The Ramada is located in MS, with a sales price of $3.9M. This is a fully restored hotel with absolutely no down rooms that generated well over a million dollars during the height of the Covid Epidemic with no flag branding and no advertisement. The Ramada flag is effective as of April 2021. This asset is a 146-room hotel that once fully performing will generate in excess of $5.5M according to Ramada. An expense ratio for a hotel of this magnitude hovers around 50%. This brings the net income up to over $2.7M per year on rehab of all of the rooms. The expense for rehabbing all of the rooms will be around $800K to $1M according to Ramada. There is also a full-service restaurant and lounge that is currently not being utilized. It is estimated that this restaurant will rent in the current market for around $20K per month, adding $240K per year to the bottom line, which is not included in the original income figure. There will also be some overrides from sales from the restaurant as well. Chappy’s (a local restaurant in the area) has expressed overwhelming interest in renting the restaurant space from the hotel. We believe that net income will climb as high as $2.7M once fully performing with the Ramada Flag according to Ramada. They are also requiring the current owners to bring the rooms up to Ramada standards. Once the rooms are fully restored, our sole expense as far as I can see would be to add an elevator, which adds flexibility as far as room allocation. In other words, we wouldn’t have to be mindful of renting all of the rooms on the bottom floor in anticipation of a potential elder or disabled guest. This property also has an indoor pool as well as an indoor Jacuzzi located on the property. One of the things that make this offering so unique is that there is a separate piece of the parcel (about 2 acres) attached to this property that is being highly sought after by Mac Donald’s. MacDonald’s has expressed extreme interest in doing a land lease deal with us for an additional $100K per year for at least 10 years. This adds an additional $800K to $1M to the overall value. However, we have an even better plan for this land that will yield us an even greater return than what McDonald’s would bring us.
The numbers
This asset has an appraisal as of 2005 of just a bit over $6.2M. I estimate that the value is around $8M using the income approach as well as the word of the appraiser who did the appraisal in 2005. As it currently stands, the Ramada generated $1M in a year that was overrun by Covid. This was achieved with absolutely no advertisement. The expense ratio for this type of hotel should have fallen somewhere between 50 to 55%. This should have put the net income around $450K to $500K. However, the current owner spent $300K last year on repairs and upgrades. Rooms rent for $70 per night on average. The vacancy rate in 2020 (due to Covid) was less than 50%. In 2021, the hotel grossed $1.8M with a net income of $1.2M. Using the income approach, this should appraise for around $12M when you consider that the average capitalization in the Mississippi area is 10%. However, in looking at the income, I feel that the expenses are too low for a hotel of this type. $1.2M net from a $1.2M gross puts the expenses at 34% in an industry where the expenses should be around 50to 55%. So, to be safe, in my evaluation, I backed out $400K from the net income and put it back on the expenses side. This would realistically put the net income at around $800K. Using the market cap rate of 10% would give us a value of $8M.
These numbers are adequate, but they can be a lot better, and the work required to make them better is minimal. The rooms upgraded as well as upgrades to the lobby and dining area will take the average daily rate from $70 per night to $139 per night. We will also be able to take the average occupancy from 55% to 80%, which is consistent with the market for a hotel of this type. Expenses will also decrease by a couple of percentage points as this asset will be fully rehabbed to Ramada’s specifications. Upgrading this asset will increase the income by more than 100%. Gross income balloons to over $5.5M, taking the net income to around over $2.7M. Using the income approach, we are effectively taking the value from $8.5M to over $17M when you consider a market cap rate of 15%. This gives us a value to money of roughly 30%.
The Green Plan
We have an opportunity to take this asset in upwards of $25M and pick up some serious tax credits in the process while lowering the expenses of the hotel by more than $100K annually adding more than a million dollars to the bottom line. We do this by adding solar panels to the roof that will totally eliminate the energy bill. We estimate that the solar system will cost around $900K to install. We anticipate 30% savings from federal tax credits. That saves us about $270K. We also anticipate an additional $300K. Any additional cost of the solar panels, the city has promised to pick up the cost. We can practically have the solar panels done for absolutely $0 cost out of our pockets. This is just a small part of our energy plan. Upon research, we discovered that over 300 EVs have been purchased in and around the city. We also anticipate that another 400 EVs will be purchased by the end of the world. The hotel is located right off of the I-10 just as you enter the city. 70K vehicles pass by our hotel in each direction daily. Of those 70K vehicles, nearly 2K are EVs in each direction. Upon research, there are no EV charging stations in the area. We have enough land located in the hotel to install our own charging station. We will put a total of 16 charging units on the land adjacent to the building. This will cost us a total of no more than $150K in investments to get this done. This will raise our occupancy rate. The reason for this is that it takes up to 12 hours to charge an EV from depleted to full. During that time, these people will need a place to lay their heads or get something to eat. That means that they will be staying at our hotel and eating at our restaurant or hanging out at our lounge, or all of the above. There are tax incentives available through local and federal governments to mitigate this cost. Charging rates vary anywhere from $0.31 to $0.45 per minute. That’s $18.60 to $27.00 per hour. If we calculate the charging stations being used just 30% of the time, we estimate that this will add $946K to the bottom line and add over $9M to the overall value. Adding this Green plan can take the hotel from our previously calculated end value of 17M to a new value of over $28M when you include the Green Plan. This gives us a 17% cost to money and over $23M in equity. So, in effect, we will be eliminating our energy costs and adding a revenue stream from the free energy we get from the sun.
The Competition
There is absolutely nothing for sale in the area that is consistent with this hotel. This asset is being offered at $26K per key. This is for a hotel needing absolutely no renovations whatsoever. The closest comparable is a 64 unit not far from the Diamond Head Ramada that is being offered at $3.9M. This brings the cost per door to $61K per door, more than double the price of The Ramada. By the way, this 64-unit had a buyer within 3 days of it hitting the market and closed 30 days later. This hotel is the only accommodation located off of Highway 10, the busiest highway in Mississippi and one of the main corridors for travelers in the area.
The Investment
I am doing a capital raise in the amount of $500K. I have funding in place in the amount of $4M. I am offering either 30% on your money or 15% equity, whichever you prefer. I have over $200K of my own money invested in this asset as well. The total sales price is $3.9M. $3.9M produces $4.1M in equity instantly. This asset as it sits is valued at over $8M. This asset will be performing well with the exception of the restaurant and conference room and bar at the time of acquisition. We are receiving an asset that is in prime condition as there is no rehab left to be performed other than what’s required by Ramada which is only $800K. This can be accomplished with the existing income of the asset, spread out over time, or we can make the capital investment now, we’d have the rehab finished in as little as 6 months. This would explode the value to over $17M in as little as 6 months. This would also explode the income to as much as $6M, bringing the net income to as much as $3M.
The Plan
We will bring in professional management to lean out the inadequacies of how this asset is being run and bring the occupancy of this asset to market. We’ve identified a restaurant for the space in the lobby. We will identify an occupant for the bar, or open one ourselves. Our partner already has a liquor license so opening a bar ourselves is almost seamless. We will identify the waste and effectively eliminate it instantly. We will be reaching out to bus touring companies as well as trucking companies as well. The location of this asset makes this a very good spot for those on the freeway looking to get some rest. We will bring better lighting to make the sign visible from the freeway so those who are driving by can’t miss it. The I-10 is one of the most heavily traveled freeways in Mississippi, from truckers to motorists traveling across the state as well as the country. We will also bring in a billboard since the unit sits next to one of the most heavily traveled arteries in Mississippi, which makes this an optimal spot for advertisers. This is another income stream that is not indicated in the income figures. We are also upgrading the room to what we call our Ruby Room to bring in a higher average daily rate as well as increased occupancy. So, here’s what we have. We are putting in increased lighting (possibly neon) so that the hotel would be more visible from the I-10. We will also have a sign off the I-10 in both directions indicating that we’re there. We will have a restaurant located in the lobby that will also increase occupancy. We will have an operating bar that will also increase occupancy. Also, one of the things that we are considering is a neon sign.
Monitoring
You will also have access to all of the video feeds that we will have on the hotel. That means that you can always monitor the hotel day or night as long as you have an internet connection. You'll be able to see what the employees are doing as well as how many rooms are rented, and you will get a monthly trend report on the hotel to show what direction the hotel is going. You will also be able to call and talk to whoever is on the grounds to get a situation report if anything looks out of sorts to you.
The Area
Our city is a growing city that is slated to have its population double over the next 20 years. Located just across the street from this asset is a billion-dollar casino resort being constructed that should be completed within the next 12 months. Highway 10 is the most heavily traveled highway in Mississippi, which is where the hotel sits right next to. This is a city located right next to the Gulf. There are lots of casinos as well as restaurants in the area. There are lots of attractions in the area as well. There are sightseeing and dinner cruises as well as water and amusement parks. There is also a multi-billion casino slated to break ground just down the street from our asset. They have already expressed interest in leasing the entire room inventory from us for the next 3 years. Stennis has over 50 contracts in the area, and they have expressed interest in renting our conference room from us. They need a conference room that is not attached to a casino, and we have the only one in the area. They’d want it up to 50 times per year. Our city is also slated to double in population over the next 10 years.
Exit Strategy
Our goal is to acquire the asset using your funds while you earn a generous interest in the process. A Joint Venture or an equity or debt loan is what we’re seeking. We would hold the asset for 24 months. We would then do one of 3 things. We would refinance the asset effectively paying off any monies owed to any investor. Or we would sell the asset to a firm that specializes in these types of assets. We have over 500 investment firms currently in our Rolodex and it is growing by the day. We will have no problems creating an effective and efficient exit strategy if selling the asset for a profit is the route we decide to take.
In Conclusion
This is an incredible opportunity to acquire an instrument significantly under market value. We are acquiring this asset at a 24% capitalization rate in a market that is reserved for around 12%. This asset has the potential to double in value once it is fully performing to Ramada’s standards. We have a supporting market as well as a unique situation with this unit being located right next to Highway 10. Adding the restaurant in addition to McDonald’s wanting to lease the land (located in the back and not really used for anything) takes this opportunity through the roof. In the Dropbox link below are pictures of the hotel including Ramada's Ruby Room design that we will do for the entire hotel.
About Me
I got started in real estate in early 2002. From 2002 to 2007, I have bought and sold over 40 single-family homes. The meltdown came in 2008. It was during that time that I transitioned into commercial real estate. The first property I did was a 72-unit apartment building in Dallas, TX worth over $1,000,000 that I negotiated down to $600,000. From there I found 2 vacant apartment buildings (104 units and 186 units) that I found for $700,000 and $1,100,000 respectively. After going through the units of both complexes, I was able to determine the capital expenditures to bring both assets back online. The 104 unit took $900,000 to rehab and the 186 unit took nearly $1,500,000 to rehab. It took us a year to rehab and lease up to market occupancy for both properties effectively bringing the value to $4,500,000 for the 104 unit and $7,000,000 for the 186-unit complexes effectively creating over $11,000,000 in value for both assets combined from an investment of $3,400,000 combined. My next investment came from a 436-unit apartment complex in Houston TX. This was a property that was being short sold because the owner had overpaid for the asset, and he didn't see it as a value for him. I was able to negotiate a deal for a little over $4,000,000. The bank was motivated to sell, and they agreed to the price if we were able to close quickly. The market value for this property was about $8,000,000. Another investment I did was an assistant living facility. This asset is one of my proudest acquisitions although I can't take credit for this idea, but I learned a lot from this transaction. This asset was valued at $7,500,000. The sales price was $7,000,000. The seller was firm on the price. I was prepared to walk away from this deal because I felt that there just wasn't enough equity in it to make it worth my time. I had an experienced realtor who gave me an idea. He explained the difference between supplemented care facilities and private pay care facilities. The facility was a 199-bed facility in which they received on average 750 to 1150 per bed bringing us to a net income of around $650,000 per year. We actually ended up buying this building at the seller's price of $7,000,000. We then ended up emptying the building and then adding an additional $3,000,000 in capital expenditures. We turned the place into a very high-class assisted living facility. The bed rates went from $750 to $1,150 per bed to well over 2,500 per bed to $6,000 per private room. This in effect catapulted the income to $2,800,000. This brought the value of the facility to well over $32,000,000. We have created $22,000,000 just for buying a building at market. My strength is in identifying those gems that are otherwise overlooked by other investors.
My Team
Herb Hermanson
Herb has over 40 years of hotel experience. He has acquired a wide range of underperforming hotels from multiple stories of interior court hospitality to exterior court motels. His strength is in hospitality. He has operated and/or owned all of the major brand hotels. Herb’s strength is in identifying problems (including employees who aren’t pulling their weight) and quickly rectifying them in relatively short order. Herb’s experience isn’t just limited to hotels. He has significant rehab experience as well, from multi-families (repositioning) to single-family homes. Herb also is tenacious in getting a project to completion. He has never embarked on an endeavor that he didn’t see through to its final stage. Some of Herb’s project includes The Blackstone Hotel in Long Beach, CA. This hotel is a 300 unit located on the beach. He also owned an 8-story hotel, restaurant, and lounge in Seattle, WA as well. Herb’s role would be to oversee the operations as well as facilitate group sales of rooms. Herb will also be responsible for delegating and monitoring our digital campaign to companies like Hotel Champ, which has a track record of increasing bookings.
Below is a link to pictures of the hotel including the proposed Ruby Room design that Ramada wants to update the rooms to.