[EP 271] State of the Market Series: Dissecting Motel & Tourism Business Sales and trends in the Hospitality Industry

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Joanna:
Hi, it’s Joanna Oakey here and welcome back to The Deal Room Podcast, a podcast proudly brought to you by our commercial legal practice, Aspect Legal. Today we have another captivating episode of our State of the Market series. We’re about to dive deep into the pulse of various industries, from manufacturing to medical, dental, and many more. Now, why is understanding the state of the market so crucial? Simple. Understanding the state of the market is the key to unlocking endless opportunities for growth, gaining valuable insights into the competitive landscape, deciphering consumer buying patterns, and most importantly, formulating effective risk management strategies. So whether you’re a budding entrepreneur or business owner seeking the next big break, or a seasoned business owner, determined to stay ahead of the game. This series is your compass guiding you through the ever-changing tides of the market. Now get ready to decode the trends and gain a strategic advantage that will propel your business to new heights. And stay tuned as we dive into another state of the market episode. Here we go.

Joanna:
Jenny Hello, welcome to The Deal Room Podcast.

Jenny:
Thanks for having me, Joanna.

Joanna:
My absolute pleasure. My absolute pleasure. Now, how about we kick it off? Obviously, today we’ll be talking about the state of the market in buying motels and accommodation businesses. But why don’t you just give us a quick background? Before we get started on that? How did you get started in this industry? And how long have you been in the industry? Like what was the reasoning? What’s the attraction in this particular subset of business broking?

Jenny:
I think I think was more, you know, a series of different points in my career that led me to where I am today. But when I kicked off, you know, out of school, I went straight into sales and marketing. So it has always been something that I’ve done, started off in. I’m going to show my age here, but started off at the time when the personal computer was starting to have a big influence on business. So I spent, you know, dozen plus years focused on software technology, how it impacts business and dealing with a lot of large businesses in that sense. moved on to a sea change. We had kids who decided that I had a bit of a liking for real estate, so did my full real estate agent license, came back to Victoria got back into real estate. I live in the beautiful town of Brighton up in northeast Victoria. I can’t imagine a better place to live and actually focused on property management. So had holiday accommodation experience in Queensland came back to Victoria continued on with that spent most of the years that my kids were growing up working for a real estate agent. And then the opportunity came around when I empty nest it and I had more time. And you know, late nights or weekend work weren’t going to be such an issue, and was lucky enough to get into selling or broking businesses in the area of tourism and accommodation. So all of those sorts of steps led me to where I’ve ended up today, which is just a fabulous niche to work in.

Joanna:
I love it and why is it such a good niche? What do you love about working in this niche area?

Jenny:
I get to travel to some beautiful towns we work in northeast Victoria. So very much tourist towns, you get to meet really lovely people in this area. It’s not it’s not all about the numbers. You know, people get in, get into motels and you know, in caravan parks, for the lifestyle as well as the you know, the building wealth. So there’s a lot of opportunity to speak to real people. You don’t you don’t traditionally have to fight the hierarchy to get through to the people that you need to. It’s still quite an old fashioned way of selling building relationships, which is lovely. And yeah, you just travel in one of the most beautiful places in the world.

Joanna:
Well absolutely, you’re selling it for all of us. I love it. Absolutely love it. Okay, all right, so, so how is selling businesses in this industry different? Do you think then other types of businesses?

Jenny:
I don’t know that the fundamentals are different at all, you know, this scalable, of course, and, you know, different markets have different needs when people are either setting up to sell or whether they’re looking to buy, but fundamentally, the elements are all the same, I just think you have a really good opportunity as a broker to get to understand your purchase or an event or really well, and there is very much a personal element to it you know, it’s the can be very much an emotional way of selling, it’s not like you’re a widget, producer, you’re a people business, you’re, if you’re going to get into this game, you need to be a people person, and your clientele, your guests, their people, too. So it’s just, it’s just a nice way to get to know people and understand what their objectives are selling or buying.

Joanna:
Okay. All right. So but I mean, you know, there are some things that are different to other industries, I guess, you know, you’re dealing with, you know, the premises, for example, are far more important, obviously, because they are the core asset, by, you know, to many other businesses. And that comes with its own challenges, I guess, what’s your thoughts about that, you know, in terms of differences?

Jenny:
if you’re looking from a purchasing point of view, you can talk about all the fundamentals to what you’re looking for when you’re buying a business. And, of course, you know, there’s this wonderful thing called setting up a deal team. Somebody in legal once told me.

Joanna:
Love it, Jenny.

Jenny:
So you know, you do have all those standard processes to go through, you want to make sure you’ve got the right accountant on board, you want to make sure you’ve got the right solicitor on board, you want to make sure you’ve got the right finances on board, but then when it comes specifically to the property itself, so in this game, you can be a freehold and business owner, or if you’re a leaseholder, then you know, you’ve got that relationship with the landlord. So talking about leaseholders, they very much have to understand their responsibilities in the business, you know, what, what applies to them as the leaseholder, and some leaseholders can be surprised at you know, how far their responsibilities go when it comes to the fixtures, you know, the carpets and things like that. So, there is a lot of education to understand, what’s your responsibility as a leasehold? And then on the other side of the coin, what’s your responsibility? What’s the responsibility of a landlord? And that’s where having done your due diligence on understanding who your landlord is, how they respond to the leaseholder, who’s potential, you know, could be just the tenant before you or the other vendor. And doing the work required to get that understood as well, because I can reflect on many, many years in property management and the relationships between a tenant and a landlord are critical. And the most success for both parties is when there’s a very open and supportive relationship between both parties. We always hear about the bad stuff that goes wrong, but it is minor. But you don’t want to be in that position yourself. If you’re investing. You know, a lot of money in buying a business when you are aligned for several months that freeholder owner is willing to do in supporting you, in your business. And, you know, purchases can go a long way to getting that established before they buy, I consider that very much part of the due diligence, you know, you really need to hammer your broker to get as much information as you can about what is the current relationship and then relying on your legal team to check the lease out for you make sure that you know the terms and conditions of that lease are going to support you for the next 2025 years, which is standard lease terms if you’re going to be a leaseholder. And if we’re talking about sellers going to market, what are some, are there any sort of classic issues that you’ve seen in failure to prepare? You know, whether it’s, you know, with the lease and the way you know, the least Dan’s issues with the lease or otherwise in this industry? Yeah, look, I think we probably like a lot of other industries. Sometimes when you are an owner-operator, you’re eventually to get to the point where you’re tired, and you want to go to market and not allowing the appropriate amount of time to set up to sell, you really, really, really have to set up to sell. And just like a purchaser, a seller really needs to have their deal team together and get all the advice they can, as far as setting up to sell you want, you want to make sure that your property is presented in the best way possible because it isn’t emotional by still someone drives up to that property. And they want to see that it’s neat and tidy, they don’t want to see water leaks, they don’t want to see gardens that are unruly, they don’t want to see potholes, you know, in the car park and all those first impressions, things that become very, very important for a buyer. And the one thing to remember about a buyer in this game is that it is not just someone who wants to build wealth, it can be the person who wants to buy their home with their business, so traditionally there’s an owner residence, and that residence needs to be presented well, because, you know, the buyer needs to feel like they can go there and make a home for their kids or, you know, they can get away and have a nice place to live. It’s not all about just making money in this game. So a lot, a lot of there’s a lot that a seller can do through first impressions, there’s a lot of stuff I can do to understand the tax implications of how it’s best that they structure their deal for sale, because I always get asked about, you know, tax implications, and I’m not a tax agent, and I’m not going to so you’ve got to have that already set up, you’ve got to have a lease in a place where you have continuously over the time of you operating had, if it’s if it’s selling as a leasehold, you’ve got to remember that it’s a depreciating asset. So you want to have a valued asset when you go to sale. So you’ve got to keep looking at your renewal terms and the options and, you know, what are the costs of getting additional years on your lease, don’t get to market and have a broker come along and say you haven’t got enough lease on it, you’re not going to get the money you want because there’s not the time for the purchaser to get the return on investment. So, you know, stupid things like making sure that you’ve had a PPSR checked. You know, I’ve had a multimillion-dollar deal that came to a grinding halt. Because the seller had a bank had, you know, their registered and registered on securities register. And it took so long to get the registration released. And it was from 15 years ago, and it didn’t even relate to the current business. So simple things like that can just be done in the beginning so that you’ve got a smooth path to to sale.

Joanna:
Okay, well, uh, why don’t we dig into it their market trends? What are you seeing in the market at the moment? What’s the market looking like?

Jenny:
The market as far as buying and selling at the moment is no doubt impacted by the current interest rate issues. So, you know, that’s affecting commercial rates just as much as it’s, you know, affecting homebuyers. It also creates a little bit of uncertainty with people, you know, the confidence in going forward. And I think, in our game, when a lot of tourists based businesses are funded with discretionary spend, you need to have that confidence that people are going to keep coming back. So looking at occupancy rates, what is the current vendor doing to maintain their occupancy rate? Are they in a niche market, there’s loads of towns that are still thriving. And it may well be that the smaller towns or you know, people may well choose to just get in their car and drive as opposed to having the money to go overseas. So it’s it’s a shame that the market forces do create uncertainty, but there is still a lot of opportunity for people to get into really good and sustainable businesses and in our game, occupancy can prove that so there’s nothing stopping you seeing what the last six months has done. You know, what happened before COVID What has happened since COVID. There’s a lot of information there that you can gather if you’re looking to buy

Joanna:
Fantastic and what like what makes a you know, an accommodation business that’s like hot in demand at the moment.

Jenny:
I think there’s a lot to be said for niching, there’s a lot to be said for how you understand and use technology, there’s a lot of opportunity. From from it from a technology point of view, there is a lot of fear by operators in how to use technology. And you know, a lot of motel leaders are generational, and they haven’t come up with technology. So they’re not necessarily maximizing the bottom line, you don’t even have to increase your occupancy, you can use technology to get repeat guests, you can use technology to go around your booking agencies, you know, they charge a big percentage of every booking. And as an operator, you can get 15% back on your bottom line straightaway, if somebody books with you directly. So there’s a lot you can use technology for, there’s a lot of opportunity to continue to repeat market to guests, you know, it’s, it’s cheaper to keep a guest than it is to go out and find a new one. So start to love who you know, love who your guests are. But I do I look, I’m so passionate about taking the older style motels for which they they’re everywhere, you know, they built in the 60s in the 70s, in the 80s, and the 90s. But using that to your advantage, don’t, don’t be put off by the mission brown paint or the you know, the brown brickwork or the blonde brickwork of the 90s you can really make a motel such fun for your guests if you just play off each of the decades, that you get into and you can, you know, we might cringe at the ad.

Jenny:
So I definitely can cringe at the 80s. But the younger generation find it so much fun. And you know, this even Netflix shows about taking on all older mode, you know, motels and revitalizing them bringing them into the modern era, but playing off all of the quirks that they have. And then that gives you a brilliant marketing opportunity. It also gives the younger generation loads of opportunity for Instagram photos, you know, whatever it might be. And you know I there’s a motel up on the on the Mary where they literally took the worst motel on the street. And they went okay, we’re doing a Bali thing. And they bought in you know, they did spend money on it. So I’m not saying that what they did was necessarily cheap. You don’t have to bring palm trees in. They created such a beautiful theme, but very retro and reminded us of the 60s, you know, the beautiful pinks and the aquas. And they did up the pool. So it had all those really reflective black and white lounges and things like that, that people just love. And but at the same time, they built a pool room where you could get out of the pool, and you could party in the pool room, it had a full kitchen.

Jenny:
So it appealed to people coming along there with their families having a pool, being in a beautiful tourist town, but such fun. You know, they could really do something fun, and they should. And I know there are guys who just want to keep going back. You know, it’s personal. It’s fun. You know, in bright, we had a recent low leaseholder bid came in and her passion was food. And she didn’t she didn’t open a restaurant. But what she’s done is she’s created a market where she her guests can get beautiful to curry boards and get access to the beautiful wines in this valley. And she’s a little bit high up off the river and got all the umbrellas and the lounges and the tables and, you know, again, a brilliant marketing opportunity. Her photos are beautiful. Everyone wants to see beautiful food and how it’s laid out and dress tables. So there’s so much if you’ve got a passion and you can apply that to your motel. I think you can do so much in this game. You’ve just you’ve just got to come along with passion and creativity really, or side hustle. If you’ve got a side hustle add that into motel.

Joanna:
Oh I love it. What are some examples of some side hustles you’ve seen incorporated?

Jenny:
Particularly in this area because this valley and you know the surrounding valleys are very much access to the snowfields so you know as a as an operator you can have already in the guest rooms you can have their skis ready you can have their snow chains ready you can have the kids to volgens ready, you can have access to tools

Jenny:
You know, getting, you know, local buses to get get you up the mountain, you can, you know, there’s an operator locally who came into it from a bus tour company and they’ve got a small buff. So they’re only a small hotel, but then motel but what they can do is book it out for their bus tours. And then you know get dressed get rolled out the door, they get in the in the bus and can go anywhere in the valleys here to see the beautiful region, drink, eat and roll back home without ever having to get in their car. So yeah, there’s lots of lots of opportunities if you just can pick it.

Joanna:
Fantastic. Well, and my last question, I just want to talk about the valuation approach to accommodation businesses, what’s the usual valuation approach? And what sort of creates, I guess a standout in terms of, you know, valuation? If, if you can talk about that,

Jenny:
yeah, I think what you’ve got, so we work in both areas, we’ve got the leasehold, so just a business component of running a motel that’s been fairly consistent for, you know, years, in that you’re probably looking at around a pic, you know, if you keep into that three, three and a half times multiple of adjusted net profit, it’s a fairly simple, you know, calculation. And again, depending on where your occupancy is, what is the opportunity to grow the business, the presentation of the business, you know, just as other pages, they have to walk in and upgrade all the beds and all the mattresses on the floor coverings. So there’s always going to be a range based on, you know, the overall presentation of the business, from a free whole point of view, that’s very much dependent on the market, or that you know, where you are, you know, and how, likely it is that there are market forces that could affect you, at any time. So you the range is can be quite, you know, the difference between selling a business inside bright, which is quite a burning tourist area, to a business that perhaps only gets travellers on one of the major highways, you would have very different approaches to that. But it could be anywhere from, you know, eight or 9% return on investment right up into the high teens. So there are a lot of factors that will go into that. And obviously, how good is the structural side of, you know, your freehold property as well?

Joanna:
Fantastic. Well, look, Jenny, thank you so much for our run through the state of the market moment for the motel and accommodation industry.

Jenny:
Thank you for having me

Jenny:
Any last parting words to our listeners? And how do they engage with you? I guess, well, certainly, they can call me at any time. So my number is 0419009033. Or it is [email protected]. My biggest piece of advice is give yourself time. Get your team set up and go into it with their eyes wide open.

Joanna:
Love it. What brilliant advice, Jenny, and thank you so much such an interesting insight into this particular segment of the market. Really fantastic speaking to Jenny, and thank you so much for being a guest on The Deal Room Podcast. Thank you, Joanna.

Jenny:
I’m thrilled. Thank you.

Joanna:
Wonderful. You have a great day.

Jenny:
Yeah, you too.

Joanna:
Well, that’s it for this episode of The Deal Room Podcast. We hope you’re now primed for your next deal with these pointers and have enjoyed these fascinating insights. Now if you’d like more information about this topic, then head over to our website at the deal room podcast.com, where you’ll be able to download a transcript of this episode as well as access any contact details and any other additional information we referred to in today’s podcast. Now if you’d like to get in contact with our guest today and the services they offer, you can go ahead and check out our show notes for a link right through to them and their details. You can also book indirectly with our Legal Eagles at Aspect Legal. If you’d like to soundboard your next steps, discuss a legal question or find out more about how we can assist whether that’s with buying or selling a business or perhaps somewhere in between. Now, don’t forget to subscribe to The Deal Room Podcast on your favourite podcast player to get notifications whenever a new episode is out. We’d also love to hear your feedback. So please leave us a review and rating. If you’re already one of our subscribers or even if you’re listening to this podcast for the very first time, every review helps our team produce valuable content for you. Well, thanks again for listening in. You’ve been listening to Joanna Oakey, and The Deal Room Podcast, a podcast proudly brought to you by our commercial legal practice Aspect Legal See you next time.