Saturday, December 21, 2013

The Boston Globe on New Camden Maine Restaurants

Camden, Maine...where the mountains meet the sea...

The Boston Globe mentions a few of the newer, small creative restaurants that stay open year round. Camden is becoming a place for visitors in the off season as well as providing a sense of community (and nice dining options!) for locals. I've eaten at most of the restaurants listed, and tried to get into one but the line was too long and we were too hungry. But I will try again!

And I happen to have a few listings in the area! Check them out if you're interested...

Salt Water Farm in Rockport, a short 8-10 minute drive from Camden

Monday, December 2, 2013

New Mid-Coast Maine Motel for Sale with Separate Owner's Home

This immaculate, well maintained 13 unit motel offers a strong business with room to increase both occupancy and rates.

Separate owner's home with fireplace, 3 bedrooms, 1 bath is an added bonus!

Offered at $525,000. Visit the listing page on my website for more details.

Friday, November 29, 2013

Friday, November 22, 2013

SOLD! Martin Hill Inn, Portsmouth, NH

Congratulations to my clients and new innkeepers, Russ & Meg and to my colleague Rick's seller, Margot. We wish you all the best in both of your future endeavors!

Sunday, November 17, 2013

Mount Snow Vermont - PAII Regional New England Innkeeping Conference & Trade Show

We just returned from the New England PAII conference held at Mount Snow outside of Brattleboro, VT. This was my second PAII conference (my first was the annual held in Vegas, January 2013) and second time as a workshop presenter. We're headed to Charleston, SC in January for the annual conference which should be a nice little escape from the weather in Maine (although I love snow, yes, that's right!).

The advocacy and support that this organization provides is unparalleled. And the planning that goes into these events, to educate and support our industry is greatly appreciated. And I'm honored to be a part of it!
The B&B Team at the trade show (most of us, we're missing a couple)
The amazing women on the staff of PAII!
Ingrid, Michele, Brook, Isabel & Donna
Jay Karen, the President of PAII, with the Beekman Boys!

Deneen Pottery Mugs

Rick Wolf and Peter Scherman holding one of the workshops

Our bus ride (with Jay Karen!) headed to our night out in Brattleboro, VT
We work hard AND have fun!

Tuesday, October 8, 2013

The importance of using a local lender well versed in hospitality...

Would you go to a cardiologist if you're having problems with a swollen ankle? 

Or take your watch to be repaired by a seamstress?

Then why would you go to a lender who doesn't deal in the hospitality industry? 

A little dramatic, yeah, but you get my point!

There are many reasons to speak with local lenders when considering your lodging purchase but here are five pretty strong ones:

  1. THEY KNOW THE INDUSTRY - One of the most important is that a lender with a reasonable hospitality loan portfolio knows the tourism industry (and the local tourism) and associated lending risk. They understand this "lifestyle job" and that depending on the size of the property, it may not provide a big paycheck in the end. But it does provide a nice lifestyle and many of the innkeeper's living expenses are passed through on the income taxes as a certain amount is perfectly acceptable to the IRS. 
  2. TAX RETURNS - In that same regard, these lenders know how to abstract a lodging property's tax return. They understand what personal expenses might be typical for an innkeeper to pass through to the corporation. This is not being less than honest to the IRS, rather an understanding that a portion of your mortgage, utilities, food, etc are being paid by the corporation but you may not be taking a large salary either. If you had a home, a job offsite, you'd get a paycheck, pay your mortgage, utilities, food, etc. from your income. With a hospitality property, a certain percentage of the business is being used by you as your home and living. This is taken into account when doing your income taxes and is understood by both lenders and appraisers well versed in hospitality.
  3. SEASONAL PAYMENTS - in some seasonal tourist locations, lenders understand the short window innkeepers have to make their money, often May through October. Local lenders understand this and some offer seasonal mortgage payments, where the annual mortgage is made in 4 installments, for example, paid in July, August, September and October, when the income is the strongest. Not only does this alleviate any possible concern on the lender's part, but helps some innkeepers who prefer not to budget for monthly payments either when they're closed or when business is much slower. This also helps buyers who have missed getting into the business before the busy season but want to close in the off season - ask the lender about seasonal payments. They might be willing to defer your first mortgage payment until the busy season starts. Lenders who aren't in hospitality won't usually play this game. 
  4. THEY GET TO KNOW YOU - working with local lenders who know the community, know the tourism and get to know you and how you're handling your business are more willing to make things work for you down the road (if you need a loan, equity line, future purchase, etc). Sometimes when I refer clients to a couple of my local lenders (with whom I did business), my clients always come back and tell me that the lender commented about being pleased that they're working with a broker who knows her stuff as a former innkeeper! Why? Because they knew what I did with my business. They have a level of confidence with a client who proves they did what they told the lender they'd do in their business plan!
  5. KEEP IT LOCAL - this movement of supporting local business goes beyond the local farmers and retailers. Lenders support the local businesses that support them. It's pretty simple. 

Wednesday, September 25, 2013

SOLD! Towne Motel in Camden, Maine

Congratulations to the buyers, Katja and Siobhan and sellers, Rick and Jane! The B&B Team, Inn Consultants and Brokers was proud to represent both parties (Rick Wolf represented the buyers, I represented the sellers). We wish them all the best in the next phase of their lives!

Wednesday, August 21, 2013

I'm often asked "How's the B&B market doing?"..........

The commercial and residential real estate markets are two different animals. Commercial real estate relies on valuation based on the performance of the business while residential real estate relies on the performance of the market, or what the buyer is willing to pay and can afford to pay.

We've heard for years now that the commercial market would bounce back much later than the residential market. And if you understand the fundamentals of the commercial market, you'll understand why this makes perfect sense.

What has held the commercial buyer back over the past several years has been their ability to sell their home in order to have the funds to buy a lodging business. But with indications of an improving economy and growing consumer confidence, the lodging buyer has been more successful in selling their home in the past year, more or less, and is now ready to push full steam ahead on the next step in their plan. Buyers have accepted the "new today" and realize that their assets are worth what they're worth, and in all likelihood they're only going to get better. Some have decided to reinvest their 401k's or retirement funds by a self directed IRA or something similar and are in a position to move forward now rather than wait.

When a commercial property sells, the gross revenue multiplier (GRM) and cap rate are considered. We take the sale price and divide it by the gross revenue (without sales tax) and come up with our GRM. We take the sale price and divide it by the net operating income (NOI) and come up with our cap rate. As buyers are willing to pay more and more, these indicators will slowly improve over time.

This might explain why I'm working with more buyers right now than I ever have before....and I'm ready. Bring it ON!

Wednesday, August 14, 2013

New Listing! Wiscasset Motor Lodge in Wiscasset, Maine

Offered at $895,000, this is a financially viable business with plenty of room for potential. Visit my website for more details about this listing.

Pre-qualifying Commercial Buyers?

When we hear the question "have you pre-qualified your clients?" in a residential transaction it usually means that your buyer has been in touch with a lender, submitted their personal financial statement and received a "pre-qual" letter from the bank. This letter would state that based on the buyer's financials and their job income, they are capable of purchasing something in the $xxx range.

But in a commercial transaction it doesn't happen like this. Since commercial deals are almost always based on the financial performance of the business and analysis of the net operating income, until a buyer can submit the financial statements for the business they're interested in pursuing, the lender can't give them any type of pre-qualification.

What we, as buyer brokers, do is we vet our buyers to determine what their available cash will be for a downpayment, what their cash reserves might be so that we know realistically what property might or might not work for them. Not what price range necessarily (as in a residential transaction) but what their  available cash for downpayment might afford them.

While a $250,000 downpayment might afford a $750,000 if the property's NOI is high enough, it might better afford a $1,000,000 property if the NOI is strong enough. Here's an example:

This is a scenario I have with current buyer clients of mine. They wanted to put down a good chunk of money on a lower priced property to not have a large mortgage. But with a lower priced property often comes a lower gross income and lower NOI. So here are two properties where their $250k downpayment shows a much better cash flow (owner paycheck) if they purchase ABC Inn over XYZ Inn. We can also see that if they put much less than $250k down on XYZ Inn, the DCR would be too low, in other words, there wouldn't be as much to cover the mortgage and give the owners money to live on and the banks want to see this DCR in the 1.25-1.3 range. That was explained in greater detail in a prior blog post.

So ultimately, you (buyers) want your money to work for you. The best way to do this is to tell your broker what you have for available cash. Your broker will discuss what you can afford based on the performance of each business you inquire about. So focus will become "what is the gross income?" and "what is the NOI?", not really "what's the asking price" or whether or not you are pre-qualified for a purchase. Your broker will be able to tell you and other listing brokers if you are qualified to purchase ABC or XYZ Inn.

Monday, July 22, 2013

New Listing near Acadia National Park! Clark Point Inn, Southwest Harbor, Maine

Clark Point Inn has 5 guest rooms, a desirable location and very nice harbor views! More details are on my website.

NEW listing in Portland, Maine! Inn on Carleton in the West End

Located in the desirable West End historic district of Portland, this inn offers a financially viable business, a beautiful outdoor living space, a stellar reputation and lovely interior guest and owner's space. Offered at $1,575.000. Visit my website for more details.

Wednesday, July 17, 2013

Gross Income Should Not Include Lodging Sales Tax When Talking Value!

When our guests pay for their full stay, we include our local state sales tax. How this translates in accounting terms is that the cost of the room is revenue earned and the state lodging sales tax is a liability. The tax is not ours to keep, it's ours to pay to the state each month.

When brokers, lenders and buyers look at profit and loss statements during due diligence, we need to determine if the gross revenue includes the sales tax and if it does, there should be an expense line item for sales tax (payable) so that we can net it from the gross revenue collected. Sometimes the lodging tax is netted from the gross revenue collected when it's posted thus we never see it. Either way is acceptable, we just need to know in order to determine the gross revenue net sales tax when analyzing value.

So why is it so important to net the sales tax from the gross revenue? There are a few reasons. One of the methods of business valuation used is a GRM (gross revenue multiplier) and another more heavily used is a capitalization rate (cap rate). If the gross revenue is inflated by including the sales tax, we don't have a true sense of the real revenue. And since we take the gross revenue and multiply it by the recent GRM (taken from other sales), it would be falsely inflated if it included sales tax. However, since the cap rate is calculated based on the NOI (net operating income), it is not affected by including sales tax in both the revenue and expenses because the sales tax is a wash in this calculation method.

For example:
If ABC Inn is listed for $1,050,000, has a gross income of $214,000 (including sales tax) and NOI of $90,0000, sales tax collected is $14,000. Let's assume the recent GRM is 4.5 and the recent cap rate has been 9.5%. Doing some cursory calculations, here's what we end up with:
GRM = $900,000 (net sales tax)
GRM = $963,000 (including sales tax) 
Cap Rate = $891,000 

You can see that the assumed value of the inn in this scenario is based solely on the GRM including sales tax is over inflated by $63,000 when the sales tax is not ours to keep, so there should never be a value placed on what is not ours.

We also see that the cap rate and the GRM (net sales tax) are very close in value and within 85% of list price, so it would seem that the list price based on these calculations is a reasonably defensible list price.

But it's up to the lender and appraiser to make the final determination of value. But this information is valuable for you to use when doing a quick evaluation to know if the numbers are within a range of where you need them to be, either as a buyer or seller.

Remember... this is still

Wednesday, July 10, 2013

P&L vs. the Corporate Tax Return: the Tax Return Is KING!


Each of these income producing lodging businesses is just that, a business. And let's face it, when it comes time to prepare the business's tax returns, we naturally try to deduct as many expenses as we legitimately can to reduce our tax liability. 

But when your property is on the market for sale, minimizing the net income on the return should no longer be your focus, rather the complete opposite should be your focus. When a lender analyzes your business, the tax return is KING. During the buyer's due diligence, the profit and loss statements are often provided to the buyer to understand how the business operates, but the lender uses 3 to 5 years of tax returns to analyze the business value. In essence, they start with the net income, add back amortization and depreciation and come up with a revised NOI (net operating income) with which the buyer has to cover their mortgage with some amount of cash left to live on. Quite often the P&Ls show a higher NOI than the tax returns because of deductions taken. The lender may take certain deductions and seller explanations into consideration when determining value, but the tax return is still KING!

The same way we discuss with our buyer clients their future exit strategy (which could be well down the road), innkeepers should consider the impact of their tax returns when thinking about selling and eventually, their exit strategy. At some point during your ownership of the business, a gradual transition from claiming as many deductions as possible to showing a greater bottom line is something to discuss with your accountant and your lender. Your lender can give you an idea of your business value at any time and your accountant will inform you of the tax implications of shifting your focus on the bottom line. This may cost you some along the way, but the value of your business in the end could have a much more beneficial impact when your buyer's lender orders an appraisal. The greater your NOI, the greater your business value and potential sale price. Just something to consider...

Wednesday, June 12, 2013

Using your 401K toward a hospitality purchase?

Are you aware that under the right circumstances you can rollover your 401K into purchasing a new business, such as a bed and breakfast? Check out R.O.B.S. (rollovers as business startups) and Self Directed IRA's via Guidant Financial. This could make the difference in finding just the right inn and using your cash wisely! Be sure to consult with your broker - there are restrictions with regard to living onsite, and depending on location, may or may not be an issue.

Thursday, May 23, 2013

Buyers, do you Google research the inns you're looking at?

One of the best ways a buyer can learn about the property they're looking at is to Google the name of the inn and even the name of the innkeeper(s). Once you've focused on a property or two, set up Google Alerts for the inn's name and innkeeper(s) names.  Of course you should read reviews on TripAdvisor, Yelp, etc. but you should really dig into what has been written about the inn, from media articles to forum posts (more about that in another post) to guest blogs and see what you can find. This might help you not only understand what kind of reputation the inn has, but also you might find comments which would help you understand any uphill battles you may be facing or to the contrary, just what size shoes you have to fill to maintain the level of business and keep the seller's repeat guests coming back.

Not only does your new inn have a reputation but so do the former innkeepers. And keeping track of what's being said will help you in the future!