Innkeepers, Don't Stick Your Head in the Sand

Today Becky and I were working together in her office and she got a call from a Realtor on the Western Slope of Colorado who asked us if we would co-list a bed and breakfast with him. In the summer of 2009 we had brokered the inn across the street from the one he was listing and he knew that we could help him find prospective buyers.

We've learned over the years that before we say yes to that question, we need to know more about the property. In this case, the news was dismal. The owners wanted to list their property, which had six guest rooms, 4200 square feet, gross revenues of around $65,000 and an owner's quarters in the basement, for $850,000.

The property we had brokered right across the street had 13 guest rooms, 7000 square feet, gross revenues of $220,000 and a three bedroom, two bath owner's quarters that took up the entire lower level of the building. It sold for exactly a million dollars.

What ARE these people smoking?!! Using the sold comp for price comparison, this property should be listing for at least $200,000 less than $850,000. So, after we had shared our pricing concerns with the listing agent, his comment was, "I get to put a sign in the yard, and I'll pick up some business that way". And, he also said, "If I don't take the (overpriced) listing, the broker down the street will take it."

What ARE these people smoking?!! Innkeepers, a word to the wise. Before you put your inn on the market, order an appraisal on the property. Pulling a number out of the air only hurts you in the long run. Don't become grist for your listor's mill, by giving them the opportunity to find some buyers at your expense. If your property doesn't appraise for your negotiated price, it's not going to finance ANYWAY! Don't stick your head in the sand, or you will be on the market FOREVER.

Needless to say, we took a pass on the co-list.

Innkeepers, Save Your Sprint for the Homestretch

Something interesting happened yesterday, and it made me really sit back and think. A few days ago, we had shown a very well located but non-operating hospitality property to one of the most experienced innkeepers in Colorado. This man had sold his inn a couple of years ago, an investment grade property with 8 guest rooms, and gross revenues in excess of $400,000 a year. Pretty amazing, right?

He was obviously an extremely successful innkeeper, and I was really surprised when he took a pass on this non-operating, pre-foreclosure property despite the fact that it was a great deal. This property had 9 guest accomodations, and was located just a mile or so from a world class ski area. Priced at $650,000, the property had been recently valued at over a million dollars.

As it turned out, our man just didn't have the risk tolerance to take that on, and despite the fact that he had a history of delivering extraordinary results, he was just too scared. Innkeepers, if a guy like this is afraid to tackle a high risk inn, think about how much more difficult it is for an innbuyer coming into the industry for the first time? They are TERRIFIED!

So, knowing what we know about the typical innbuyer's lack of risk tolerance, why do so many innsellers take their eye off the ball, and settle into mediocre management of their properties at such a critical time? When a patient is undergoing surgery, does the surgeon walk out of the operating room in the middle of the procedure? Of course not!

Then why is it that most innsellers think that they can take their foot off the gas pedal when their inns are up for sale? Hey guys! We KNOW you're tired! But, do you want to shoot yourself in the foot now? In the homestretch, where performance matters the most?

We've been innbrokers for about six years now, and I finally understand why most inn brokers turn into consultants. Personally I used to think they were just pansies. Now I understand! It can take years of prep to make an inn salable, and frankly, the majority of innkeepers should pay a lot more attention to their exit strategy planning.

I can't tell you how many declining p&l's we come across! And we hear the same old excuses from owners: they have health problems, the economy is down, their dog ate their homework.... bla bla bla.

Well, you know what happens to the racehorse that loses? They go to the glue factory.

Innkeeping is serious business. And, in these days, if you don't want to lose your shirt (which is happening all over the country these days) then you'd best put your nose to the grindstone, excel in your hospitality, stay on top of internet marketing trends, get some good education, keep your property in tip top shape (including the owner's quarters), and put the pedal to the metal. Remember this, every $10,000 of net operating income is worth approximately $100,000 in value. If your NOI drops by $20,000 because you're having a tough year, plan to take $200,000 off of the price.

Listen up innkeepers! Don't drop dead on the homestretch, or the glue factory awaits.

SBA Financing Window Opens for Bed and Breakfast Inns

Good news on the bed and breakfast financing front for 2010. The SBA has opened up a window of opportunity, making 2010 a great time for buyers of hospitality properties.

SBA 504 loans now offer a bank guarantee, thereby greatly reducing default risk, which in turn is creating a more active secondary market for the loans. Banks which underwrite 504 loans may now resell up to 85% of their positions into the secondary market, and get paid 3-5 points for the privilege. Hoorah!

The "window" is slated to stay open until February 16, 2011, or when the pool reaches 3 billion, whichever comes first. The impact of this program has farreaching effect, yet is virtually unknown to all but the most informed bankers. As word gets out, we anticipate that more banks will be interested in underwriting these loans, a win-win situation for all.

Anyone still dreaming of buying a bed and breakfast may have that opportunity during the next 10 months, so go on, get out there and start looking. It's a buyer's market!