marketing funds available.  Due to the never ending offers of marketing opportunities available, incorporation of a clear strategy can help ensure that a motel business gets the best value for money from its marketing budget.  The operator is often the best person to determine which market the property is suited to and how it is going to get to that market.

Determining the Target Market

What services does the business and property offer?  If the motel room has a separate desk with executive chair, free Wi-Fi internet access, and the property includes a licenced restaurant and meeting/conference facilities, it is more than likely suited to the business or corporate market.  A large pool with playground facilities, larger or separate bedroom units with numerous beds and some form of cooking facilities or even additional sink with bench space will be most suited to the family, sporting group or tourist traveller.  Don’t forget the free Wi-Fi internet access for this market as well.  A corporate traveller is more than likely not interested in the size of the pool, but more so the ability to put a laptop/iPad on a separate desk with a comfortable chair.  In many cases a motel will offer various room types and be able to attract different market segments for the different facilities available.

What standard is the property?  If the property is a high standard with a quality fit out, the higher end and corporate traveller is the more likely target market.  The budget conscience traveller will be dictated by the room rate as to where they stay, rather than the facilities available being their buying motive.  In saying this guest expectations for their dollar (no matter what the level) are getting higher and higher.

What are the room rates being charged?  Higher room rates will attract the higher end market with the expectation of a higher standard of presentation and high level of ancillary services available that suit that traveller and satisfy their individual requirements.

Answering these questions can assist in determining the target market and therefore a direct marketing strategy can be focused on getting to those most likely guests, and thereby state a case for why a potential guest will be satisfied staying at that motel.  In other words, offering the products and services that will satisfy that guest’s need.

Getting to the Target Market

What are the best mediums available to get to where you need to be?  A few options depending on the particular target market are: -

  • Internet/Web – A motel’s own website offers the opportunity to sell the property’s assets, services and benefits directly to the market with extensive information on what the motel offers to the prospective guest.  This is also the opportunity to get the guest to book directly.  Alternatively, online room inventory and rate management are terms that are often heard in regard to booking sites/programmes.  Channel managers provide access/a conduit to numerous booking sites in order to maximise a motel’s online exposure.
  • Social Media - Directly accessing the target market via social media such as Facebook, Twitter, Instagram, LinkedIn and others is a cost-effective method of directly communicating with the target market. Many may already be familiar with the property's products and services however it offers good opportunity to promote the features and benefits and any new services or specials available to attract future stays. It helps keep the motel in the front of mind of future guests.
  • Print (Hard Copy) Publications – There are various options available as far as print media goes.  Publications to the industry offer direct access to those potential guests within the industry (who can help to sell your product to travellers via a mutually beneficial referral basis) and to potential guests who access the publication from other accommodation properties during a stay, or from other sources.
  • Street/Highway and Airport Signage – The use of highway and street signage has been around for a very long time and is still a popular medium for accommodation providers to access the travelling market.  If the target market is the drive market, it does go direct to the drive market yet to book accommodation, or that require it in the future.  If targeting air travellers, then the airport billboard and many different types of static and interactive signage options are available.
  • Chain Affiliation – The assistance provided by chain affiliation in regard to marketing is often out of the individual operator’s control apart from being a member.  Brand awareness is important, and this is an area where chain affiliation can be effective.  Brand awareness can provide immediate acceptance by a target market of a certain level of accommodation and services without it needing to be further sold to a potential guest.
  • Local Tourism Bodies/Industry Memberships/Referrers – Accommodation industry memberships can be very effective from a customer referral point of view and provides a cost-effective method of marketing directly to the traveller.  Membership to these groups will suit some motels better than others, so again choosing the ones that will be of most benefit is important.
  • Local Business/Industries – Local rotary organisations and other community groups who may attend meetings or conferences at the property and who will recommend the complex to family, friends and business associates for accommodation and a night out for dinner perhaps.  The income derived directly from these meetings may not be the most profitable, but their constant referrals can result in a very profitable long-term outcome.  Sponsorship is another method to gain direct access to a target market.  If sporting groups are the target, then teams or events are an option.  Again, awareness is key here.
It is very easy to spend a fortune on marketing for little result.  Hence why target marketing is so important, especially from a small/medium business point of view.  Many motels are still family owned businesses and throwing money at every marketing opportunity presented (rather than the most effective) can be a very bad investment at the end of the financial year.

Written by Andrew Morgan, Specialist Motel & Accommodation Broker

Motel Leases: Working Together

Whether it’s a car, house or motel, everything falls into a state of disrepair over time if not maintained or refurbished.  Sometimes motels that are leased do so, not because they are intentionally neglected, but because there is doubt in the minds of the Lessee and the Lessor as to who is responsible for what.  This can be a failing of the lease document in place, in not being specific enough and left open to interpretation.  In a perfect world it would be clear, precise and in plain english so as not to create confusion.  In these cases neither party is eager to incur the costs when they believe the other may be responsible under the terms of the lease.  Open to interpretation by either party means the contents of the document may be ambiguous and lead to more questions than answers.  This makes it a problem for everyone involved.
In many cases where both parties communicate, act reasonably and “give and take” is accepted by both, then many of these repair, replacement and refurbishment issues are often overcome.  As astonishing as it is to believe, where one or both parties are not willing to maintain their own asset, whether that is land and buildings or the business, each party is ultimately damaging themselves financially.  It must be accepted by a Lessee and Lessor that wear and tear (fair or not) is going to occur over time and that a fifty year old motel is going to need ongoing repair, replacement and refurbishment.

Each night there are guests coming and going and properties get knocked around by occupation.  Ageing motels do require more TLC than newer properties and this needs to be budgeted for and accepted by both Lessee and Lessor.  Management of a maintenance/refurbishment program needs to be considered carefully.  Millions of dollars do not need to be spent on an older complex to make it competitive.  There are many low cost methods in which accommodation complexes can be improved in order to maximise tariff and occupancy rates.

Four questions to consider to achieve an positive outcome:
1. What is the purpose of completing the job? – It may be an urgent repair issue.  It may be to lift the standard of the appearance/professionalism of the property.  It may be a major refurbishment matter. 
2. What needs to be done? – Does one cracked tile need to be replaced or does the entire bathroom tiles need to be replaced?  Is it a repair or renovation?
3. Who is responsible for the cost? – Under the terms of the lease who is responsible for the cost? Is it clearly defined within the lease or is it ambiguous and open to interpretation.
4. Who will benefit most? – If certain works are completed who will be the main beneficiary?

Understanding one’s lease is imperative.  When the question comes up, too often a Lessee or Lessor will “shoot from the hip” as to who is responsible, without really knowing the correct answer.  I would guess both parties would say the other, before actually thinking about it or investigating it further for confirmation.  Human nature kicks in here, in pushing the cost onto someone else.  It is recommended to always recheck the lease before making such a statement.  As much as one may believe 100% they are correct, often that will not be the case.  The answer here really is to know your lease as best you can.

If a Lessee or Lessor has any doubt as to who is responsible for a particular matter under the terms of the lease, then both parties need to discuss it fully.  It is very easy to pass it off and say “seek legal advice” on the interpretation of the relevant clause within the lease.  I would say seek advice to get an unbiased practical second opinion.  Only communication between the two parties and both acting reasonably will solve the question/issue at hand.  The funds spent on legal fees when arguing over interpretation, would be far better spent on the property.

At the end of the day reinvestment back into a property (of any kind) is required by those with a vested interest.  A Lessee and Lessor sitting down together and acting reasonably to achieve a positive result forward, as opposed to working against each other in these matters, is always the best way forward.

Written by Andrew Morgan, Specialist Motel & Accommodation Broker

Annual Motel Market Wrap Up: 2019

At the end of each year we take a look back at how things unfolded and whether the crystal ball we have in the back office was accurate.  Whether our predictions on how the market would perform were on point, or way off the mark.

This time around the market performed pretty much as we expected.  It started out similar to the previous year but became a little more subdued towards the backend.  Looking back, 2018 was always going to be a tough act to follow.  The market is a fluctuating dynamic and can only stay at the same level for so long.  In saying that 2019 has been busy although it has become more of a buyer’s market as the year progressed.  External influences have played a role in the market’s performance with financing acquisitions proving more difficult for some, insurance premiums rising and in some cases insurance companies being unwilling to insure certain properties or localities at all.  The appetite of investors has been there, however for some, those are very challenging hurdles to overcome.

As I mentioned 12 months ago, 2018 shot the lights out.  2019 has been solid without being flashy.  Quality, well-presented properties and businesses have been selling.  Yields have been under pressure in some regions, particularly when properties have been in need of refurbishment.   

The first quarter started out very strongly with much activity that had been building up for an extended period in mid to late 2018.  There was a large number of sales concluded with solid yields in both freehold and leasehold markets.  Many owners that were considering selling early in the year decided to take a hold and view approach to see how the market would unfold as the year progressed.  The second quarter saw a more subdued period, with fewer listings available on the market the choice was not as great.  During the third quarter there was a lot of negotiations happening however concluded sales had dropped off.  Buyers were still very active but for various reasons buyers and sellers were not finding middle ground on pricing as they had previously.  The final quarter of 2019 saw activity decline and the buyer’s market was in full swing.  There have been numerous contracts pending settlement however the conditionality periods seemed to extend and extend, again largely due to external influences.

As mentioned last year, solid gains in economic prosperity for areas of the state that had been down have been welcomed.  Increasing occupancy rates have resulted and room rates are now continuing to see pressure to increase.  The resources sector has gone ahead quite well.  There has been strong growth and demand for labour in regional towns within South West and Central Queensland.  Demand for accommodation has grown considerably over the course of the year.  Emerald is one example where occupancy rates on the back of demand have increased month on month all year.

The tourism sector has been a little subdued in areas of the state with total visitor numbers being down on last year in some areas around 5%.  International visitors however have been down, but less than 1%.  The Australian Dollar has been sub 70 cents (around 67-69 cents) late in 2019, however this time last year was holding around the 70 – 72 cent mark.  The year before it was noted that it was “maintaining a mid 70’s cent mark”.

Again, leasehold motel transactions have been the quietest sector of the market which was similar to last year.  There have been reasonable enquiry levels however access to finance has held many back from being able to complete transactions.  The first-time entrants to the industry with no experience have needed to pursue suitable financing arrangements more aggressively than in the past.

Investors have continued to seek the comfort that freehold motels offer with sales being recorded at all stages throughout the year.  Good quality freehold properties with up to date trading data, priced correctly, and presenting well are selling.

Freehold passive investments have continued to be sought after by investors.  The low bank interest rates available on both loans and deposits has seen demand soar for motels under lease.  This high demand is expected to continue with the expectation of low interest rates to remain.  There has been pressure on buyers to meet the time frames of special conditions within contracts of sale for fear of sellers terminating in favour of under bidders.

In contrast to 2018, this year not all contracts of sale have reached settlement for a variety of reasons.  Again, external factors have been part of this and in many cases, buyers were still wanting to complete contracts however for different reasons were unable to.

All of us here at Queensland Tourism and Hospitality Brokers wish you a very positive and prosperous 2020 across the accommodation industry.

Selling in a Challenging Market

Markets fluctuate up and down all the time.  The number of variables that play a role in this are far too many to cover.  Some markets are more liquid or fluid than others, again for different reasons.

The stock market is an example of one of the most fluid markets and can change in seconds on the back of one company announcement.  Shares can be bought and sold in seconds depending on the price.  The residential property market is not as fluid and takes a bit more time to react.  There may or may not be a buyer immediately in the market as soon as the property lists for sale.  It may take days, weeks or months to sell depending on many variables such as the strength of the market, access to finance, price etc.  The commercial property market and the businesses market are a little less fluid again, with the market taking a little longer to react therefore the selling times can be more protracted.

One must understand the market they are in when considering offering their motel or accommodation business for sale.  Price expectations rely on how a seller and their advisers around them understand where the market is currently tracking and therefore informed decisions can be made accordingly.  Everyone wants to sell in a strong market; however, life doesn’t always allow this to happen.  One can only prepare and do all they can given the circumstances at the point in the cycle where the market is when they come to sell.  As with anything, being armed with as much relevant information as possible is key.

As always, preparation is paramount.  The sale of any type of business requires no less.  Let’s look at this in 3 parts: -

Financial Statements - Too often a quality motel business and property will not sell due to the financial statements not being prepared correctly.  Perhaps not inaccurate, but poorly presented.  I was very happy recently to hear a solicitor advising their motel client that their financial statements did not look professional enough to expect a strong sale price to be achieved.  This is obviously not their area of expertise, but they simply put themselves in the shoes of a buyer and felt the presentation would not pass the “pub test”.  They were advised by both he and I that they needed to have their Accountant prepare a professional and accurate set of financial statements before offering the motel to the market.  The seller was happy that his management accounts were accurate, and they would satisfy a due diligence.  The seller knew that himself, but how could anyone else?  Presentation plays a big role, especially when the market is soft and there are fewer genuine buyers seeking a motel investment.

Property - Physical presentation must be at its best.  Buyers in a soft market are looking at everything with a magnifying glass.  Why?  Because they can in such a market.  They have more choice and less pressure to act with less risk of the property being sold out from under them.  Repair and maintenance and cleanliness must be in order.  Potential buyers will simply move onto the next one if they are not happy with poor maintenance practices, such a sagging bedding, poorly painted surfaces, rusty old box air conditioners, wear and tear that has not been rectified, etc.  Any attempt to “pass on problems” to the next, will not be acceptable in such a market.

Legal - Have all contracts, agreements and statutory requirements tidied up so there are no outstanding issues that will scare a potential buyer away, either early on when they start looking into the business, or well down the track when an issue may cause a Contract of Sale to collapse.

Finally, marketing of the accommodation business and/or property needs to be directed to the target market.  Marketing funds can be wasted very easily when not placed correctly and directed at the target market.  Seek advice from professionals as this can be a bottomless pit if it’s not hitting the mark.

With the items mentioned within this article, a strong market will be more forgiving on the finer points, however in a soft market the importance of each area is that much more heightened and potential buyers do not need to accept anything less.

Written by Andrew Morgan, Specialist Motel & Accommodation Broker

Motels: A Great Value Stay

In my continual travels around Queensland and stays in and visits to motels (which without exaggeration would have to be approaching a thousand stays over the last 24 years in the industry), I continue to see just how good the product and service of the motel is.  I can say without any reservation (pardon the pun) that more often than not, I come away from my stay extremely happy and thinking, what great value that was.

The difference between a well operated motel and a poorly operated one is very evident.  The are some motels in need of a little TLC and their time comes around at some point (unless the “highest and best use” becomes an issue of course).  However, most motel operators understand the industry and what the guests in their particular market segment demand for their dollar.  The room that is on offer for $85/night against the one at $185/night will differ considerably in size, standard, services available, etc.  It has to, there is a $100/night difference.  What I have found is that each has its own personal characteristics and niceties that make that stay one of a kind, enjoyable and good value for money in some way.  Perhaps it was the surprisingly large room for the dollar being charged, which was unexpected as I walked through the door for the first time.  Maybe it was the renovated bathroom that had been completed by the new and enthusiastic owner/operator since I stayed at the motel the last time.  Perhaps the high quality bed that helped get a good night’s sleep after a long drive or busy day.

It is often human nature, but people tend to focus on the negative with an experience they have, good or bad.  “I had a fantastic time riding a jet ski at Hamilton Island, but it was a bit bumpy.”  Sound familiar?  This is no different with accommodation.  “I prefer a bar of soap, not a pump system.”  The smallest of concerns that are not really an issue in the bigger scheme of things, seem to become stories that get repeatedly rolled out whenever the opportunity arises.  As opposed to focusing on the positives of the experience.

Looking at it from a different perspective I believe the value for money available to travellers requiring short or medium term accommodation throughout Queensland motels is excellent.  Forget turning up to accommodation booked online where there is no manager onsite, the key is not where it is supposed to be, the place is dirty or does not present anything like it did online.  The value for money a guest receives in general terms at a motel facility in Queensland is exceptional in my opinion.

The room rates throughout the state vary greatly depending on location, standard, etc, etc.  The amount of value for the guest packed into a let’s say $80 - $120/night studio motel unit is a lot when you break it down.  Let’s look at just some of the absolute basics of what one gets for their hard earned $80 - $120 (and less in many cases).

  • On site manager who is at the guest’s beck and call, providing security and attending to any personal concerns, maintenance problems or requests on the spot that may arise during the stay
  • 20 hours of accommodation – 2pm check in to 10am departure and often longer than that if required
  • Freshly laundered linen and towels
  • Tea, Coffee, Milk and Biscuits
  • Kettle, Crockery, Cutlery and toaster for breakfast
  • Kitchenette for meals (in some cases)
  • Table, bench, chair and couch to work from or relax
  • Television with free to air or a Foxtel or Netflix subscription
  • Refrigerator
  • Ensuite with soaps and shampoos, etc
  • Air conditioning
  • Alarm clock
  • Cupboard hanging space and ironing facilities
  • Under cover or non-covered off street carpark
  • Pool and outdoor area
  • Mini bar or convenience item facilities
  • Wifi access (often free)
  • Laundry facilities
  • Rubbish disposal

When you break that down it seems like fantastic value for money to me.  The value to the guest of having a manager on site for piece of mind for security, and if something needs to be rectified or fixed it can be immediately, is worth the room rate alone.

Written by Andrew Morgan, Specialist Motel & Accommodation Broker

Book Direct

Finding a “satisfactory” balance between OTA (Online Travel Agent) driven bookings and direct bookings is a dilemma.  With excessive commission rates, it can feel like a double edged sword to be listing units with an OTA, receiving the booking, but having to pay a high commission rate that would otherwise be avoided with by direct booking.

This has led to the ongoing argument about fairness in the market in relation to OTA’s and best practices.  Dick Smith recently brought the accommodation sector’s issues to the attention of many who were unaware of what the industry faces.  It had an immediate affect with many of those previously unaware booking directly.  What steps can moteliers take to be more proactive in driving direct bookings as well as getting more ‘bang for their buck’ with the use of OTA’s?

We live in the digital age, it’s where people research, socialise and commentate, book and rate.  The first step to driving direct bookings is to have a user-orientated built website.  Build it for the market.  It needs to be fresh with professional, good quality photo’s that sell the property.  It takes only a few seconds to form an opinion and these are most often based on the photos and presentation of a website.  Make it easy to navigate through the pages, easy to book and easy to enquire.  Generally we are told the longer someone spends on a website, the better, however if a prospective visitor can’t easily find what they want to know, they’ll quickly go somewhere else.  If they come to a page from elsewhere and they can’t quickly and easily book or enquire, then they’ll either go back to an OTA site and do it there, or to a different motel altogether.

Use a webpage to upsell and put a very clear call to action that makes it obvious to potential guests that if they make contact directly, they will receive the best possible rates. It’s still not common knowledge that consumers can get better rates directly through a property than if they book using an OTA, so the website has to compel them to make contact.

An excellent website is only the first step, people need to be able to find the motel.  Maximise spending with OTA’s by utilising listings on their sites to the most advantage.  Consistency of photo’s and details on any OTA or third party website should all be of a professional standard and should ideally all be identical.  This helps to cement a brand and image and makes the motel easily recognisable across all of the various platforms.

Best price offers.  Whether nonsense rate parity agreements prohibit motels from offering cheaper prices or not, either way, consumers need to be prompted to contact the motel directly for the best price.  Human nature means we are always out to get the best “deal” we can, and people will always be more inclined to contact directly for this.  Education on the web or at reception is the key.

The OTA’s giving the billboard effect, means that simply by offering availability through OTA’s it will ultimately drive traffic back through your own website.  The big OTA’s have mammoth marketing budgets and their sheer size and structure mean that they almost always rank at the top of internet searches.  Take advantage of their marketing budget and brand awareness by ensuring a professional looking listing that gives an excellent first impression of the property amongst their other search results.  Make sure content is fresh and up to date and consistent with everything else on the web.

Trends such as a meta search drive direct traffic and as technology moves with the desire for instant gratification, we have seen the rise of comparison sites.  Where a consumer will make a booking through an OTA, a comparison site crawls the web for all available information relating to a search and provides realtime information on rates and availability, so that consumers can easily see in one place everything they want to know.  They can then quickly rule out or act upon motels of interest, either going directly to their website or if they see a more appealing option on an OTA, then heading there.  Here is where their attention can be captured so that they head direct, rather than to an OTA.  The first step is to ensure that the site is enabled on the Google platform and that all details are up to date and correct.  This should not be a ‘set and forget’ exercise.  To regularly display in the results one needs to make sure the realtime data is correct and reflects what is out there and available on other sites.  Again, consistency is a key factor here.

Finally, use direct marketing to your advantage.  We are limited by what we can offer on a website and other third party sites when there are agreements with OTA’s, however the ability to market directly to social media followers, previous guests and a database is very relevant.  Take advantage of direct marketing with special offers that keep the motel in the front of mind, so that if they are looking to travel or have friends or family who are, the motel’s name is there, ready for them to enquire or recommend.  Building loyalty is a big one.  No matter how a guest came to the motel, treat them as a priority and take ownership of their booking – leave them with no doubt as to where they want to stay the next time they visit the area thereby driving them to book directly next time.

Written by Andrew Morgan, Specialist Motel & Accommodation Broker

Motel Opportunities Abound

It is always a positive sign in any industry when those experienced investors and owners already involved within that industry are looking for more acquisitions within.  That is the situation where the motel and accommodation industry is now positioned.  Those who know the business and are already involved are looking to expand.  No different to the caravan park industry over the past two years.  Most caravan parks sold by QTHB during this time have been to existing owners of caravan parks.  Those looking to expand their portfolios by acquiring more market share, either in the same region they are already active or further afield.

This provides very clear evidence that those already active have a very positive outlook of the industry going forward.  It helps to confirm that for those who are considering entering the motel industry or those looking to expand their motel interests, the time is now!

The motel market is no different to any other in its fundamentals.  It has its ups and downs and different stages of the market offer different opportunities to those within it and those wanting to enter.  Selling motels over the long term has allowed me to witness many changes within and many very different states of the motel and accommodation market during this time.  Over the past 24 years, that I am aware of at least, every region has had its day in the sun at some time and different tenures of ownership have also had their defining moments.  At times the market has favoured sellers, other times it has favoured buyers, and for the rest of the time it offers opportunity to all in some way.  On many occasions, investors have made their own opportunities that have defied the status of the market at that time.

Picking the market is always a difficult thing.  If it was easy, everyone would be experts.  “When should we buy or when should we sell, is now a good time or do we wait?”  What one can do is work on the information they have at hand, and make a decision based on the facts and then draw conclusions as to when they believe is the right time to move.

Within the current motel market there are some excellent buying opportunities available at present.  Many people who contact us to discuss buying a motel say the same thing, “we do not want something with no upside or operating at full capacity, we want room to improve the business”.  Each business must be assessed to suit the needs of each investor’s needs, and one of these needs is to be able to build up a business to improve it in some way.  Changes in the various local economies throughout the state have created these buying opportunities.  Whether it be, improved business conditions in a region that will allow for future growth, or alternatively a recent decline in demand for accommodation that has created a potential future, buy low, sell high scenario.  This is always attractive to seasoned investors.

Any lack of confidence within the market due to the economic changes and perceived instability both home and abroad have not helped the market in any way.  It has seen investors being cautious about entering new industries they are not entirely familiar with.  Those already familiar with motels know the long-term strength of the industry and are always looking for acquisitions of good quality motels.

What makes a good motel buying opportunity?  Genuine motel buyers in the market have continued being active in pursuing motel businesses that offer them the main fundamentals, quality presentation, consistent trading history, good locations/positions, and reasonable occupancy rates based on good room tariffs.  These fundamentals for motel acquisitions do not change, no matter what the state of the economic climate.  If one of these fundamentals is not reading well and there is an opportunity to improve it, that may be of more interest to one investor than another.  For example, occupancy rates have dropped however room rates have been maintained, and there is basis for future potential to increase market share to build the occupancy rate up.  Opportunity available and waiting!

Written by Andrew Morgan, Specialist Motel & Accommodation Broker

Room Rates - Supply and Demand

The economic forces of supply and demand determine the price levels of most products and services.  It forms the basis of the Laissez Faire economic system (free from government intervention) under which we live and operate… most of the time.  Supply and demand are an everchanging dynamic as each go up and down with human actions.

Accommodation room rates go up and down as a result of all sorts of activities created by people and external factors.  A couple of simple demand examples include, a big event being held in a locality on any given day or a large industry increasing or decreasing their activities in a region, just to mention a couple.  A couple of simple supply examples include, new short-term accommodation units being built and coming online, or an accommodation site being redeveloped for its highest and best use purposes thereby taking units offline.  There are literally hundreds or more different actions that change supply and demand.  Supply is generally the slower mover however demand is more dynamic, changing from day to day.

There are differing opinions on this however in the main it seems to be that most believe short term accommodation room rates must go up and down with supply and demand changes.  As the old saying goes “make hay while the sun shines”.  You can consider scenarios in the short term such as a busy weekend or week and long term such as a booming industry over a ten-year period as examples.  If there is a busy weekend for an event or an annual event perhaps and the available units in an area can be sold 3 times over, will the room rates for that period be the same as when things are quiet?  When things are quiet do the room rates stay where they are, or do they drop in order to meet the lower demand?  Peak and off-peak seasons are another example.  Holiday complexes always advertise high season and low season room rates.  They are simply going up and down with the relevant supply and demand for that time of the year.

Having seen situations where it is believed that rates should stay the same no matter what the demand is, those situations did not end up working out well.  Loyalty to guests is something that gets mentioned in these discussions.  Of course, this is a good thing, however it can only be sustained up to a point though, especially considering long term scenarios.  If the room rates are not raised during the busy times, then unfortunately come the quiet times, they cannot remain where they are either.  Even though the guest may still wish to stay at that motel to repay the loyalty of the lower rates in busy times, their company may move them on to a cheaper property in the quieter time, as the company does not have the indebted responsibility of loyalty in return.  This is where not moving room rates up and down with supply and demand can end up being a very costly mistake.

Looking after return guests and loyalty is a fantastic thing.  It is what builds the strength of any accommodation business.  Finding the right balance here is the difficult part.  Being able to increase room rates with higher demand and keep loyal regular guests happy around this, is not an easy thing to do.  The juggling act of any business operator is not an easy one to get right, or even close to.  Using room rates as effectively as possible must be the goal though.

Low room rates and under cutting are a major burden on the accommodation industry.  The damage caused by this line of thinking is big.  The thought process that undercutting the value of one’s product is the best way to sell the product is a very flawed ideology.  Why not go the other way and add value to the product to make it more attractive to the market, instead of giving it away?  If there is a low demand for motel accommodation then there is less chance of being able to lift room rates, however there is little benefit in underselling the value of the product.  Again, the juggling act.  What is the market willing to pay for the product and service?  Finding the fine line in not over pricing the product and not under-pricing it within the confines of the demand available is the trick.  What is a guest willing to pay for a neatly presented and clean motel room that offers the expected services such as, a good bed, quiet room, air conditioning, high speed internet service, etc, etc?  Therefore, what does one believe is the value of the combination of the product and service they are offering that can be achieved at a particular point in time?

Written by Andrew Morgan, Specialist Motel and Accommodation Broker