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Anecdote: Keeping Everyone Happy

Written by Andrew Morgan, Specialist Motel and Accommodation Broker
First Published in Resort News Magazine

Recently an old friend and I arranged to catch up.  He told me that he and others within his business travel around the countryside every week or two and stay at generally the same motels whilst away.  I was eager to hear his feedback on the motels he stayed at and if he enjoyed his stays or not.

The line of work he is in requires early starts in the morning therefore a good night sleep is his main requirement (as it is for most).  Many different services offered by the various motels he stayed at did not hold much interest for him other than a good comfortable bed, pillow, a carpark close to his unit and peace and quiet.  His feedback was that in the main, most motels he stays at provided this, which was great to hear from my perspective.  Unfortunately one did not.  He had no issue with the bed, pillow and carpark, however the peace and quiet he needed for a good night sleep was not on offer.

In his words, “I am happy to have access to all the services the motels offer such as WiFi, Austar, etc, but to not have a good night sleep due to noise, those other things count for nothing”.  In his case he said that other guests travelling together staying in the motel all congregated outside the unit next to his and had a bit of a get together.  Not a big party, but just a small gathering over a few beers.  He said in real terms the group were probably only four metres from his bed with an exterior wall, door and window in between, and that they were not yelling out, but just the mix of loud talking and laughter would not allow for any sleep.  Obviously he had the choices to speak to the group, speak to the manager or do nothing.  He chose to do nothing as he did not want to cause a scene or upset anyone.

The end result unfortunately in such a circumstance is that the guest leaves the motel unhappy and in this case he has vowed never to return to that particular motel.  To his credit, he did not post a bad review on any web sites which as he said “would have been unfair to the manager since I did not do anything about it”.  Not having been there or knowing the exact circumstances at the time it is hard to say whether he should have acted upon the situation or not, and if not then he has no one else to blame.  The other is that he should not have had to act upon it, that as a paying guest of the property he should have had the right to a good night sleep provided to him.  He felt that the manager on site should not have allowed a group of guests to gather directly outside a unit and stay there, whilst other guests should have been allowed a good night’s sleep.  He believed that it should have been management who realised what was happening and that they should have moved the group to an area of the property (which was available) where they would not disturb anyone.

A difficult position is created for the manager or motel owner who has not received a complaint and therefore how can they keep that guest happy if they have not been made aware of the guest’s issue.  Ultimately, who’s right or who’s wrong does not matter from the motel owner’s point of view other than the fact they have lost a future return guest.  Also, that he is telling others that he did not have a good experience at the XYZ Motel in that town.  Anyone who hears the story will then most likely avoid the motel as well and stay elsewhere, thereby damaging the goodwill of the business going forward.  The economic side of things hit home when he said his business spends approximately at least $15,000 on accommodation each year.  No business can really afford to lose this to a competitor.

I guess all one can do is make sure they provide guests with as quiet a motel facility as possible and allow and direct other guests (so as not to upset them) to congregate elsewhere on the property, such as by the pool or wherever the other guests will still be allowed a good night’s sleep.  As always, a difficult balancing act for moteliers in any case, trying to keep everyone happy.

Selling: Timing is Everything

Written by Andrew Morgan, Specialist Motel and Accommodation Broker
First Published in Resort News Magazine

Often late in the year people say to themselves let’s have a think about selling in the new year.  The new year rolls around very quickly and suddenly, it’s time to make some decisions.  How does one know when is the best time to sell?  To answer one question, lets pose another, or another three, to get the best answer for each individual owner’s situation.

1. When am I ready to sell?
2. What is the market like for selling a motel?
3. What is the best time of year to sell?

When am I ready to Sell?
Probably the most important of the three questions posed.  Knowing when you yourself are ready to sell is a difficult question to answer.  I firmly believe that once you start asking yourself this question, then it is time to do something about it.  No different to an elite sportsperson wondering when it’s time to retire.  If asking the question, then it is time.  Too many moteliers procrastinate about this decision until they get past a point of no return.  Staying on too long can end up in a seller making rushed or bad decisions in order to get a quick sale. The position all sellers would love to be in is selling on their own terms after having made informed decisions instead of forced decisions due to tiredness, personal pressure, being burned out or financial pressure.  A good idea is to make a decision such as taking the business/property to the market in a certain period of time say 3, 6 or 12 months, etc.  This then gives the owner the opportunity to prepare the property and business for sale rather than making a snap decision to sell whilst unprepared.

What is the Market Like for Selling a Motel?
First things first, get some advice.  Speak to a specialist Motel Broker who has been in the industry for a long time with a proven history of successful motel sales.  As the name says, a Broker will broker a deal that is best for the seller.  This way you are more likely to get the right advice, rather than the wrong advice for a “Listing Agent” to get as many listings as possible and hope that one sells at any price level here or there
Recent historical sales provide the most up to date information on how the market is tracking.  What has sold and at what price.  Also, how many motels are on the market and what prices they are listed for, will provide information on the competition in the market for buyer attention.  This information will offer enough details on what is for sale, what has sold and the how active the current market is for motel businesses.

What is the Best Time of the Year to Sell?
Historically we would say that the second half of the calendar year (July – December) was the time when more motel sales were transacted than the first half of the year.  As time has gone on and things invariably change, this situation has also changed.  We tend to now look at things on a year to year basis due to the fact that the previous market pattern has changed and no one particular half or time of the year dominates as far as numbers of sales go.  Generally speaking, year in year out, December and January are the quietest months of the year for transactions occurring.  This can probably be explained by people active in the market turning their attentions more to family, travelling and the holiday/festive season.  The rest of the year is probably dictated more by the second question above.  There is always an increased buyer appetite come March onwards as occupancies and turnover’s start increasing after the quiet months, the increase in motel sales follows the pattern of the industry activity.

Tips for Buying Motels - How, What and Why?

Written by Andrew Morgan, Specialist Motel & Accommodation Broker
First Published in Resort News Magazine

How to get started looking for a new business such as a motel is not always easy.  In gathering information, the web is usually the first port of call for any initial enquiry, and the simplest of searches will get things started.  As with a search on any topic, sorting good information from bad requires further investigation.  The next step may be talking to friends or relatives who are or have been in the industry.  Speak also to experts, not those who “dabble a bit”.

Consider the preferred tenure of ownership that meets one’s needs.  The main two types of ownership tenures available for Motel acquisitions are Freehold and Leasehold.  Both offer different benefits and burdens to the owner and one must determine which suits.  Weighing up the facts and comparisons between the two will help determine what is suitable for each investor.  Another main decision that is required to be made early on, is whether one is going to operate the business themselves or not.  This may affect the type of tenure that should be considered.

If the new owner is not going to operate the business themselves then someone else will need to on their behalf.  The business can be operated by a manager or can be sold to an operator whilst the freehold property (land and buildings only) is retained.

Property Specific Motel Matters to Consider

1. Number of Units – There are very different schools of thought within the motel industry as to what the minimum number of units should be to make a motel successful.  Individual should determine how many units they wish to operate and then work towards that.  The budget that is available will also affect this decision.

2. Dining – Some motel operators love restaurants and others do not.  This is the more social side of the business where operators can get to know and build relationships with their customers thereby making the decision for the guest as to where they will stay next time they travel to the locality.  This side of the business can also be a problem area if not operated efficiently.

3. Standard/Presentation – The standard of the presentation of a motel will affect the return on investment expected by the market.  If hundreds of thousands of dollars are required to rectify poor standards or years of neglect, it will affect the price that is willing to be paid for the property in its current state.  Motels that are not presented in the best manner can offer excellent opportunities to add value to the business/property by rectifying areas in need of work.

4. Location – the main positions motels tend to be focused are major highways, main roads, beach fronts and city centres.  These areas tend to be places where demand for accommodation is at its highest, such as business centres, tourist attractions or industry hubs.  Location does play a role in determining the value of a motel as the demand for a coastal motel has historically been higher therefore pushing the value of the motel higher and the return on investment lower.

5. Onsite Residence – Motels usually offer an onsite residence.  One must be aware however that although they are comfortable and large enough, they are not the size of a stand-alone house in suburbia.  There are substantial benefits of living onsite that include the lifestyle of a family living and working together and the tax benefits that are available.  The costs of living in a home in the suburbs are largely absorbed by the business in the case of a motel, such as food, electricity, council rates, water, insurance, telephone, and much more.

Business and Related Motel Matters to Consider

1. Online Reviews – Read but be careful what one takes on board.  The main thing is to consider the tone of the reviews in the main, and how they read, rather than individual reviews.  If there are nine reviews on a motel that are positive and one that is not, then go with the nine, as that tenth review may not be legitimate.  If nine reviews mention a specific issue with a property/business then consider just how big of a problem it is, and how easily it can be rectified.  Sometimes issues can be easily fixed by a new operator, and therefore may be to the benefit of the buyer in the future.

2. Lifestyle – Again the benefits of a family working together and the opportunities to grow with the business can be very rewarding.  Delegating certain areas of the business to key staff members where one is comfortable to, allows more time to get out of the property and take time out for family, schooling or other social activities.

3. Potential – The old saying is “no one buys any business unless they see potential”.  There is generally potential in every motel business of some kind.  A new broom always sweeps clean and a new perspective, vision and enthusiasm offers the opportunity to take a motel business to the next level.  See what areas of the motel are underperforming? What new initiatives can be implemented to gain more market share?  What areas of expenditure are too high and can be brought under control?  An injection of funds to do a refurbishment that the previous operator did not want to do is a proven method of adding value to a motel.  This is an area where one can take a position of advantage over competitors who do not reinvest back into their motel.

4. Finance – Historically motels are known as solid and secure investments and therefore financial institutions (in the main) are eager to lend against them.  They will generally lend 50% against the value of a leasehold motel and 65% against the value of a freehold motel.  In general terms these percentages offer a good base to start searching.  The balance percentage plus purchasing costs will need to be made up of preferably cash, or part cash and part equity against another property depending on the financial institution’s requirements.

5. Purchasing Costs – These costs can be substantial, however are a fact of life.  Government stamp duty accounts for the largest portion of purchasing costs.  Other costs then include legal fees for advice throughout the purchase process, search fees for the property and business such as council searches, liquor licence, vendor entity, etc.  Further costs can then include settlement adjustments for prepaid advertising, council rates and also the purchase of Stock at Value in order to continue to operate the business.

6. Return on Investment – This depends on many of the items included within such as location, standard of presentation, number of units, lease document, land area, etc.  Outside the business/property itself, the strength of the market and demand at that time plays a major role.  Motels do offer very strong returns when compared to many other business opportunities.

7. Cashflow – In most cases and depending on the time of year the first day of taking over a motel generally results in a good cash flow.  Most guests today pay by credit card or Eftpos.  Guests on accounts are more limited to large companies only (of whom many are tending towards credit cards now).

8. Future Resale – When it is time to sell there is generally a ready market for both leasehold and freehold motels.  If priced accurately most motels will sell within a reasonable time frame in normal market conditions when marketed correctly.

Leasehold Specific Matters to Consider

1. Who is in Charge – Many Lessee’s are unsure about their rights and the rights of the Lessor in a motel lease.  The lessee is entitled to “quiet enjoyment” of the property.  In other words they are entitled to operate their own business from the premises without any disruption from the Lessor, as long as they are not in breach of the lease.

2. Rent – The annual rental of a motel should never be more than the Net Operating Profit After Rent.  A new lease should have a commencing rental of approximately 40% - 45% of the entire Net Profit for the complex.  There are other methods for determining motel rentals such as a percentage of Turnover.  A dollar figure per unit site is often utilised as a check method.

3. Lease Period – Motel leases mainly commence as a 25 or 30 year lease (inclusive of option periods).  These are very long leases especially when compared to retail and commercial tenancies which are often 3 year + 3 year leases.  Even a lease that has been in place for 10 years that has 15 years remaining is a long term lease.  It is rare that motel leases ever run down too low as it is in both Lessee and Lessor’s best interests to have a long term lease in place for the security of each party’s investment.  The opposite may occur if the site is ripe for redevelopment, however there are many if’s and but’s in this situation.

4. Lease Terms – Who is responsible for what?  The terms of the lease and responsibilities of both Lessee and Lessor should be considered and advice sought from an experienced motel Solicitor in regards to whether the lease is reasonable or too onerous on either party.  Most motel leases are drafted with standard terms however may not necessarily end up that way in a final copy.  Therefore it pays to make sure one is happy with the Lease Document prior to entering the agreement.  As long as both parties act reasonably regarding extending leases then both benefit in the long run.

5. What am I Buying – The right to lease the land and buildings for a certain period of time on specific terms and the tangible and intangible assets of the business.  This can include goodwill such as the reputation the business has built up, the telephone numbers, email addresses, websites, social media profiles, the business name, the Plant and Equipment, the right to the liquor licence being transferred, etc. 

Freehold Specific Matters to Consider

1. Finance – The cost to purchase a Freehold motel is substantially higher than a lease simply because the land and buildings are also being acquired.  The interest repayments will be much higher so one must ensure that the business’ cashflow can cover the required loan repayments.  There are many benefits to owning and operating a freehold motel and many people purchase a lease motel in the first instant to build up funds and experience with the ultimate goal of acquiring a freehold motel.

2. Land Area and Spare Land for Expansion – Generally motels on a large parcel of land are sought after by the market and any with spare land offer the opportunity to expand and increase the number of units, income and profits and value of the business and property.  Being able to add value to a motel is a big incentive for those who wish to build up the value of their investment.

3. Passive Investments – The ownership of the freehold and business of a motel often leads to the owner selling the business to another operator and retaining the freehold property as a passive investment.  The comfort and confidence in the strength of the motel industry often results in motel owners wanting to keep an investment in the industry whilst moving on to operate another motel acquired or taking life a bit more easily whilst receiving a high return on their investment.

When considering a motel as an investment or lifestyle opportunity speak with experienced industry specialist professionals with a long association in the motel industry such as Accountants, Solicitors, Specialist Motel Brokers and Financiers.  Once a suitable motel has been found always complete a financial and legal due diligence of the business and property to make sure what you think you are buying is the in fact the case.

2017 Motel Market Wrap Up

Written by Andrew Morgan, Specialist Motel & Accommodation Broker
First Published in Resort News Magazine

As opposed to my 2016 end of year wrap up last year, in which the motel market had witnessed many changes, surprisingly 2017 has overall been very similar to 2016 in many aspects.

Again, 2017 has been an improvement activity wise over the previous year with demand for motels increasing, the volume of sales improving and the total sales value growing.

A quick summary shows the first quarter starting out in a quiet way which was the same as 2016.  The second quarter showed very good promise but did not reach expectations in the end.  The third quarter activity started to build and again the same as last year has continued to improve since then, ultimately finishing off the year very strongly with increased activity across the board however very strongly dominated by the freehold sector.

In contrast to 2016, prosperity has not been largely dependent on where one is located.  Some areas of the state that had struggled were able to make solid gains particularly in the 2nd and 3rd quarters of the year.  Additional supply of competition has ceased and there has been a reduction in supply in some areas with the redevelopment of sites (and future redevelopment) predominantly improved with older neglected properties where the highest and best use of the site was no longer the existing motel property.

The tourism sector has again continued to grow with Far North Queensland showing good signs of improvement.  The tourism market may have its highs and lows over time but continues to power on as one of Queensland’s driving forces in attracting guests requiring accommodation throughout the state.  Hamilton Island in the Whitsundays has again reported extremely high occupancy rates (albeit it with a shock to the system from Cyclone Debbie earlier in the year) for the last couple of years.  Many accommodation properties in the Whitsundays are either still off line or are open and operating with building works renovations ongoing.  The Australian Dollar has increased slightly however still seems to be maintaining that mid 70’s percentage mark.

The contraction of the Mining Industry that has received so much continued media coverage and has affected much of regional Queensland is largely behind us although some smaller towns are still struggling.  Again in many areas spending and confidence in the regions and industry has been continuing to build.  Some of the larger retailers in the regional areas have experienced excellent growth since January and reportedly even stronger improvement in the last quarter of 2017.

Again in similar fashion to last year motel sale transactions have been increasing as the year draws closer to an end.  The first half of the year was very quiet however as mentioned activity has increased in the second half compared to the first.  Some prices that have been achieved are very strong and can offer a lot of confidence to the market going forward.  Contracts being settled and new one’s being entered into, shows a very promising lead into early 2018.

Leasehold motel transactions have continued to be limited with the lowest amount of sales activity.  This market is predominantly comprised of first time entrants to the motel industry who have not been confident enough to take the step.  The old principles apply and short term lease terms and high rents will deter any buyer and put extreme downward pressure on the sale value achievable.

There is always a market for a well presented motel business that has good fundamentals, a good client base and is priced correctly.  We have noted some improvement however in the level of demand for motel leases in the last couple of months.  The sub $1m price range has seen a good spike in demand, which has been against the trend of the last two years.

Investors have sought the comfort that freehold motels offer with many freehold sales being recorded in the latter half of the year.  Any good quality freehold properties with up to date trading data, that are priced correctly, and presenting well are selling.  Experienced motel owners looking to invest in the industry have acquired some excellent buying opportunities in the current market and will no doubt do very well overtime from these motel investments.  Although finance for many investors may have been more difficult to achieve, the very attractive interest rates for investors has urged many to persevere until they were able to find a financier who would facilitate their funding requirements.

An interesting point to note is that often in times of fluctuating markets buyer demand and confidence can be hit and miss.  2016 and 2017 were similar in that many properties went to Contract only to see it not reach settlement due to a buyer getting cold feet, changing their minds, being unable to source finance, etc, etc.  This year was different in one aspect in that when those Contracts did not complete, in many cases another buyer has almost immediately seized the opportunity and gone to contract on the business, and completed.  This has been another very positive sign of the market strengthening.

The year ahead will continue to see many excellent buying opportunities become available however we see this buying window of opportunity being squeezed as time goes on.  Last year we mentioned cheap finance being available.  This is still the case however many have not been able to access this finance on the back of some financiers having a blanket policy of not wanting to offer finance in certain regions.  Many good financing opportunities have therefore been lost even when the downside risk was minimal.

2018 looks to be very positive moving forward for the motel industry and we expect demand to increase with an improvement in values.

The Right Size

Written by Andrew Morgan, Specialist Motel and Accommodation Broker
First Published in Resort News Magazine

Some say the more you have, the more you have to sell.  Some prefer more than 25, others prefer less.  How a motel is to be operated is most likely the answer to any question around how many units is the optimal amount.  If a motel is to be owner operated or if it is to be run under management, this may determine how many units are needed to make it success in the owner’s mind.

If a motel is going to be operated under management then the management wages are going to need to be accounted for.  If the profit after management is not enough then perhaps the size of the property is too small for what the owner is trying to achieve or maybe the business is just not trading well enough at that time and can be improved.

The number of units in a particular motel is not the defining factor for success.  Business ownership revolves around profitability (amongst other things) and what profit can be achieved from the number of units on site comes down to how many of those units can be sold each night and at what tariff.  The number sitting there on a property is relevant when they are all being sold each night or not enough are being sold.  If the property is running at 100% occupancy then room rates need to increase to bring that overheated rate down.  Alternatively, if not enough units are being sold then Council Rates, Insurance and other costs are being incurred on non-income producing assets, the opposite issue.

In the past many people would say that a minimum of 16 units are required for a motel to be successful.  But one problem lies in the definition of successful.  It really comes back to what an owner is looking for as a goal for occupancy rates, income, profitability or lifestyle.  An investor buying a motel may wish for a minimum Net Profit of say $100,000 after management costs.  This figure/level may be that investor’s definition of the motel being a success.  The number of units required to produce that result may be of no real consequence.

Where did the figure of 16 units come from?  Most likely there is no real factual basis for such a comment.  I have never seen any evidence to support this.  In contradiction to this figure I have seen many motels over the years with less than 16 units produce very strong levels of income and profit.  One example in particular included only 9 units yet produced a Net Operating Profit of in excess of $250,000.  Impossible some may say but 9 units at 90% occupancy at $130 per night produced an Income of approximately $384,000 and operated on a Net Profit Margin of 64%.  These are better than industry average figures however it was a difficult yet achievable goal that was reached.  Therefore a generalised comment on how many units are required to be successful or not, is in any case difficult to agree with.

If we consider two very different motel investors then the answers will be very different.  One who is buying to operate themselves as a husband and wife business may be happy with 10 units, three bedroom residence and no restaurant.  The other may not want to operate the business themselves, thereby having it run under management.  They may require 30 units, licenced restaurant, conference rooms/facilities, and a one bedroom residence.  Each business may be very successful in its own right and own market, however the individual investor’s requirements will determine what makes that motel successful compared to another.

In general terms those who operate their business under management often request a minimum of approximately 20 - 25 units, however this can vary.  Those choosing to manage the motel themselves may only require as few as 8 units.  The decision on this will be answered by one’s goals or motives, such as what minimum profit level they require after all operating costs have been accounted for, whether they are buying a motel that is operating well or one that is struggling to perform, and what their borrowing capacity is and therefore loan repayment responsibilities.

Often if a motel is being purchased to operate under management, a Net Operating Profit of for example $100,000 may not be sufficient, due to the manager’s wage being taken out of this profit figure and loan repayments also to be deducted.  The level of profit remaining after the manager’s wage may not be sufficient to make loan repayments and leave a satisfactory surplus.  A common Net Operating Profit figure worked on by many motel investors is $200,000 after Management Wages have been expended with loan repayments yet to be made.  The number of units required to achieve that is often a secondary thought, as a minimum level of profit was the driving motivation.

Value for Money

Written by Andrew Morgan, Queensland Tourism & Hospitality Brokers
First Published in Resort News Magazine

Many times, over the years motel industry articles have focused on discussing issues that directly affect the owners and operators such as occupancy rates, sales revenue, and profit margins.  The one thing that has a major effect on each of these is the rates that can be charged for the product (and service) being supplied.

What are the factors that will determine the room rate that can be charged?  The bottom line answer is supply and demand for the product.  One operator alone cannot control supply and demand, but collectively the industry can manipulate it.  On an individual basis it comes down to how much of the demand can be achieved (market share).  Some can gain more and consequently as a result some will lose more, unless there is an increase in the level of demand.  In any town or city tonight there is a fixed number of overnight accommodation units available, no matter who is supplying it.  There is also a maximum level of demand, which can only be determined when the sun rises tomorrow.

To attempt to gain more of the demand and increase the occupancy rate, a motel can introduce various initiatives such as, discount their room rates, market the property to those expected to demand accommodation, increase direct advertising, work in conjunction with other accommodation providers, offer other incentives, etc, etc and the list goes on.  Underselling one’s product to get a quick sale is probably the easiest way to increase a quick, but short term market share.  However, the consequences will ripple throughout the business directly affecting the sales revenue and profit margin.

Current motel room rates throughout the state at present are at bargain prices for those consumers looking for a great deal.  Just as a shopper buys a new suit at half price and walks out of the store with a grin from ear to ear with the belief they “got a bargain”, those travellers requiring accommodation should really be doing the same thing at the moment.  After having stayed at various types of motels around Queensland recently there is great value available.  The high standard of motel and hotel units available at low overnight rates is something that really should be taken advantage of by anyone thinking of travelling.

Having stayed at many motels right around the state in recent months the value for money that customers are receiving is fantastic for them.  I have said to numerous people in recent times that the value for money staying at that rate was exceptional.  As a business, discounts are the last thing a motel operator wants to see, however room rates go up and down just like any other product or service and one has to try to make the best of the situation at that particular time.  Councils, Tourism Bureau’s, Chambers of Commerce, and other such entities in each region should be utilising this situation to the benefit of each region in trying to encourage more people to travel for work or leisure reasons, knowing that they will get a great deal and value for money on their accommodation stay.  Hopefully prompting them to take that business trip they were considering or that holiday or weekend away they were hoping to take.  Also, perhaps staying an additional night since they are getting such a good rate on their accommodation.  It needs to be sold to them though.  You can’t sell a secret and if the masses aren’t aware of the value for money available in accommodation then they are none the wiser.

Those additional nights of accommodation being achieved will mean increased occupancy rates and additional revenue for any motel or hotel that is able to take advantage.  The operator may still feel that the room rate is low however the compensating factor of increased occupancy is some consolation.  This will then lead to room rates being able to start to increase as a result of the stronger demand.  As the cycle starts to turn around (as it always does) and occupancy rates start increasing this obviously then leads to room rates increasing.  The “sandwich boards” start to disappear one by one and the room rates continue to grow overtime with demand.

Maintenance for a Rainy Day

Written by Andrew Morgan, Queensland Tourism & Hospitality Brokers
First Published in Resort News Magazine

This discussion has come up several times over the years, but for a number of reasons even more so over the last month or two.  One reason it has been raised is due to a number of new leases being discussed and put into place.  The discussion is regarding maintenance of a motel that is to be leased.  Who pays what and how can the current system be improved?  What happens when a major refurbishment is required?

Any issues Lessees and Lessors have had over the years largely comes down to neither party investing back into the property, both parties expecting each other to cover the cost.  Then when a major refurbishment is due, either a lack of provision within the lease dealing with that is a problem or a lack of enforcement of the terms of the lease, means the refurbishment never gets done.  To go a step further it may be dealt with in the lease however in practical terms it does not happen because neither party has the funds (or claims not to have the funds) available to do so.  As a result, the property gets older, more tired and the eventual cost to refurbish continues to climb.

There has historically been a “maintain the AAA rating” clause and a “redecoration” clause within motel leases that in summary says that the Lessee is to do anything required to maintain the rating and paint the interior, exterior or both every five or seven years.  Even though this is included within leases and is often not clear as to exactly what is required and by who, it is often not carried out for various reasons.  One of these reasons is cashflow.  This is often an issue for major works.  It is easy to see how finding a large sum to cover a major refurbishment or even just exterior painting is going to be taxing on any business owner or investor.  Motels are generally large properties and exterior painting as an example is often a substantial cost item.  Therefore, forward planning and budgeting is required considering everyday expenses still need to be paid.

One possible solution to solving the problem of accommodation properties falling behind in the quality and standard expected by guests today should be a collaboration.  A partnership if you will between the two parties who have a vested interest in the property.  The use of the body corporate industry model of a “sinking fund” type of situation within the motel industry, to go one step further.

Such a system would involve both Lessee and Lessor contributing either a fixed amount or percentage of turnover each month into a specific account (forced saving for a rainy day in a sense).  Both parties with a financial interest in the property’s presentation are contributing to the future prosperity of the property and business.  It takes away the issue of any owner taking and taking and then moving on thereby passing a growing issue onto the next owner and the next and so on.  With any system there will be issues and collective decisions between both parties that need to be made, however no system is perfect.  Perhaps very specific stipulations for how and when the “sinking fund” money is to be spent will avoid some of those potential issues.

Another benefit is that the cashflow issue is resolved, especially if it is done on an income percentage basis rather than a fixed amount.  The big expense when the time comes will not create a cashflow issue either as the sinking fund can either be spent or used to borrow the funds required.

The only reason the discussion of maintenance continually comes up is because one or both parties act unreasonably.  The past situations of Lessee’s and/or Lessor’s in the motel and accommodation industry being not interested in spending a cent on their properties, as hard to believe as that is, has only served to stifle the capacity of those individual properties to produce as high an income as it possibly can.  Therefore, its ability to continue to pay an increasing rental to the property owner and provide a good profit for the business owner/operator.

That Most Important to the Guest

Written by Andrew Morgan, Queensland Tourism & Hospitality Brokers
First Published in Resort News Magazine

What is the most important thing in the mind of a guest staying in a motel?  Is it one item or issue or a number of things that all carry a level of importance?  Well every guest’s requirements and matters of importance are going to be different.  What can one focus their attentions on in order to have the guest come back next time they are in town, recommend the motel to everyone they know and write a great online review.

The first thing that stands out is that when the guest leaves the property after their stay they are happy and have no legitimate grievances.  I say “legitimate” because some people can never be satisfied no matter how much one does to keep them happy.  Every accommodation provider would know a past guest who fits into this category.  Anyway moving on…….

There is a lot to do to try and satisfy every single customer that stays.  Whether it be working out exactly what is most important to that individual or what is going to keep them happy, through to keeping the larger guest base satisfied.  What is it that can be done to satisfy as many guests as possible as well as each individual’s needs?

The small list below (in no particular order) is an attempt to limit some of the main things guests see as their most important matters when staying in a motel.

  • Good night sleep – this covers a range of topics however the overall experience of a good night sleep is paramount to a guest no matter what the reason for travel - work, family, holiday, etc.  Everyone wants a good night sleep to be able to function at their best the next day.
  • Reception greeting – how one is greeted at reception when they first enter the property is almost a first impression.  Good or bad first impressions always last.
  • Ease of check in and check out – how quickly and easily this process is handled, especially when one is busy to get to the first meeting of the day or get on the road.
  • Friendliness – how the guest is treated by the owner/manager/employees of the motel reflects on the entire business.  Feeling welcome is important to everyone no matter what the circumstances or environment.
  • Value for money – feeling as though one has received good value for their money is high on anyone’s agenda.
  • Bed comfort – was the bedding of a good standard or did it sag in the middle?  The quality of the bedding is always going to be a high priority for a guest.  Without this all other dot points mentioned are irrelevant.
  • Noise level – noise from the next-door unit, outside the unit or external noise from the road or street is going to create an unavoidable level of noise.  I think the question is whether or not that unavoidable noise is at an acceptable level.  Each guest’s level of tolerance will be different but trying to keep that noise to an absolute minimum is the best one can expect.  Sound dampening methods and products work well but vehicles screeching tyres or kids running back and forth along a veranda are going to be too much for whatever one implements.
  • Cleanliness – Again always paramount to any guest’s minimum accommodation requirements.  No matter what else happens, a unit that has not been cleaned fully and correctly will have a devastating and most likely irreparable issue for a guest.  In that case expect an unpleasant online review and to never see the guest again.
  • Room servicing – often open to the expectations of the individual guest.  Some people expect servicing each day others expect less.  Length of stay will play a role here also.
  • Facilities – again what is important to one guest will not be important to another, such restaurant and bar, conference facilities, breakfasts, meals, swimming pool and BBQ facilities, Wifi, outdoor seating, pay tv and laundry facilities.
  • Carparking (Undercover or Off Street) – this is very important to some guests and no so to others for different reasons.  Work vehicles in some cases are required by the company to be parked off the street.  Other travellers do not wish their cars to be uncovered, even for one night.

With all the different requirements of guests it really is a difficult (or impossible) thing to try and please everyone.  Making sure those main items that are an issue for everyone such as cleanliness and bedding are in order is a good place to start.  Getting those right is going to go a long way to keeping the majority of customers coming back.

Motel Management

Written by Andrew Morgan, Queensland Tourism & Hospitality Brokers
First Published in Resort News Magazine

The demand from the accommodation industry for managers ebbs and flows.  Three years ago demand was very strong, then dropped off for a while, however has had a resurgence in 2017.  How the industry is performing has a lot to do with this.  If business is good often an owner will look to step back and take more time for themselves without having the financial pressures weighing on them, therefore working as hard as possible to repay loans, etc.  If trading drops off then cost cutting measures are then re-employed and often going back in to operate the business oneself is at the expense of the manager.

Buying motels with the direct intention of having them operated under management by competent and professional management couples or individuals has increased in recent months with many people enquiring to buying expressly stated their intention.  The ability to own a successful motel business from afar, without having to operate it is available.  Professional management is often comprised of a husband and wife team or individual who is experienced in operating motels and who have a genuine interest in improving the trading performance of the motel over and above its current trading.  Sitting at reception and trying to look busy is of no interest for them.  In the past it was the “norm” to enlist anyone who said yes to the question and the owner’s expectation was that this arrangement would work.  In many cases it did not work and it ended up resulting in motel managers in general receiving a bad rap.  Managers were often labelled lazy, incompetent and in some cases dishonest, if the business did not perform as well as it had in the past.

Some of the mistakes of the past are still being made however. The old saying still rings true that “if you pay peanuts you get monkeys”.  The manager’s remuneration is dependent on a number of things including experience, roles, performance, skills, etc.  If a manager feels they are being underpaid, it is highly likely their level of service (in a service industry) to the business and guests will be diminished.  This results in a poorer motel operation and damage to the business’ reputation and performance.

Remuneration packages for motel managers are generally determined by the market and the negotiation process between the Owner and Manager.  The type of motel involved and particular work required to be completed by the Management Team will affect the package offered.  Is the management team required to manage the property, cook, clean, complete the accounts, etc?  This will be different from one motel to the next depending on the size of the property, whether there is a restaurant onsite, the location of the property, and the requirements of the Owner.  Is there a food and beveridge allowance built into the package for the management team?  Management packages can be fixed salaries or in many cases are a fixed salary plus a bonus system based on the achievement of certain goals, such as reaching a sales income target or profit target for a particular period.

Many motel owners in recent times have owned and operated a motel for a period and have then decided to acquire another.  Obviously one cannot be in two places at once, hence placing one or both of these businesses under management.  The owner then takes the role of overseeing both businesses and relief managing as required.  One can never take the attitude of set and forget and staying involved in a supervisory role over management is prudent.

The main type of manager is the permanently employed manager or Contractor however the other type of manager often more highly sought after by moteliers is the relief manager.  This is more of a short term posting to allow the owner time to get away from the business for a short break rather than a more permanent arrangement.  Between a couple of days and a couple of months is usually the relief managers term and this type of short term relief management can be very valuable to a business owner.  Allowing them to get away and recharge their batteries, clear their heads and come back to work ready to go ahead, thereby avoiding possible burnout.

The motel industry is a service industry, and if a high level of service is not provided, the customer will take their business elsewhere.  A common complaint is that some managers will not go the extra mile to look after a customer, such as doing those little extras that make a customer feel looked after and wanting to return.

First time motel owners are fewer in the market at present and experienced owner/operators are the most active in seeking out motel business opportunities.  Generally first time owners will operate the motel themselves and are less likely to put a motel under management, at least until they have a good understanding of how the business and motel industry works.  The result is a higher demand in today’s market for the professional management team.

Meeting the Market

Written by Andrew Morgan, Queensland Tourism & Hospitality Brokers
First Published in Resort News Magazine

No matter what one is selling the market will always dictate the price.  The product that sits on the shelf and never sells does so because the customer cannot see the value in the product at that price.  The same goes for a business and in this case a motel.

Anything will sell once the price meets the market.  Trying to tell the market “here is the price like it or leave it” essentially means if the market does not like that price the product will be left on the shelf.  The value of anything goes up and down depending on the individual product and the market it is in.  If the market is very strong with a high demand then the value will go up in line with the demand.  If the market is low with a low demand then the value will go down in line with this demand.  Not as many buyers for a product means not as high value.
Once the decision is made to sell a motel one needs to determine an accurate price to offer the business to the market based on the current market conditions.  No one ever wants to undersell their property and on the other hand too higher price means no buyer interest and the property will not sell.

Achieving the highest price possible is any Vendor’s goal, however stepping over the line and pricing too high is a major problem.  A successful sale transaction for most is selling at the highest possible price in the current market.  Whether the market is high or low a good result is selling at the top of that particular market.  One step in achieving the best sale value is to read the market correctly.  Very easy to say but not so easy to do in practice.

Taking the stance that 12 months ago or even 3 years ago a motel was worth $2m and therefore it must be worth $3m today is fundamentally incorrect.  It may be the case that it is worth more, or that the value is now less than it previously was due to the market being down, financial trading of the business having declined, etc.  Depending on how you look at it, the good and bad news is that real estate and business values fluctuate up and down.  Over the long term property values do in general terms increase, however the market does fluctuate and it can move up and down in very quick time depending on particular market conditions.  A business’ value can fluctuate much faster than real estate as the value is largely determined by the most recent financial performance.

One must do their own research and come to their own conclusions of value based on all the collated information, in order to avoid any potential pitfalls.  Some of these pitfalls may include sales evidence that was not an “arm’s length” transaction, or incorrect information (or lack of information) that an agent may have provided.  In the situation where an agent tells a seller “what they want to hear” regarding the value of a business/property, without any regard to the true value, in order to gain a listing does not benefit anyone involved and ultimately damages the market’s perception of the business.  The way to protect one’s self from this is to arm yourself with information on genuine recent sales of a similar nature, what is currently available for sale, how does this motel compare and general market information on what may affect potential buyers assessments of value, such as interest rates rising or falling, access to finance, locality issues, etc.

Generally if a motel is available for sale on the market without selling within a “reasonable” marketing period then it has not been priced correctly for the particular market conditions.  This situation should not occur if the motel was marketed fully and the Vendor’s and Broker’s price expectations were accurate.  After an extended period of time the business will be seen by the market as potentially having a problem with it due to it not having strong enough interest for a sale to be finalised.

In summary a successful sale at the highest possible price will not be achieved by sitting on the market for an extended period of time.  All that will happen is the price will come down and down over time until eventually it sells below the market level.  Meeting the market within a reasonable time frame is the best way to avoid this.