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Motel Operators Coming to the End of the Road

Sacramento Business Journal
10/06/16

Motel Operators Coming to the End of the Road
By Mark Anderson

http://www.bizjournals.com/sacramento/news/2016/10/06/cover-story-motel-operators-coming-to-the-end-of.html

 

Like a skeleton of the old highway system, many aging motels mark where main roads existed 60 years ago.

Many of the motels continue operating more than a half-century after the freeways moved elsewhere. And even without the traffic they once received, many of these small, old properties continue to generate cash flow. They provide their operators, many of whom are families, with homes and steady income…
Family businesses at the brink
Motels often provide both a place to live and a livelihood for their owners, so they are often not very interested in selling, even for a strong profit, said Alan Reay, president of Atlas Hospitality Group, a hotel brokerage based in Irvine.

The motel business is not highly profitable — and it is definitely not glamorous — but it is a living, he said.

And motels are often so small that they need to be family operations, Reay said. “They cannot pencil out with professional staff.”

In the next few years, the pressure on these motels may finally push them past the brink.

“These old buildings are now getting very old, and all their systems are wearing out,” Reay said. They are energy inefficient, and costs are going to be going up for workers’ compensation and minimum wage. It is going to get to the point that your overhead is going to be so high that you can’t possibly make money from them.

“You’ve heard of ‘Dead Man Walking,’ where a condemned man is still alive. These are dead motels walking. They just haven’t closed yet,” he said.

Centers of crime
Many of the motels that had been centers of crime have been bought and torn down by local jurisdictions. Sacramento went after the owner of the Sacramento Inn and Suites for months in 2014 and 2015, culminating in the forced shutdown and fencing of the property in May 2015. That property at 1401 Arden Way was known in its glory days as the Red Lion Sacramento Inn. It was part hotel and part motel through several buildings, the first of which was built in 1954.

As lodging properties degrade, they tend to lose the better potential customers, and that begins a downward spiral, Reay said.

“They get to the point where they take cash, which means that they let anybody and everybody stay there,” he said.

The motels may then become expenses for their communities as they make heavy use of public services, Reay said. “If you look at the police and fire calls in Newport Beach and Costa Mesa,” which are expensive communities, “they are at the motels.”

Willingness to accept cash customers is a stark dividing line between lodging operators, said hotel owner Amrik Singh…

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