Is Investing in a Hotel Real Estate Property a Good Idea?
In the beginning of 2020, in the pre- Corona conditions, the hospitality industry was blooming and there were heavy investments in new hotel real estate properties and resorts. Just in the USA itself, for 2020 there were construction projects for the total count of 40,000 new beds.
However, in the last 7-8 months, for hoteliers the situation has changed dramatically and going into the unknown, it continues to remain uncertain. Just recently, Germany and France imposed new travel restrictions where even domestic leisure travels are banned, the only guests allowed to check in are essential workers and business travelers. With so many properties required to close their doors once again, some may never reopen. This had happened to a few hotels in Manhattan, New York City after the March closure, even the iconic Roosevelt Hotel that had been operating for the last 97 years and had survived the World War II is permanently closed now.
While in many countries, there are government subsidies to support the travel industry, some business owners will not make it out of it and if there is a mortgage payment or else credit involved, there is a high probability the hotel real estate property will go on sale. Those owners who are fortunate enough to have a debt free building may wait for better times to come, using the time to renovate/upgrade the building, however, these with high mortgage payments would have no other option but selling the business. Our recent web search showed that all the way from Moscow, Russia to Bali, Indonesia there are various by type and size hotel real estate properties on sale right now. And there will be many more to come…
So, is it a good idea to invest in a hotel real estate property? Yes, regardless of whether you are an investor that is looking for a building to flip into a rental residential property or a small entrepreneur searching for its dream property where to open an eco-village, boarding school, horse farm, etc., it is a good idea to buy when there are “hot deals” on sale. The forecasts of travel organizations as IATA are that the travel industry will not reach its pre-Corona rates until 2023 and so if you are planning to keep operating the building as a hotel you should definitely be looking for “diamonds in the rough” that can be fixed and turned into “milk cows” once the people are back on the road and the numbers are on the rise.
Let’s look at the story of the iconic The Mount Washington Resort located in the beautiful White Mountains of Northern New Hampshire. The hotel’s story had begun back in 1900 when the local entrepreneur Joseph Stickney had hired 250 Italians to build the magnificent hotel. It was completed and successfully opened for business in 1902, but as anticipated through the last 118 years the property, had its ups and downs. One of the significant events that took place there was the 1944 The Bretton Woods Monetary Conference at which the World Bank and the International Monetary Fund were established.
In the last 30 years the historical property was turned into a “gold mine”. In June of 1991, the hotel with its surrounding condos, ski area, restaurant, and golf course was sold on auction after the previous owner had defaulted on a mortgage as a result of the early 1990s recession. FDIC had garnished the properties and a venture of six local business people had purchased the historical building for the amount of $3,150,000. The Mountain Properties Preservation Corp, a limited partnership invested heavily in renovations and winterization of the 235 room facility. The investors generated cash flow for the major constrictions that took place by selling the condo units in the area to private investors/second home owners for $50,000 each. In 1999 The Mount Washington Resort was opened for its first winter season and due to its proximity to Boston metropolitan area and New York City, the hotel quickly became a preferred ski resort in the Northeast USA.
In 2006, the local corporation had decided to sell the property to CN Lifestyle Properties Inc., a Florida publicly traded company, for the amount of $45,000,000. Omni Hotels took over the management of the hotel and rented it until 2015, when CN Lifestyle Properties agreed on selling the resort to its long term occupant – OMNI Hotels and Resorts for $90,000,000.
Of course, if a hotel real estate property offer comes across, there are still important things you need to consider and one of them is location, location, location. If the venue is located in the heart of a historical area or in a metropolitan busy area, it is more likely that it can be easily converted into rental units/offices. If the condition of the venue is “mint” you can start generating income immediately, by offering a short time lease to people looking for a home office or a place to quarantine themselves. More and more companies are allowing their employees to work from home and in urban areas where apartments are smaller this can be challenging, especially if the children are distance learning as well. Therefore, many “smart” working employees prefer renting an actual “office” and as long as the Internet connection is reliable a hotel room can be the perfect match for them.
On the other side, if the property is located in a rural area, you may consider flipping the building and surrounding amenities into second home units, a private language school, rehab, medical center, eco farm, etc.
The skies are unlimited! If you have a business project in mind or cash that needs to be invested, we recommend you keep your eyes wide open as they will be some “diamonds in the rough” coming up.
In case you have already found the right property for your business project and need financing, please contact us here.