Keys to Upgrading a Rough-Around-the-Edges Property

Chris Holland bought the worst hotel in the Florida Keys. He says so himself. “The place was on its knees,” Holland says of the then Blue Lagoon Motel in Key West. “Nothing was serviceable. The reviews were ‘blood on the sheets’ and ‘a murder in the lobby.’ It was literally filled with hookers, pimps, and drug dealers.”

However, as the hotel sits on five acres on the Gulf of Mexico and has three sides facing the water, he saw the potential beneath the horrible reputation, grit, and grime and purchased it in 2010. And in a matter of a few years, he and his partner and General Manager Tony Osborn spent approximately $2.5 million on renovations and turned around the property. “We had to throw everything away, even the people who stayed here,” Osborn says with a laugh.

Now called Ibis Bay Beach Resort, it currently generates $4.5 million in annual room sales (up from $1.3 million in 2010), and the adjoining seafood restaurant that the two partners also own, the Stoned Crab, brings in $2.7 million, Holland says. Additional incremental revenue comes from their on-site jet ski, paddleboard, and motor scooter rentals.

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They attribute much of their success to creating a type of property that doesn’t really exist in Key West anymore—the fabulous Florida of the 1950s. Hawaiian shirts and pictures of Cuban cabaret singers adorn the room walls, brightly colored sarongs double as bed spreads, and 90 hammocks stretch across Ibis Bay. “People love that they can step back in time,” says Holland of the property originally built in 1956. “It’s not conventional furnishings, but it’s not a conventional hotel.”

Osborn and Holland aren’t the only people to see a diamond in the rough and the potential to make money off a left-for-dead property. Lori Roberts, owner of The Sunset Motel in Brevard, N.C., almost bailed a few months after purchasing the drug-addict-ridden, roach-infested 20-room property in 2011. “You can’t run an operation with the police in your parking lot every night,” she says. Fortunately, a local detective suggested a policy to cut out the vast majority of issues: To stay, guests must have a credit card and valid ID and live more than 25 miles away.

His idea worked, and Roberts found herself in the clear to fully invest into the motel, which needed a complete overhaul. “The bathrooms were being held together by glue and popsicle sticks,” she says. “All the rooms reeked of cigarette smoke that seeped into the curtains, carpets, and ceiling tiles. There were leaks everywhere, creating an electrical hazard. It was just a mess.” Along with putting in 100-hour weeks to save money, Roberts found a sympathetic contractor to do much of the work for a fraction of the cost. Renovations finally wrapped this past March.

Roberts anticipates grossing $400,000 this year, a vast improvement over the $96,000 the property grossed the year before she bought it. Like Osborn and Holland, she wanted to resurrect a type of property not easily found these days—a kitschy, authentic 1950s-style motel like the ones that used to dot the country’s highways. Along with offering a slice of much-needed Americana, Roberts knows strong customer service will help to keep her business strong in the future. “We give until it hurts,” she says. “If you’re not happy at my motel, you’re getting your money back.”

CONNECT THE DOTS
As the two examples above show, it takes more than putting lipstick on a pig to upgrade a dump. To make a downtrodden property more financially viable, Jonathan Wise, managing partner for Greenwich, Conn.-based Highfield Hospitality, offers three additional tips.

Have a Vision
“Once you start a renovation, it’s a bit of a runaway train,” says Wise, who specializes in the reposition and development of independent luxury resorts and hotels. “It can get out of control before you know it.”
To avoid things like not meeting bank deadlines or missing the planned opening date, do as much research ahead of time as possible. For example, conduct an engineering study to examine the HVAC, electricity, and plumbing.

Be Realistic and Plan Accordingly
Don’t try to take an $89 average daily room rate (ADR) up to $299, he says. “There’s only so much you can do. But even if you can move it up by $30 or $40, then you’re at a whole different world of revenue.” Along with that, with every $10 bump in ADR, guest expectations of services will increase. “Understand the market,” he advises. “At what point do you need to offer free continental breakfast or complimentary Wi-Fi?”

Battling the Rep
Most likely, people—locals, in particular—will remember and discuss what the property used to be like, especially in the age of social media. Wise recommends acknowledging the past and detail the strides made to fix up the hotel. “Then, you have to accept that it’s going to take time, and there are going to be people whose minds you can never change,” he says. In the case of the latter, focus on the new clients who didn’t know anything about the place’s history and try to wow those folks, Wise says. “You have to believe in your product.”