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Leasing over the Long Term

Written by Andrew Morgan, Specialist Resort & Motel Broker

All markets fluctuate.  None stay at the top forever and none at the bottom.  Motel leases are no different.  Having been very popular for such a long time it was inevitable that they would not stay that way forever.  With freehold tenure seeing most of the interest in the market in more recent times for various reasons, leases took a back seat for a while.  Again though, all markets fluctuate and interest in leases is starting to come back around.

Leasehold motel ownership has been a success story across four decades now.  It grew very quickly throughout the early to mid-nineties and has remained an attractive option for motel ownership for very good reasons.  The many benefits of owning a motel lease are why many moteliers continue to expand their motel investment portfolios.

Changes within the motel leasing industry in recent years has had some positive influences as a result.  This has largely been on the back of changing market perceptions and the industry adapting to “accommodate” these changes.

Over an extended period, the benefits of owning a leasehold motel business have held up.  Leasehold motel businesses satisfy the main buying motives of any business investor - financial, lifestyle and security.

Financial Benefits
High ROI – The return on investment (ROI) for motel leases is strong and in the main range upwards from 28% (most are within 30% - 35%) depending on certain factors such as location, length of the lease, level of rent, economic strength of the region, property presentation, strength of business, etc.
Low Capital Outlay – A motel lease does not require one to buy the land and buildings of the motel.  This is the larger value component of a motel and buying the property therefore increases the capital outlay considerably and reduces risk, and therefore return.
Financing – The lower capital outlay means the loan required will be substantially lower.  Lower loan repayments and fewer sleepless nights for those not wanting to borrow to buy freehold.  Banks are historically very comfortable lending for motel acquisitions as they are solid and secure businesses.
Taxation Benefits – This is dependent on numerous factors such as how the ownership structure is setup.  The benefits of living out of the business include but are not limited to, whatever costs one incurs living in their stand-alone home such as insurance, electricity, rates, food, beverages, telephone/internet, rent/loan repayments, motor vehicle costs, etc.
Quality Presentation – If a budget to buy a motel is one million dollars, the opportunity exists to buy a much larger and higher quality motel property under lease, than a freehold motel at the same budget.
Long Lease Tenures – On most occasions’ leases commence as a 30-year term inclusive of option periods.  This is a very long lease tenure offering the lessee long term security to operate the business.
Strong Cash Flow – Upon commencing operating a motel there is an income from day one depending on the level of occupancy.  An operator will achieve a certain level of cash flow immediately as most guests pay by credit card.
Limited Stock on Hand – Motels carry very low amounts of stock.  Motels with restaurants will carry more stock than those without depending on the size of the food and beverage operation.
Ready Market – When the time comes to sell there is a competitive market to acquire motel leases.

Lifestyle/Personal Benefits
Easily Operated Under Management – Motels are comfortably managed by a couple, so if an owner decides they would like to step back from the business for a while, there are many good management couples available who can manage a motel.
Onsite Residence – Offers a home to live on site for the family allowing more family time together whilst operating a business.  Children can also get involved and start experiencing the industry at a young age.
Downtime During the Day – Motels are generally busy until late morning and again from late afternoon.  The time during the middle of the day offers some downtime for the operator.
Building Customer Relationships – For those who enjoy building customer relationships, motels can offer a lot of repeat clientele if the guest is looked after.  There is a lot of personal satisfaction gained when a customer keeps coming back regularly because they are happy with the service being provided.

Security Benefits
Long Term Leases – Often leases commence at 30 years in total split up with option periods.  The ability to extend leases as the term of the leases diminishes is often available.
Lease Terms – Leases are predominantly set up on mutually beneficial commercial terms to the Lessee and Lessor and therefore work very well.  The clearer these terms are, the better for both parties.
Asset Ownership – Includes the title to all the plant and equipment in the motel and the remaining tangible and intangible assets such as business names, contacts and goodwill.

The End Result

Written by Andrew Morgan, Specialist Resort & Motel Broker

Every now and again I hear the comment that “the Income is not high enough” when a prospective investor is looking at a business.  When I say Income, some call it Turnover, some call it Sales Revenue, and the list goes on.  The only reason I can conclude in regard to the objection, is that the potential buyer looking to buy the business is planning on operating it at a lower profit margin or higher cost base.  Usually new operators look to reduce overheads and improve profit margins to increase the Net Profit and therefore the value of the business.  The value of any business is largely determined by two factors, the return on investment, capitalisation rate, or yield and the Net Profit of the business, against this yield.
Depending on the structure of the business, how it produces its income, how it operates and the resultant profit margin it achieves, will determine what income the business makes and what profit it can achieve.  A business producing a high profit margin will have low overheads and therefore a high profit in relation to sales income.  Vice versa for a low profit margin with high operating costs to produce its income.  Every business will produce a different profit margin.

The Net Operating Profit of any type of business is the determining factor for assessing the business’ value.  No valuer determines a business valuation on the basis of what Sales Income is produced.  Yes, it plays its role in the process, however capitalising an income figure as opposed to a Net Profit is not done.

The value of cashflow to a business, relates directly to the day to day operation of the business, not the on-going Net Operating Profit over the period of say a year.  It stands to reason though that a motel with a higher Sales Revenue that also has higher Operating Expenses, may therefore have the same cashflow problems that a motel with lower sales and lower expenses has.

A simple comparison to consider.
 
Motel A 
  25 units & Restaurant  
Motel B
  25 units & Restaurant  
Annual Sales Revenue   $1,000,000  $750,000
 Annual Net Operating Profit  $400,000  $400,000
 Net Profit Margin  40%  53%
 Return on Investment  14%  14%
 Freehold Value in the Market  $2,850,000  $2,850,000

Now with both these motels being valued at the same price in the market due to their returns on investment being the same, why would a lower Sales Revenue make Motel B worth less than Motel A?  These motels have very different Sales Revenues, however their Net Operating Profit is the same.  The reasons for this are numerous, however a few explanations may be that one is operated more efficiently than the other, or because one has a source of revenue that is not as profitable as others, or because the particular location attracts higher operating costs, etc.  A big one is often the underselling of a unit.  A 90% occupancy rate on a tariff 20% less than what is achievable will do it!  In other words, discounting!  The easiest way to create a higher cost base and operate less efficiently.


Either way, the business with the lower Sales Revenue is not worth less than the one with the higher Sales Revenue? I would assume that the business with the lower Sales Revenue and Higher Profitability could end up being more attractive to the market than the Motel with the higher Sales Revenue.  This would be due to it being potentially less labour intensive or having a lower level of risk than the other, by being able to operate at a lower cost base.

As mentioned, a Registered Valuer who is doing a Valuation on a Motel Property or Business will base their valuation on a Capitalisation Rate of the Net Operating Profit of the business, not the Sales Revenue.  Therefore in the above example, with all else being equal, Motel A and Motel B will be valued at approximately the same level, even though they have substantially different Sales Revenues.

Financial Presentation

Written by Andrew Morgan, Specialist Motel & Accommodation Broker

We talk a lot about making sure a motel’s presentation is up to standard before taking a business or property to the market for sale.  The first thing we think of when talking about presentation is the physical aspect and look of the property.  But what about the financial presentation of the business?

Supporting financial data to confirm what the Seller is saying about the business and how it performs is just as important as the physical standard of the property.  An issue with either will turn a buyer’s focus away from wanting to pursue the business and onto others that are looking more attractive.  How financial data presents can be covered a couple of different ways.

1. So how do the numbers actually present?  Not how high the income or profits are , but how they are presented on hard or soft copy.  Do the totals add up?  Don’t laugh, I have seen many addition errors over the years.  The total expense amount is less than what the individual expenses total.  Are the Seller’s Accountant’s supporting documents also attached to the profit and loss statements?  Is the spelling of each entry correct?  Again, don’t laugh, this is common.  I have the same issue with spelling mistakes on a profit and loss statement as I do with an email.  If I see an email come in and there are spelling mistakes in the subject line on text, I immediately think the email is spam and discredit it.  The same goes for financial statements.  I start to wonder who prepared this profit and loss statement, surely it was not the Seller’s Accountant.  Again, I start to question the validity of the statements.

2. Next comes the all important amounts.  The Income & Net Profit must be as high as they can to achieve the full sale value in the market.  Therefore I suggest every Seller has their Accountant prepare an Abridged Profit and Loss Statement.  This will present the profit of the business as it should for sale purposes.  It will have removed all Income and Expense items that are particular to the current owner and not the business.  As an example an owner choosing to pay themselves a wage of $50,000 per annum as compared to $5,000 per annum, has nothing to do with the business, this is generally a taxation based decision.  Profit and Loss Statements are generally prepared for Taxation Return purposes and to that end include expenses and tax deductions which inevitably present the lowest profit possible, or even a loss depending on each parties individual tax position.  Adjustments will then be completed so the Abridged Profit and Loss Statement can be used for sale, refinancing or other purposes.  If not, a true representation of the profitability of the motel business compared to other motel businesses would not be possible.  Conversely it is also important to make sure that no legitimate operational income and expenses of the business have been removed.  Even the most basic due diligence of the financial statements will determine this.  The best result from this is that the end sale price of the business will be affected negatively if the profit has been overstated.  The worst is that the transaction will be terminated altogether.

Aside from the Profit and Loss Statements being required by a potential buyer, other financial data such as monthly income and occupancy figures will be required for cash flow purposes.  Council rate notices, electricity, laundry, rent (in the case of leases) and Insurance Invoices and Receipts (to name a few) will be required.  These must all match what has been included in the Profit and Loss Statements.  Providing monthly Income Statistic reports that include GST, will not match the Profit and Loss Statement.  As long as the consistency of the difference of the GST is there, the issue can be cleared up quickly however if this is not the case, the interested buyer starts to question the accuracy and legitimacy of the data.  If there are anomalies for a particular reason, be upfront and explain why this is the case.  Never try to sweep it under the carpet and hope that the issue goes away.  That never happens!  Make sure all the data you as a Seller are providing matches up.

Buyers who are interested in buying a business want the financial data presented to them to be accurate.  When their interested is sparked in a business it is based on the information that has been provided.  If any anomalies arise they are probably more disappointed than anyone.  Nine times out of ten the financial data presented will be accurate.  There may be small differentials here or there but in the main these will not have a material affect on the profitability or value of the business and are easily explained or remedied.

No one buys the smallest of products if they are unsure of its validity and correctness, let alone a business and property.  The credibility of the financial data being presented and the person presenting that data is paramount.  Lose that credibility and lose the sale.

Tenanted Motel Investments

Written by Andrew Morgan, Specialist Motel & Accommodation Broker

The high return and low risk offered by motels as a tenanted investment was targeted by many savvy investors over  twenty-five years ago.  In its infancy in the early 1990’s, some leases were put into place that were not suitable for both parties involved.  These teething issues were largely ironed out by the mid 90’s.  Since then demand for motel investments has been strong ever since.  Today we find they are rarely available on the market and are a tightly held commodity.  With the high volume of motels that operate under a lease today, it is surprising just how few tenanted investment motels are ever on the open market for sale at any one time.  When they do come onto the market they do not remain available for long, generally selling quite quickly.

In the early stages of leases being put in place over motels it was largely only former or existing motel owners/operators who were interested in investing in motels as passive investments.  They knew the industry well, they understood how a motel was operated and they knew travellers always require accommodation, no matter what the reason for their travel was, business, work, pleasure, etc.  The wider investor market had not considered investing in motels, and not having any history or dealings within the motel industry, were not that interested.

However, overtime as the high return and low risk benefits of motels were more recognised, interest started building in the motel industry as a tenanted investment opportunity from other investor markets.  Investors who had previously focused on Residential, Commercial or Industrial Properties, were now looking at the benefits a motel investment offered.  Corporate investors as opposed to the traditional “Mum and Dad” investor entered the industry in a big way.  Many of these larger entities own numerous motel properties and even the smaller individual investors have continued to add more motels to their investment portfolios.  Self-Managed Superfunds have become a popular investment vehicle for investors to purchase their own motel, with a secure long term lease in place.

Bank interest rates over recent years have assisted to increase the demand for passive investment motels where cash in the bank at its current interest rate levels is not an attractive investment option.

Benefits that have attracted the interest of the investor market to motels as tenanted investment options are:-

  • High Investment Returns – Investors have achieved excellent returns on passive investment motels over the years.  Market net returns on passive investment motels are currently at approximately 9%+ on capital invested.  The return to an investor compared with other investment options such as cash or residential property make them very attractive to a number of investor types.
  • Low Risk – Motels have proven themselves over the years to be very low risk investments.  Solid and consistent businesses in general operating from an investors building is what anyone is looking for.  Good locations in busy positions often means the investment is underpinned by a strong land component.
  • Fully Tenanted – One way or another, a motel property that is leased almost always has a lessee, as opposed to other investment options.  If a lessee/operator was to close the doors of the business the mortgagee would almost always appoint an operator to reopen until the business was on sold.  The alternative is that the property owner operates the business themselves or under management until the business is on sold.
  • Freehold Tenure/Increasing Land Values – Freehold tenure and the ownership of a tangible product, being a commercial property.  Motels are generally located on busy main roads or other desirable locations which are larger blocks of freehold land that increase in value over the longer term.
  • Solid Building Structure – Motels are typically of brick/block construction and this type of structure requires minimal ongoing works.  Any move away from this type of structure to more cost saving types of building materials/construction means an adjustment in the maintenance requirement to be budgeted for over time.
  • Outgoings – Generally within motel leases the Lessee pays all outgoings.  Outgoings paid by the Lessee include, but are not limited to Property Rates, Insurances, Repairs and Maintenance, and Electricity.  Leases were originally set up this way so that the Lessee had control of his/her own business and did not have to go to the property owner every time they needed a light bulb changed.  The Lessor may be responsible for a few items such as Land Tax (unless included as an outgoing) and Structural Repairs/Replacements.
  • Building Allowance/Tax Benefits – Relatively young buildings or those that have undergone major refurbishments (capital works) will have some level of building depreciation or write off allowable.  This will vary for each property however the tax benefits in many cases can provide good taxation relief to the property owner.

Know the Cost

Written by Andrew Morgan, Specialist Motel & Accommodation Broker

Hopefully we all love or enjoy what we do for a living, however we do not do it for the sport.  A business must produce a profit to survive.  Knowing how or what is needed to achieve a profit is a starting point.  In its simplest form, product cost plus mark-up equals selling price.

When a product or service is offered to a market, what it costs a business to purchase then get that product or service to the market in a position to sell is the breakeven point.

By understanding where the breakeven point is and what the product or service can be sold for in the market, one is able to know the following:-

  1. The profit level of the product or service
  2. The amount or volume of sales required to make a profit
  3. The impact on profit of declining tariffs/prices or volumes of sales
  4. The level sales can reduce to before a loss is incurred

The addition of a mark-up to make a profit and still be competitive then determines the price the product/service will be offered at.  The product of the motel room and associated services cost the operator to rent the room in wages, cleaning products, laundry/linen, electricity, insurance, wear and tear, etc.  A combination of fixed and variable costs.  If the total cost including these expenses and others are unknown, then how can the price be set to ensure the business is not losing money on the sale.  If a motel is selling a strong number of rooms at a solid occupancy rate however at the end of the month there is no money in the bank account, then alarm bells should be going off.

Accurate costs to rent a motel room offer very useful tools of measurement or key performance indicators (KPI’s), so a motel operator can know how much they can afford to rent a motel unit for to breakeven and then to make a profit.

Each different accommodation business/property will have different cost bases.  The reasons why can be due to several factors that affect this figure – property features, operation and utilities.

Property Features

  • Unit Size – the square metre area that the unit occupies.  A standard studio unit costs less to occupy than a 2 bedroom unit.
  • Self-Contained – the cleaning costs alone to rent a self-contained unit can be substantially higher
  • Age of Property – how old the property is may determine how much upkeep is required to the buildings
  • Standard of Property – if a motel is in disrepair it will require more expense to maintain
  • Location – sea air may increase corrosion of buildings such as metal staircase hand rails, roofing, etc.  Building movement in some areas may create brickwork cracking and other issues.
  • Unit Fit Out – what condition is the furniture and fittings in?  Does the high level of humidity require tiles rather than carpet?  Are blinds or block out curtains required?
  • Restaurant – a restaurant will substantially increase many costs, however this is a separate income department where the same considerations on what it costs to produce that product are relevant
  • General Services/Facilities – a lift on site, trees and gardens, swimming pool, spa or sauna are all services/facilities that contribute to the cost base
Operation
  • Lease/Freehold – Is the tenure leasehold with a rental to be paid each month, or is it freehold where mortgage repayments are due?  Interest rates will rise and fall changing repayment amounts.  Interest payments will be applicable with leasing as well however the level of borrowing will be generally lower than a freehold purchase.
  • Type of Clientele – the motel’s business could be corporate customers, tourists, families, contractors, etc
  • Laundry – is the linen cleaned onsite or offsite at a commercial laundry?
  • Staff Levels – are staffing levels correct or is the business over or under staffed?
  • Owner/Operator or Under Management – the cost of management wages will increase the cost to rent a motel unit.  This can be a moot point as the owner should expect to pay themselves a wage for their time anyway
  • Consumables – what type of soaps, tissues, shampoos, etc are included within the unit?
  • Cleaning – are the cleaning products the most cost effective?  How long are the cleaners allocated to clean each room, e.g. 20 minutes, 30 minutes, or unlimited?
  • Eftpos/Credit Card Fees – the fees charged by some credit card operators are higher than others
  • Marketing – is the motel a member of a chain?  The fees paid to a motel chain form part of the cost to rent a motel room, as does the commissions for booking sites and any other marketing initiatives.
Utilities
  • Property Rates - coastal motels may include much higher property rates than an inland motel where the land value is not as high as a beachfront property
  • Electricity/Gas – the costs of electricity have risen substantially in the past 3 years
  • Telephone – What type of phone system does the motel have?  Is it reliable in its charging of customers?
  • Land Tax – Is land tax paid by the property owner, Lessee or not applicable?
  • Insurance – the cost to insure properties has more than doubled in some areas over recent years
Costs easily add up and can “blow out” if not contained.  Knowing what the costs are is the first step in containment and an operator can then be confident in their sale price position.

Dining In or Out?

Written by Andrew Morgan, Specialist Motel & Accommodation Broker

Opinions always differ about restaurants in motels, some love them some hate them, everyone has their own idea.  Times and attitudes have changed a lot in this regard from 20 years ago, even 10 years ago for that matter.  All the way back to 1995, I recall the motel owner/operator stayed up serving behind the bar in the restaurant until late into the night, with all the reps mingling and having a good time.  They were then up early the next day cooking bacon and eggs to complete a list of breaky orders.  It was a long day, but the financial benefits were great.  Today however the food and beverage industry and the dining requirements and work behaviours of guests have changed.  In addition, the major changes in technology over time has given every work-related traveller a portable office wherever they go.  A phone, tablet, or laptop allows the ability to be just as productive outside the office as in, thereby changing the way travel, accommodation, dining, and evenings are spent whilst away from home.
Back in 2012 when I last wrote about food and beverage within the motel industry changing, in house dining within some areas of the industry was diminishing slowly but I noted it was gaining momentum.  Well, since then the number of restaurants within motels has reducing substantially as well as the simple meals to rooms as well.  Many restaurants have either been closed, are sitting dormant or have been remodelled into additional motel rooms, or larger residences for families and lifestyle reasons.
Over the last 5 years or so things have continued to change even more rapidly.  Many have changed the way their businesses operate by focusing on accommodation and moving away from the food service side of the industry.  There are many reasons for this some of which include: -

1. The lower profit margin the food and beverage side of the business offers in comparison to the accommodation side of the business
2. The added requirements of additional employees and the operators increased amount of labour and involvement in the dining area
3. A lower interest in the food and beverage area by new incoming owners/operators who would rather remodel the restaurant area into more rentable motel units
4. Increased competition from other faster and cheaper dining options available
5. The proximity to other dining options
6. Advances in technology as mentioned, which has impacted several different ways

The refurbishment of restaurant and dining areas within motels into increased numbers of rentable motel rooms is growing.  An existing area under roof that is not being utilised to its fullest extent that can produce a strong income and profit offers excellent value adding opportunities.  An existing area under roof where the exterior walls are not being moved, only the internal fit-out offers less requirements from local Councils and therefore helps reduce the capital outlays for such works.

There will however always be a strong demand for food and beverage within larger corporate based motel operations.  The mix of accommodation, dining, and conferencing in the one locality is only going to continue to grow with the demands for training and conferencing growing within most industries.  This may require the industry to change and grow with the rapidly changing requirements of the market where everything is demanded to be within a finger-tip’s reach and supplied without delay.

Locality is also a driving force in the decision making in whether in house dining is viable for the motel’s future.  In areas where there are few dining options for guests, the value of the restaurant to the business may not be in question.  Often it is then a very viable business in its own right.  In locations where other dining options surround a motel, the question becomes more relevant.

Many buyers looking to acquire a motel are looking for something that can offer added value.  The opportunity that an under-utilised area within a motel offers such as closed or non-profitable dining area, can be a great way to add value without expending costs that make building expansion works prohibitive.

Never Too Old

Written by Andrew Morgan, Specialist Motel & Accommodation Broker

“If I was ten years younger I would buy that motel”

I wish I had a dollar for every time I heard the saying over the last 23 years.

I think in many ways this comment is often made, not as an excuse, but it is probably more about something many of us suffer from, procrastination.  It is often the worst enemy in holding people back from achieving more than they do, in any given situation, whether it be in our business activities, personal lives, sports and recreation, and so on.

The previous issue of Resort News included the article “12 Reasons to Buy”.  Within this article we looked at 12 very strong reasons as to why people invest in motels.  This article continues from last month where all those reasons are accepted, however procrastination results in them not deciding to go ahead.  It ultimately takes precedence over so many good reasons.  We considered these reasons based on the motel industry, current motel and accommodation market, wider economic factors, financial, family, and personal considerations, and others.  The quote above can be considered in many ways, an easy or convenient excuse not to act or invest in this case, for reasons such as, having too many aches and pains, the lack of motivation, too old, etc.  It is an easy way out in one’s mind for not making a positive decision when all the facts point toward it.  Opportunities lost are always recalled after the fact and filed under “hindsight” in months or years down the track and are always regretted.

In my opinion it is often people who are still young and active that make this comment.  It can be relatable at any age really.  I know myself having recently agreed to go back to playing a competitive sport now at age 43 that I have not played since I was 19 years old, at times seems like a bad idea.  Being beaten or out sprinted by an 18-year-old immediately has me looking to the easiest excuse, “well he does have 20 years on me” or “if I was 10 years younger I would have performed better”.  Of course, I would, however am I going to keep saying this week after week, after every game.  I was using this excuse a lot at first then I started to dislike what I was hearing.  I then started to consider a link between what I was saying and the comment I was hearing in regarding to investing in motels.  Both role off the tongue quickly and easily and really are throw away lines.

I have been very fortunate to have worked with some very good people over the years who have bought and sold many motels and worked as hard (or as little) as they wanted to as opportunities presented themselves.  Four individuals aged in their 80’s, who continue to buy and sell accommodation businesses are great examples that you are never too old.  They are always active, on the go, and looking for the next business challenge to work on.  They enjoy the opportunity and challenge and don’t want to slow down.  They may not work the businesses on a day to day basis like they once did, but there is no doubt who is making the important decisions to ensure the future success of their accommodation businesses.  These people immediately come to mind when anyone much younger than them says to me, “if I was 10 years younger” …….

Buying one’s first motel is the biggest step.  The acquisitions after that see the steps getting smaller and smaller.  In many cases it is a major change of life decision, in both career and lifestyle.  Procrastinating about it, not taking the step, and acting, then regretting it later down the track is never a good feeling.  Time has a way of creeping up on us very quickly.  Therefore, don’t put these things off any longer!  Go for it and take the adventure head on.  Procrastinating about it now will ultimately drag on for another 10 years.

Twelve Reasons to Buy

Written by Andrew Morgan, Specialist Motel & Accommodation Broker

There are many reasons why a large majority of people buying motels today have been in the accommodation industry before.  Many of the benefits of owning a motel are what keep people coming back to the industry.  Within the motel industry today there are more and more people who already own a motel that are acquiring additional motels to add to their portfolio.  This has been the case for some time.

Every different business or industry has it benefits, however when comparing one to another consider some of the benefits a motel offers.

  1. High Return on Investment – The returns on investment for motels are strong, depending on certain factors such as location, economic strength of the region, standard of the property, strength of the business, profitability, clientele, etc
  2. Current Market Activity – most recent activity within the market has proved some great buying opportunities.  Savvy investors are beginning to take advantage and are picking up some quality properties as economic activity starts to improve.
  3. Report to No One – You are your own boss and the one in control of the business’ future.  There is no one to report to or answer questions of.  The buck stops with the business owner, who makes the decision on what directions the business takes.
  4. Low Capital Outlay – When compared to other property options motels offer substantial value for money.  Consider they produce a high return on that investment, they also include a home/residence and the land generally sits on a prominent site with a large traffic volume past the front door.  The downside risk of the investment is generally low as it is underpinned by a strong land and buildings component.
  5. Financing – Banks are historically very comfortable lending for motel acquisitions as they are solid and secure businesses.  A low 35% deposit is required with the balance able to be financed, which leads on to the next reason.
  6. Taxation Benefits – This is dependent on numerous factors such as how the ownership structure is setup.  The tax benefits of living out of the business includes a large amount the cost one incurs living in their stand-alone home such as insurance, electricity, food, beverages, phone costs, rent/loan repayments, motor vehicle costs, etc.
  7. Strong Cash Flow – Upon commencing operating a motel there is an income from day one depending on the level of occupancy.  An operator will achieve a certain level of cash flow immediately as most guests pay by credit card.  The amount of cash taken by motels had diminished, however for whatever reason I have noted in more recent years motel owners advising they have been taking increased amounts of cash over the counter.
  8. Limited Stock on Hand – Motels carry very low amounts of stock.  Motels with restaurants will carry more stock than those without but generally no more than $15,000, depending on the size of the food and beverage operation.
  9. Ready Market – When the time comes to sell there is always a competitive market eager to acquire good quality motel businesses and properties.  The market may have its highs and lows but over the last 22 years selling motels, this has always been the case.  Not a bad record of accomplishment for the industry.
  10. Easily Operated Under Management – Motels are comfortably managed by a couple or often one person, so if an owner/operator decides they would like to step back from the business for a while there are many good managers available who can manage a motel’s day to day operations.
  11. Onsite Residence – Offers a home to live on site for a family allowing more family time together whilst operating a business.  Children can also get involved in some ways and start learning from a young age.
  12. Building Customer Relationships – For those who enjoy building customer relationships, motels can offer a lot of repeat clientele if the guest is looked after.  There can be a lot of satisfaction gained when a customer keeps coming back regularly because they are happy with the service being provided.  It is confirmation a good job is being done.

Discovery Parks Acquire Airlie Cove Resort and Van Park

Adelaide based Discovery Parks now has a presence in the Whitsundays, adding Airlie Cove Resort and Van Park to their portfolio. Set on 28 tranquil acres close to the bustling tourist destination of Airlie Beach and adjoining the spectacular Conway National Park the property has a diverse range of accommodation options including Bali Villas, 1 & 2 Bedroom Villas, Holiday Cabins, Ensuite Cabins, Studio Cabins, Caravan Sites, and 2 Camping Areas.

The Park is well serviced by modern facilities including three large Polynesian style camp kitchens, bbq gazebo, 2 amenities blocks and laundry. The Resort is a destination within itself, with plenty to keep guests of all ages occupied including resort style pool with water slide, water park featuring a big tip bucket, three slides, walk through spray tunnel and ground sprayers, pirate ship playground, jumping pillow, TV & internet room, go karts and mountain biking tracks. 

“The idyllic location, quality cabins and range of facilities the Resort offered made this property highly sort after by investors.” said negotiating broker Ryan Doughty of Queensland Tourism & Hospitality Brokers.

Discovery’s chief executive, Grant Wilckens, said the Airlie Cove acquisition was a strategic investment in the globally recognised Whitsundays region where strong demand for accommodation is forecast beyond 2020.

“The Airlie Cove Resort and Caravan Park is a beautiful family holiday destination with the largest resort pool in Airlie Beach, water slides, mini golf and an outdoor cinema” he said. “It compliments our resorts in Coolwaters Yeppoon, Fraser Coast and Byron Bay – providing high quality accommodation options for customers travelling the coastal route.”

It is the first deal since Discovery Parks’ acquisition of the Top Parks Brand, which created a network of more that 220 parks.

Source: Discovery Parks, The Australian Financial Review

Anecdote: Keeping Everyone Happy

Written by Andrew Morgan, Specialist Motel and Accommodation Broker

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.