In 2009, the bed and breakfast sector on Cape Cod was in a deep sleep with lots of tossing and turning. Based on year-to-date sales activity in 2010, however, the grogginess is fading and this sector like a sleep deprived teenager is now showing clear signs of awakening.
In terms of completed transactions, 2009 was the worst on record since the mid 1990s. In addition to an unusually high number of listings, distress sales were the only game in town as five bed and breakfast/inn properties (with four units or more) conveyed in 2009 either as a bank-owned REO property, by a stakeholder opting for quick sale at a liquidation price, or by foreclosure deed.
Making matters worse, not one B&B/inn transaction transpired in 2009 which was not shrouded by some form of distress. The significance of this occurrence is amplified by the fact that as recent as 2005, nineteen B&B/inn transactions were concluded with only one sale of a distress nature. As the number of conveyances continued to trend downward for the next three years, in 2009 the B&B/inn market clearly showed little hospitality. When viewed from a broader horizon since 1995, 2009 proved to be not only clinically anemic but a true market rarity.
Year-to-date transaction figures, however, show 2010 has been much more welcoming. As someone who also follows Cape Cod’s B&B/inn market marketplace closely, few can appreciate the developing trend better than Carol Edmondson. Since 2003 Carol has been specializing in B&B and Inn sales. She and her husband Tom own South Dennis-based Cape Cod Village Realty, a boutique real estate brokerage specializing in B&Bs and inns. In addition to their brokerage activities where they have handled over 15 transactions, The Edmondson’s previously owned and operated a historic 12-room inn in Brewster, MA, selling it in 2003.
According to Edmondson, the clear uptick in B&B/inn transactions is an overdue and extremely welcome event. “We are on track to have our best year ever and that’s a good thing for everyone,” she said.
As for the recent increase in transactions, which Edmondson says primarily involve B&B/inn properties listed for sale in 2008 and 2009, for buyers the time to act is now.
“As buyers sat back, listened to the media, and waited for price levels to bottom out, a certain level of pent up demand developed. What we are seeing this year is that pent up demand being brought to the marketplace and solid deals are getting done.”
Sold In May 2010 - The former Moses Nickerson House, Chatham, MA
Regarding the types of B&B/inn buyers making it to the closing table Edmondson had this to share.
“The buyers I have been working with in the past year have mainly been individuals working in the corporate sector. And many with successful careers. But as we have seen in past market cycles, for the most part these buyers are attracted to B&B/inn ownership as a way of opting out of corporate life and placing their careers and finances in their own hands.”
In her experience both as an owner and broker, for many owning a B&B/inn is a good way to achieve that goal. The seasoned B&B/inn broker added that consistent with past cycles and given the current dour employment picture, the number of out of work and under employed buyers seeking assistance will likely increase, especially as market conditions become more favorable.
Notwithstanding the increased level of B&B/inn transactions, in the current market where the rules have changed and nothing is the same, completing transactions has gotten much tougher. The most challenging hurdle is the length of time required to complete a transaction. The significantly higher level of scrutiny and information required by commercial lenders is seen as the leading factor for the time lag.
“Today’s commercial lending environment is very different from what it was in 2007 and 2008,” said Edmondson. “By and large, banks are taking less risk than ever. Often that means requiring equity contributions of 25-30%.”
She advises all parties she works with that a 60 to 90 day end to end transaction period is increasingly more the exception than the norm as banking regulations and SBA rules become more complex and strict.
To be sure, the current deal environment is not limited to the Cape Cod marketplace. Through her longstanding affiliation with the Professional Association of Innkeepers International (PAII) since 1990, where she currently serves on the Advisory Board, Mrs. Edmondson can attest that the same scenario is playing out across the nation.
In light of this new paradigm, B&B/inn buyers and sellers should be well prepared to successfully navigate through the process. For B&B/inn buyers, this eight-year inn broker suggests being sufficiently capitalized in terms of down payment and working capital. Having a legal, financial and brokerage team knowledgeable of the process to support the transaction every step of the way, is an equally critical element.
For would be B&B/inn Seller’s still reeling from 2009, Edmondson also offers this expert advice:
- Prepare yourself for a longer than expected closing date.
- Be sure to have all property, financial and operating documents up to date, readily available, and in a professional business-like form.
- In the current lending environment, strongly consider offering qualified buyers some level of owner-financing.
- Understand that quite often today’s B&B/inn buyers are savvy business people, educated on the process and are considering opportunities in more than one State or region. Competition for ready, willing and able buyers is high.
- If you want top dollar be sure that all deferred property maintenance is addressed and that your property is staged to show its value.
FALMOUTH, MA — 
On January 30, 2009 Hess Corporation acquired 11 Christy’s of Cape Cod gasoline-convenience stores. The sale evidently included the outright purchase of six properties and lease assumptions on the remaining five facilities. The stores are located in Dennisport, East Falmouth, Hyannis (3), Osterville, Sandwich, South Orleans, South Yarmouth (2) and West Yarmouth.
