Monday, July 27, 2009

Motel Sales on Hold?

Generally motels turn over ownership every 3-years and from where we sit, sales inactivity over the past 12-months hasn't increased available stock as much as you would think.

Most cash for purchasing a motel business generally comes from the sale of a residential home. For most Kiwis, they do not wish to take a fall by selling less than their original purchase price and will more often than not, sit on their hands until the market catches up. Unfortunately, the logic of buying and selling in the same market and the opportunity cost of not trading in a business while they wait is often not understood by prospective buyers.

Motel sellers can also adopt a similar ostrich mentality and will optimistically box on waiting for the economic climate to change before they seriously think about selling.

We expect a rash of buyers and sellers coming together early next year as the economic climate improves, the gloom of winter is behind us and comparative bed nights stats become positive. Expect a flood of new operators over the next 12-months. Their impact on the motel industry will be interesting to follow.

While some banks have bracketed the risk of borrowing on a motel lease alongside tattoo parlous and used car sales, we can not see why a realistic proposal with solid financials can't be considered up to 60% of purchase price.

It is disappointing to note that some brokers report deals falling over due to finance. Maybe they need to work a little smarter in order to weed out the dreamers and assist purchasers with formulating realistic, quality applications for finance.


The Nelson Mail

Many Nelson accommodation and hospitality businesses are for sale with some saying a backlog has been created by banks tightening up on lending.

Tourism Property Brokers agent Nick Lambert said he put together six deals in the past three months and half fell over due to financing problems.

Banks used to loan up to 60 per cent on leasehold properties whereas now it was a push to get 40 per cent, if anything, he said.

"It's a big problem for me."

In a recent Blenheim sale, Mr Lambert arranged for the vendor and purchaser to do a house swap due to the problem of getting finance from the bank. In other cases, he's encouraged buyers to retain their home and borrow up to 80 per cent of their equity in it to secure their purchase.

Mr Lambert has been operating in the upper South Island region for the past year and currently has 55 listings north of Hanmer Springs.

Motels traditionally changed hands every 27 months on average and people's reasons for wanting to sell were "many and varied", he said.

He doesn't believe the local motel industry has suffered hugely as a result of the recession. The latest end-of-year figures he's seen have shown a 5 to 10 per cent drop in business.

Motel Association Nelson branch president Paul Anderson said there were "above average" numbers of motels on the market nationally but he believes "that will clear" once the mood lifts and banks start lending again. "Most of the people I talk to are starting to say the signs are all there."

Many motels were tracking similar or above last year, month on month, he said. "It's getting no worse and possibly a wee bit better. I think the picture is good for the coming season."

Motels in Motueka and Tahunanui had both sold within that last six to eight weeks, he said.

"That's promising."

Wayne Wotton, a TelferYoung valuer specialising in accommodation, said more motel leases were listed for sale than usual. "Freehold and going concern there's still a shortage of property. They're fairly tightly held."

He said the last year had been "very quiet" for motel sales. He was aware of two recent sales and another under negotiation. "There have been a couple of resales where they're at a lower level than the vendors paid in 2007."

But sale prices could be influenced by individual circumstances, such as people needing to get out due to ill health, he said.

"Two of the ones I looked at recently, the turnover in occupancy had held up pretty well over the last few years."

Coffey's Tourism Property Brokers Nelson representative Anne Marshall said she had had five motel sales since October last year, with most of those being on the market for two to three months. "If they are priced right, they're going to sell," she said.


Bella Vista Motel, Tahunanui, $525,000 leasehold
Torlesse Coastal Motels, Kaiteriteri, $3.65m freehold
Greenwood Holiday Park, Appleby, $425,000 leasehold
Bakers Lodge backpackers, Motueka, $340,000, leasehold
The Honest Lawyer, Stoke, offers, leasehold
Eatery on the Rock, Takaka, offers over $1.6m freehold, but leasehold option also
Leisure Lodge, Nelson, $15m, freehold.

Source: Click HERE

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