Limited Service and Boundless Determination
In December 2003, Jeff Roberts, CCIM,
president of Roberts Properties LLC in Muskogee, Okla., purchased his
first hospitality property, the Holiday Inn Express in Tahlequah, Okla.
Never in the company's 27-year history had it worked with this type of
property. And not only did Roberts buy the limited-service hotel, he
decided to manage it as well.
specializes in development, primarily big-box conversions and
build-to-suits for retailers such as Dollar General and Dollar Tree. So
why would his company foray into a commercial real estate segment in
which it had no experience" "We wanted to learn more about hospitality
[properties]," Roberts says.
From the moment a local broker introduced him to the idea of buying the
hotel, Roberts began analyzing everything from costs to competition.
"The numbers proved this would be a strong investment," he says. He
also liked that the hotel was located only 20 minutes from his office,
had little competition in the market, and was part of a national
franchise chain. Also, "it had great market protection" being so close
to Northeastern State University in Tahlequah and near the borders of
Oklahoma and Arkansas.
analyzing the pros and cons, the company decided it was time "to get
[its] feet wet" in the hospitality arena, Roberts says. It purchased
the 62-room hotel for $2.8 million, made minor renovations, and added
three new employees to the hotel staff. Roberts also improved the
property's amenities. For instance, he added On Command, an in-room
pay-per-view sports and movie network to appeal to business travelers
accompanied by family. The company hopes to increase revenues by
updating the rooms and entryways in the coming year.
the first few months everything seemed to be running like clockwork.
However, it wasn't long before the property encountered some unexpected
Live and Learn
Roberts quickly learned that hotel vendors don't work the same way as
commercial real estate clients: When accounts are not paid, shipments
cease. "It's challenging because many vendors want to be paid weekly,
as opposed to monthly," Roberts says. In his real estate business,
Roberts pays employees monthly.
payment confusion cost Roberts his PepsiCo and Sysco Corp. contracts
and sent his staff scrambling to restock food and beverages for their
Roberts realized it wasn't
likely the property would immediately turn a profit, but after the
first two months of possession he discovered there were unpaid vendor
accounts " and no means with which to pay them. Finally, Roberts
discovered the problem: He hadn't transferred the merchant accounts,
such as Discover, Diners Club, and American Express. "For two months,
every payment from those cards was going into the seller's account
instead of ours," he says. Fortunately, Roberts has a good relationship
with the previous owner, so they quickly resolved the problem.
some initial setbacks, just five months after purchasing the hotel,
it's turning a profit. As of May 31, 2004 , the property recorded a net
operating income of $93,000.
Despite the learning curve associated with hospitality ownership and
management, Roberts believes limited-service hotels are great
investments, especially for those new to the market. "We don't have the
liability of full-service hotels" that employ larger staffs and have
higher overhead. "The fact that [limited-service hotels] gear toward
business travelers and road warriors" also creates perpetual business,
also can be good additions to clients' portfolios. Roberts even
suggests having a small portfolio of several limited-service hotels
rather than one full-service hotel or resort.
Tricks of the Trade
Though he only has less than one year of experience in this niche,
Roberts learned a few things along the way. Here are his top three tips
for commercial real estate professionals who are considering buying or
operating a limited-service hotel.
Study the Product -- and Yourself.
Look at the numbers. Is this a profitable property" If not, does it
have potential" Be honest with yourself; if you're only in it for the
money, you may not be willing to put in the time required to renovate
Check In to Check It Out. Quietly
conduct an on-site inspection by staying as a guest. How do customers
and staff view the property" If you see any red flags, it's probably
best to walk away from the deal.
Accept the Chaos.
To be successful in the hospitality industry, you must accept that
things will go wrong. Do your best to anticipate and prevent problems
and roll with the punches when issues arise.