Selling part B.

[TheBeachHouse]

Tangentially related to GoodScouts question on brokers to sell inns, but I didn’t want to reroute his thread, so here we are.

In my town, inns are selling, but as homes. The real estate value is higher than the business value. Have you run into that? As in many industries, the big hotels have the business money and us little guys are getting old with no one to grab the reins. Plus, if we pass the business down, where will we live?

We just lost another very successful, very well known and well run Inn to a single family home. That’s eight inns gone in the time since we bought ours. Four gone since covid hit. For context, There are 16 in our association and maybe five or seven who don’t want to join our group. All eight sold in the past eight years have been converted to single family homes or condos. We are the only one that changed hands that remained an inn.

The question - are small inns going away? Is there a market for,our unique lifestyle?

 

[Morticia]

At this point in time, that’s a tough question to answer. So many factors come into play. You have a mass exodus from ‘corporate’ jobs going on, you’ve still got a pandemic (Altho, from where I’m sitting, very few travelers are worried about that), you’ve got a nationwide housing shortage, there seems to be an incredible about of money available to buy what’s for sale, you’ve got inflation which works for and against you selling.

Our place sold as condos. The buyers already had jobs they liked and were not interested in adding another one. I think if they show what they’re doing to the old inn is successful, more inns will sell the same way. They have a nice place to live and a few extra apartments in a town that has little in the way of rentals. Rents for the size of apartment they can create start around $1800/month. The buyers are making sure each apartment has at least two bathrooms (unheard of) and a laundry room. Now you’ve pushed the rates over $2000. They can easily pay the mortgage and taxes without having to cook and clean and socialize everyday.

We considered doing that before we sold. But, we wanted to retire and have our house to ourselves again. As it stands right now, I could rent my spare bedroom tomorrow, the housing shortage is so bad in my town. But, I want my house to myself!

 

[TheBeachHouse]

We’ve had that “house to ourselves” conversation also. We could easily convert the third floor to a one bedroom apartment with an outside entrance with no construction. But the, we have people in the house. Or do we? If it’s a separate apartment, isn’t it the same as us finding a condo in a building elsewhere? Still close neighbors.

For now, the plan is to close and stay. But things can change between now and years from now.

 

[Morticia]

Those people will be tenants. They’ll call you at all hours, while you’re on vacation, while you’re at your grandparent’s funeral, to let you know the shower drain is slow and they don’t like standing in soapy water.

We had tenants for four months. They called one Saturday to tell us the lights wouldn’t come on in one of the rooms. We asked if they checked the breaker. No, that’s the landlord’s job. These were the people we bought the house from. They did not want to vacate until four months after the closing, so they rented the house from us. We spent all day trying to find what was wrong.

One of my friends, who converted a couple of rooms into an apartment, found her tenant dead.

I definitely wanted my house to myself! So, what happened? A grandchild came to live with us. Now off to live elsewhere, but it was like the universe laughing at ‘what I want.’

 

[gillumhouse]

A character in a series by Harlan Coben had a quote he used frequently that covers that - Man plans - GOD laughs!

 

[scottcrumpton]

The question - are small inns going away? Is there a market for, our unique lifestyle?

Such a great question, such a complex discussion...

Industry Shrinkage
During our 27-year tenure as marketers for the small lodging industry, we've now been through three black swan events (9/11, 2008/9, & Covid). In each event, the number of B&B's in the US has declined somewhat dramatically. Sometimes it takes a few years for the shrinkage of the industry to be realized but indeed, our industry has steadily declined in "quantity" over the last three decades. Take Ashland Oregon as an example -- back in the 90's there were 80 inns in a town of fewer than 20,000 people and now there are less than 10 and that's just one story of hundreds of other small towns.

Industry Change
After 9/11 I wrote a magazine article called "Survival of the Fittest" to describe what I saw in my industry crystal ball. The gist of the article is that those who were willing to forage for food (invest into their marketing) would survive the downturn while those who simply tried to hibernate and weather the storm would wake up to even less business and market share. Indeed, that's what happened and many inns simply sold as private homes in the following years or at severely discounted prices.

When we entered the industry in 1994 we were sometimes referred to by innkeepers as "those marketing kids". Amazingly, many of those same innkeepers are still running their inns. What's my point? While there has been some turnover of innkeepers in the industry, the average age of innkeepers has increased over the years. Nothing wrong with that -- just making an observation.

Traveler Demand
Two years ago all of our clients were forcibly shut down by the government and for several months we had no idea what was going to happen. Then things really began to change as inns opened back up and hotels continued to offer limited options due to reduced staff. When the pent-up demand was finally released in the summer of 2020, our clients experienced record revenues that were completely unexpected and this trend has continued. Some inns saw the opportunity to take excellent care of their guests and were willing to yet again invest into their marketing and reap the harvest.

The Future
Nobody can predict what's going to happen next but we have some good guesses based on what we're seeing and on past experience. Here's what we think is going to happen:

• The quantity of inns in the US will diminish while the quality will increase. Basically, survival of the fittest.
  
  
• Many inns will be sold as private homes due to the high demand for residences and the lower demand for buying a business. As the old saying goes, very few people want to buy a job.
  
  
• Inns are starting to be purchased by buyer groups and this will increase. So a group of investors will buy several inns in the same town and sometimes buy other businesses as well. Some groups (e.g. Lark Hospitality) are buying successful inns in a variety of locations and we'll begin to see many more of these investment groups enter the industry in the coming years.
  
  
• The current demand for staying at small inns will continue for around the next five quarters (unless something happens to the economy).
  
  
• Innkeepers who treat marketing as an investment will thrive while those who see marketing as an expense (and thus seek to constantly reduce the expense) will achieve lower results. Sorry, that's the simple math of ROI in that the less you invest the lower your return will be.

Indeed, you have asked two distinct questions which are:

1. Are small inns going away?
2. Is there a market for, our unique lifestyle?

And here are my answers to each:

1. Yes, many small inns are going away as innkeepers retire and sell their properties as residences. The industry will remain and there will be demand for the "inn" experience but the taste of the traveler has changed. Put simply, the younger generation wants the charm of a B&B on the outside with the sleek, modern feel, and convenience of an urban hotel on the inside.
   
   
2. Is there a market for the unique lifestyle of the innkeeper? Sure, but it's a diminishing market. What we're seeing more of are savvy business people buying inns and hiring professional staff to run them. So there will still be people seeking the lifestyle of an innkeeper but it's a much smaller group of adventurous souls.

Finally, what does this mean for ALP and state associations, especially in a YouTube world where education is free? I think you can do the math on that one and indeed, the consistently shrinking membership of these entities tells the story by itself.

I hope that helps answer some questions at least from my perspective.

Scott Crumpton, CEO
White Stone Marketing and White Stone Brokers

 

[Anon Inn]

Fewer inns, more STRs in this part of the world. That said - last year was the busiest I’ve e v e r had. Even in this tiny place people come who want the unpopulated outdoors, the service and the meals they didn’t have to make themselves.
This inn is also my home. I will stay as long as I’m upright. I’ll keep running the inn as long as the enjoyment is greater than the tiredness. It was a blessing in 2020 to have the (distanced) social interaction of guests. Now that the temps are warming and the sun is making more appearances the bookings are starting. The number of advance bookings indicates another busy season.
In a nod to increasing years under the belt, I did give up active management of long term rentals. So far so good. I anticipate when this place is finally sold it will go as a private residence.

 

[JimBoone]

Those people will be tenants. They’ll call you at all hours, while you’re on vacation

@The Beach House, off the wall thought: sell the house under the condition that you remain as the 3rd floor tenant for a specified number of years, paid or unpaid tenant depending on how you structure the deal, make yourself the tenant that bugs the other guy.

 

[gillumhouse]

JimBoone said: @The Beach House, off the wall thought: sell the house under the condition that you remain as the 3rd floor tenant for a specified number of years, paid or unpaid tenant depending on how you structure the deal, make yourself the tenant that bugs the other guy.

The ONLY problem with that is climbing the stairs unless it includes Room Service or an elevator.

 

[FHI2426]

Such a great question, such a complex discussion...

Industry Shrinkage
During our 27-year tenure as marketers for the small lodging industry, we've now been through three black swan events (9/11, 2008/9, & Covid). In each event, the number of B&B's in the US has declined somewhat dramatically. Sometimes it takes a few years for the shrinkage of the industry to be realized but indeed, our industry has steadily declined in "quantity" over the last three decades. Take Ashland Oregon as an example -- back in the 90's there were 80 inns in a town of fewer than 20,000 people and now there are less than 10 and that's just one story of hundreds of other small towns.

Industry Change
After 9/11 I wrote a magazine article called "Survival of the Fittest" to describe what I saw in my industry crystal ball. The gist of the article is that those who were willing to forage for food (invest into their marketing) would survive the downturn while those who simply tried to hibernate and weather the storm would wake up to even less business and market share. Indeed, that's what happened and many inns simply sold as private homes in the following years or at severely discounted prices.

When we entered the industry in 1994 we were sometimes referred to by innkeepers as "those marketing kids". Amazingly, many of those same innkeepers are still running their inns. What's my point? While there has been some turnover of innkeepers in the industry, the average age of innkeepers has increased over the years. Nothing wrong with that -- just making an observation.

Traveler Demand
Two years ago all of our clients were forcibly shut down by the government and for several months we had no idea what was going to happen. Then things really began to change as inns opened back up and hotels continued to offer limited options due to reduced staff. When the pent-up demand was finally released in the summer of 2020, our clients experienced record revenues that were completely unexpected and this trend has continued. Some inns saw the opportunity to take excellent care of their guests and were willing to yet again invest into their marketing and reap the harvest.

The Future
Nobody can predict what's going to happen next but we have some good guesses based on what we're seeing and on past experience. Here's what we think is going to happen:

• The quantity of inns in the US will diminish while the quality will increase. Basically, survival of the fittest.
  
  
• Many inns will be sold as private homes due to the high demand for residences and the lower demand for buying a business. As the old saying goes, very few people want to buy a job.
  
  
• Inns are starting to be purchased by buyer groups and this will increase. So a group of investors will buy several inns in the same town and sometimes buy other businesses as well. Some groups (e.g. Lark Hospitality) are buying successful inns in a variety of locations and we'll begin to see many more of these investment groups enter the industry in the coming years.
  
  
• The current demand for staying at small inns will continue for around the next five quarters (unless something happens to the economy).
  
  
• Innkeepers who treat marketing as an investment will thrive while those who see marketing as an expense (and thus seek to constantly reduce the expense) will achieve lower results. Sorry, that's the simple math of ROI in that the less you invest the lower your return will be.

Indeed, you have asked two distinct questions which are:

1. Are small inns going away?
2. Is there a market for, our unique lifestyle?

And here are my answers to each:

1. Yes, many small inns are going away as innkeepers retire and sell their properties as residences. The industry will remain and there will be demand for the "inn" experience but the taste of the traveler has changed. Put simply, the younger generation wants the charm of a B&B on the outside with the sleek, modern feel, and convenience of an urban hotel on the inside.
   
   
2. Is there a market for the unique lifestyle of the innkeeper? Sure, but it's a diminishing market. What we're seeing more of are savvy business people buying inns and hiring professional staff to run them. So there will still be people seeking the lifestyle of an innkeeper but it's a much smaller group of adventurous souls.

Finally, what does this mean for ALP and state associations, especially in a YouTube world where education is free? I think you can do the math on that one and indeed, the consistently shrinking membership of these entities tells the story by itself.

I hope that helps answer some questions at least from my perspective.

Scott Crumpton, CEO
White Stone Marketing and White Stone Brokers

Good comments Scott. In our town, when we bought 4 years ago, there were maybe 6-7 B&B's, in 1999 there were 20. Now we are practically the last one standing and the remaining 2-3 small "room at a time" places price as a luxury stay and one place has rooms over a diner.... Many that fell by the wayside converted to whole house Air STR's because 3-4 rooms were simply not economic for someone to make a living, it was a hobby. Enter the investors.

We added a 6th room, invested in marketing (love your comment investment/expense) , did all needed renovations, got amazing reviews, raised prices and voila we have a cash generating machine and we are ready to sell to the right buyer at an attractive 10% cap rate on 2021 NOI ( and 2022 booking pace now looks to be amazing, beyond our wildest dreams when we bought). We achieved what we set out to do

So for owners it really depends what you want - is this my lifestyle, my business or my side business? How picky do I want to be with a buyer?

While Scott has a longer perspective, what I observe (and I was at ALP, Scott, you know me, I moderated your one speaker panel ), is that there are many professionals ready to hit the eject button from the corporate grind and apply their skills and energy. So if you offer an attractive lifestyle in a great location you will have a market... We got rid of all the corporate BS and stress in our life, we have so much fun now. My wife made the highest income in her life last year doing laundry, ironing and baking... sure beats a teacher salary...who knew!?!

 

[JimBoone]

JimBoone said: @The Beach House
The ONLY problem with that is climbing the stairs unless it includes Room Service or an elevator.

Yep, I fully agree, wouldn't work for us as we wouldn't make it up one flight, comment was based on Beach House saying they could convert the third floor to an apartment. Age sure jumps on us too fast.

 

[Silverspoon]

We’ve had that “house to ourselves” conversation also. We could easily convert the third floor to a one bedroom apartment with an outside entrance with no construction. But the, we have people in the house. Or do we? If it’s a separate apartment, isn’t it the same as us finding a condo in a building elsewhere? Still close neighbors.

For now, the plan is to close and stay. But things can change between now and years from now.

We found the perfect solution for our situation. How to have the house to ourselves yet bring in enough income renting to cover taxes, insurance and maintenance? In 2000 we built an 800 sq ft cottage and took 15 years to build a solid seasonal B&B customer base for that accommodation. With the advent of the pandemic, we eliminated the traditional full breakfast we were known for, and began offering longer stays of 5-10 nights with or without breakfast stocked in the cottage. We closed the Main house suites to ”strangers” and now can invite family/friends as we wish. As we wind down it was the perfect solution to our problem. I’m still doing the ”turnovers” but can foresee the day when we will have to hire that out. All of our guests are “returning” guests who need little or no interaction with us. Many have actually become friends…a real bonus!

Maybe some version of this would work for you? Do you have any outbuildings you could reconfigure into one “vacation rental” type accommodation?

 

[TheBeachHouse]

There’s no room or money for a new construction project. The apartment idea would cover that.