Monday, September 26, 2011

Motel Best-use


The life cycle of an accommodation complex can vary according to the quality of the initial development, location, travel trends, guest expectations, frequency of refurbishment and the acumen of management.

The fall from grace of any accommodation complex is a depressing sight and seeing obvious signs of faded grandeur as a business spirals downwards makes me shudder. 

It would appear that many well positioned accommodation properties at the end of their best-use are being redeveloped into individually-owned long-term stay residences. The viability of these projects can vary considerably.

Last year we did a post on the old 1970s-era Gallop Inn Motel in Ellerslie that was up for grabs by mortgagee sale. It's a unique property with a large footprint close to central Auckland. In its final years, the property was renamed the rather lofty title of: Champion International Hotel.

I see that the property's listing details from when it was operating are still frozen in time on various outdated online directory sites:
Standard unit just cost $75 per night, family unit $118 per night. Even long team price from $180 per week (over 1 month).
We offer free and safety car park, nice and clean room.
We have nice and peaceful environment.
Good restaurant offer you delicious Malaysian and Chinese food.
The low tariff, the acceptance of long-term tenants and poor English gave an indication of the level of quality experience on offer. Not surprisingly, the owners got into financial difficulties. The complex appeared to be at the end of its cycle and looked shabby, bleak and unloved when offered for sale earlier this year. 

Barfoot and Thompson Commercial ran a tender campaign last April and I see that the freehold property was sold to distressed property speculator, David Gaze for a "bargain" price of $4.2 million. 

At the time of sale, the property had an average occupancy rate around 20%. It has been reported that the occupancy has since increased to 98% and it is interesting to speculate the quality of tenants that may occupy this type of property in its current state.

Gaze has re-birthed the property as Ascot Mews and plans to sell it to a limited partnership of investors for $5.2 million. Investors will then have an opportunity to assist with the funding of the refurbishment of the motel and increase the number of units, with a minimum $250,000 stake in Gaze's Property Recovery Partnership Limited company. The required minimum level of investment eliminates the hassle and expense of producing a prospectus.

Investors are promised a return of 7 percent p.a. that will be initially sourced from renting refurbished motel rooms and thereafter investors will share in profit (if any) with Management.

The feasibility of the project appears to require the commitment of its investors to land-bank the site and wait for the realisation of the longer term goal, to convert the complex into 45 home units on individual unit titles and offer for sale. This will be presumably occur at a time that will take advantage of the possible future lift in property values. 

It will be interesting to see if new life can be injected into the once proud Gallop Inn Motel so that it will no longer be a blight on the landscape and a reminder of past better-times.

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