20 Jul 2015
Words Brooke Kelly

Fortune Favours the Bold Motel Buyer

Significant opportunities are now available in regional Australia for experienced, resourceful motel operators willing to back their own judgment and ability.  Amid the fallout after the mining construction boom, fortune will indeed favour the bold.

Many strong regional towns suffered a dramatic downturn as mining construction declined.  Motels that experienced outstanding trading during the resource-fuelled boom, now find a remarkable high has been followed by a demoralising low.

Some who reaped considerable benefits during the good times have, sadly, had their spirits knocked by the downturn.  Understandably, they are ready and eager to sell and move on.

So, as one door closes, another door opens.  And on the threshold are canny, counter-cyclical investors with the wherewithal to step in and drive a turnaround.

“In many cases these are historically good motel towns, but they are suffering a tough downturn. That is where the real opportunities lie,” says Resort Brokers national sales manager Trudy Crooks.

“It’s not for everyone, however.  You have to know what you’re doing.

“If you do, you will recognise quality properties in fundamentally strong motel markets, where you can buy at a very attractive price, hold it, drive the business and, potentially achieve very strong returns down the track.”

Ms Crooks cautioned buyers interested in struggling regional motels to do their homework carefully to ensure they are paying a fair market price based on current conditions.

“Look at the most recent six months trading results and compare those to the same period in the previous year,” she said.  “In most cases, the recent half year will be down significantly on the corresponding six months in the year before.

“Therefore, the motel price needs to reflect the net profit of the most recent trading period.”

The gains possible when experienced operators take advantage of the cyclical nature of the accommodation property business are clearly demonstrated.

“Four or five years ago, management rights in the big coastal resort areas were hard to sell,” she recalled.  “But those who had the vision to buy in during the downturn are certainly reaping the rewards now that they’ve rebounded so strongly.

“There has been a real role reversal – the regions were flying when the coast was in a lull, and now the opposite is true.”

According to Resort Brokers managing director Ian Crooks, the impact of mining camps on the mainstream accommodation industry cannot be ignored.

Motels in many key regional centres, he said, would still be doing reasonable business, if not for mining camps that continued to operate beyond their intended or permitted scope.

“In some places, mining camps permitted only to operate during a project’s construction phase have remained open and are now offering short-term accommodation in competition with motels,” he said.

“I’m pleased to see action has been taken in some areas, with show cause notices issued.  If more of these camps were closed down, as they should be, it would bring life back, not just to local motels, but to the towns in general.

“I think that will happen, and it is another factor to be considered by those who are in a position to grab the significant opportunities out there now.

“The fact is, right now, a lot of regional motel owners want to move on.”

 Advice from renowned counter-cyclical investor Warren Buffet: 

“Be fearful when others are greedy and greedy when others are fearful.”