Friday, January 21, 2011

Timing is Critical when Purchasing a Hospitality Property

Despite the fact that we've been involved in listing and selling inns for a number of years, I'm still amazed at how critical the timing of the inn transfer is for the buyer.

Last year I bought an inn out in Sonoma County, California, and learned that lesson the hard way! No matter how much homework you may think you have done, there's always surprises. As I sit here in the dead of winter, looking out the window at the vineyards, verdantly green and just about to ready to flower with the mustard plants that form the ground cover for most vineyards in the area, I just can't believe how quiet it is! It's 70 degrees outside in January and there's not a single guest at the inn.



Where is everyone? Well, as it turns out, few visitors come to wine country (despite the fine weather) because the wineries do little with their wine until barrel tasting in March. They may be open for business, but they're neither harvesting, nor blending, etc., and apparently visitors don't come during this period. Who knew?!!

Projections for a hospitality property investments are always required by lenders, and a property's income is projected on an annual basis, so oftentimes monthly revenues are not even reviewed.

The variance in monthly revenue is typically huge for hospitality properties located in heavily touristed areas. At this inn, revenue in October is about 20 times as much as it is in January! So, creating reserves for off season months MUST be done in high season. Missing even a SINGLE month of high season will usually dramatically increase the working capital requirement for the off season months.

Timing is critical! Make sure you closely review a property's revenue by month so that you'll understand the best time to close on an inn. This will vary according to how much time and investment must be made in preparation for the busiest months.

For example, if a new website is being created, you'll need several extra months to get that squared away. I went through 16 drafts of mine before it was ready to be submitted to our developer, Acorn Internet Services.

If you're updating decor, allow extra time for that. Etc, etc. It always takes longer than you think, but if you don't hit the ground running when the season hits, you'll be playing catch-up, sometimes for years.

Today I reviewed a revenue/expense projection for a prospective buyer looking at a property in Estes Park. Even though it's still January, these buyers are almost too late to get started! They have to sell a house, the "fly in the ointment" for most, and are likely to miss out because they really aren't "ready".

Buyers will often wait to sell their homes because they want to find the right inn first. Sounds reasonable but it's often a blunder, and we've seen many buyers lose out on their dream property because they wait to put their house on the market. It's a quandary, and we have several buyers in that position right now.

In Colorado, if you haven't found the right property by the end of February, it'll be too late in the year to take over an inn.

That said, January is the month that most buyers come out of the woodwork, and I think it has something to do with taking stock of one's life as the prior year draws to a close. Well, get going!!! If you sit on your computer late into the evenings, looking at inns for sale on the internet, by the time you find one, work up the nerve to call the owner/broker and put the wheels in motion, it'll be too late.

Timing is critical and putting your house in order a must if you want to time a transition to a hospitality property correctly.

To all you dreamers out there, get cracking!

4 comments:

  1. I agree! We bought in the high season, thus giving us funds for improvements. We are now in the slow season, and if we had started then, it would have made me intimidated by the thought of breakfast for 16! good advice!
    Gina Marcell
    Salida CO

    ReplyDelete
  2. I agree too. we also purchased and took over in the high season.
    Ariela ME

    ReplyDelete
  3. Great insights into the business, Roxanne, as usual. You're the best!

    ReplyDelete
  4. We closed the end of May, 2009, on a property that had a traditional winter high season--courtesy of a nearby ski area.

    We spent most of the summer cleaning, arranging, and decorating, as well as entertaining friends and the few guests who discovered us through our brand-spanking-new website.

    Fall was equally quiet, with a few aspen color people staying with us. Thanksgiving found us again entertaining friends.

    Then in December, it all started to come together. The week between Christmas and New Years, we found ourselves tested as our guest lodge filled up, and we discovered that we weren't happy when our dining lodge was full to overflowing.

    We left town during "mud season" (the weeks after the ski areas close when the snow is all melting and you can't ski, hike, boat, or really do anything outdoors--except perhaps mud wrestle in the road in a 3-mil neoprene scuba suit.

    Summer 2010 surprised us: people began banging down our doors, and we found many weekends and not a few weeks were fully booked (20 folks; we can house 30+, but it ain't fun). God bless the Chamber of Commerce. There was always something in the area to draw people to the mountains.

    Of course, it was also a fire-hot summer for the lower elevations, and we took advantage of it with our marketing that filled a lot of our rooms. We even had a woman from Nashville call up and challenge me on the accuracy of the temperature widget we had on our website. "I can't believe it's 78 there!" she exclaimed and yammered and yelled at me for ten minutes on my dime (she called on our 800 number) about how hot it was in Nashville and people were gonna start killing each other in the streets. "It's a hundred and five here, and the humidity index makes it 115!"

    "What's a humidity index?" I asked.

    "Oh, darlin', that's when it gets so hot that your sweat doesn't work."

    "Oh!" I exclaimed. "That must be like our wind-chill index, which calculates how long it takes your skin to freeze when the wind is blowing."

    She called me a liar, and I told her she was one, too. We had a good laugh over that. Then she asked me if we had air conditioning at our Lodge.

    "No, ma'am," I said (in my best Okie accent). "But we do have ceiling fans, and we have extra blankets in case our guests get cold at night."

    "Marshall!" she bellowed at her husband (I heard this over the phone), "this boy is tellin' me that it gets so cold at night at their place that they give you extra blankets!"

    "Must be lyin', Mother," I heard him say.

    "He seems a nice boy, and I'm gonna trust him!"

    She booked a week with us, flew to Denver, rented a car, and showed up at our Lodge. They were a delightful couple. She gave me a recipe for cheese grits that I haven't had the courage to inflict on our guests.

    But I digress.

    If we had stumbled into an up and running concern, we would have lasted maybe four months before ending up in a Denver psychiatric hospital on Thorazine drips.

    As it was, we got an easy start: we learned how we wanted to run our business; learned what our limits were; learned how flexible our comfort zone was. And above all, we learned that there is a rhythm to Innkeeping.

    Roxanne's advice in terms of when to buy an inn are excellent if you have the chops to dive right in to a going concern. However, we needed to learn the ropes more gently than that.

    At almost two years into the venture that she and Becky helped us accomplish, we are as happy as we have ever been in our lives. We live in one of the most spectacularly beautiful places on earth. Delightful people visit us for several days;, we have a wonderful time and conversation, then they check out, pay us rather a lot of money, and then go away before we have even begun to plumb the depths of their social dysfunction.

    ReplyDelete