It was only a short fourteen months ago that I wrote about how there were many excellent buying opportunities available in the motel and accommodation sector and how the demand and the appetite from those already in the industry was very strong. At that time there were many good quality motels available for sale on the market even whilst numerous sale transactions were completing.
Well, how quickly things change…
The demand for further acquisitions from experienced owner operators has not changed. The desire to purchase more and to grow and expand has not diminished. However, the current stock available for sale has changed significantly. The combination of numerous sales being transacted over the past two years, along with more and more owners not wanting to sell a quality income producing accommodation asset, has created this change in the landscape of the market.
Now there is a large pent-up demand from a strong and cashed-up buying sector, looking for quality accommodation assets to acquire. Many of these already own accommodation businesses and properties and are looking to expand their portfolios. Others are first-time entrants to the accommodation industry but have friends, family or colleagues who have been in, or are currently in the industry, who have endorsed them to pursue accommodation businesses and assets.
This has also been the case within the caravan park for sale sector. With many parks having sold over recent years and the reluctance of others to sell, suddenly there are very few parks available on the market. The demand from large corporate investors through to ‘mum and dad’ operators has been significant for these ‘lifestyle’ accommodation businesses. The demand is based on very different appetites within the sector. From corporate investors seeking to add to their portfolios, creating economies of scale with centralised booking systems and processes to manage dozens of parks, through to the caravan enthusiasts who enjoy the caravanning lifestyle and want to be involved from both an investment and lifestyle perspective. The best of both worlds for them.
With many motel and accommodation businesses and properties selling recently, new owners are just settling in for their first year or two of ownership and have no interest in selling. Others who may have had much longer tenures are seeing strong occupancy rates. This has been flowing on to increases in room rates which of course leads to higher revenue and profits. This is often the best time to sell, however it can also be a time to sit and enjoy the higher demand for accommodation. One cannot begrudge this.
Those owners of quality motel and accommodation businesses and properties who are considering selling now or in the near future will gain the benefit of the high demand for such businesses at this time. The consideration whether to test the market or not, is always worth looking at in times of high demand. In situations where there are numerous potential buyers for an asset, the seller can achieve a higher price than at other times and to achieve a contract of sale on more favourable terms to the seller, such as an unconditional contract. The unconditional contract is not a guarantee of settlement being completed but does provide a significantly reduced risk to the seller. The reduced risk means that the probability of the contract proceeding to settlement is far greater than a contract of sale that includes even one condition to it.
A contract with one condition may as well include ten conditions. It is either deemed by the parties involved to be unconditional or not. Without getting into the legalities of contracts and the law, which is outside my ambit, the benefit of this unconditional contract is essentially an increased level of certainty. Once the contract is unconditional the seller can have enough confidence that the contract will most likely proceed to settlement, to enable them to make plans moving forward. Either to reinvest elsewhere or move on as desired.
This is a very general look at the availability of quality motel assets for sale in the present. As mentioned though, how quickly things change. Who knows what the rest of the year will hold for the status of what is available for sale? One thing we can be sure of is that over the years, experience has shown us that it is very difficult to predict how the market will behave. One day there is a shortage of stock available and before we know it, the market has changed course again.
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