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Inn Economics
Old 04-08-2012, 02:40 PM   #1
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Inn Economics

I'm trying to figure out the economics of a nearby Inn where I play piano. It was opened in 1922, and closed in 2004. The place had been very popular.



Someone bought it for $2.75 million in 2008, spent several million dollars fixing problems, and reopened it in 2010. Only half of the 104 rooms are currently unusable, and the main boiler is broken, so there's no central heating.

There's a nice lobby with a big fireplace (now gas), but the place is usually pretty deserted. There's a wedding there now and then. The bar is only open on Fridays and Saturdays, and there are usually only 20-30 patrons there. Rooms go for under $100 per night.

The owner seems clueless. During the recent jazz festival, I said "You must full due to the jazz festival." and he replied "Jazz Festival?" Another time my trio was playing in a ballroom, and the owner brought in a huge propane heater and turned it on (it sounded like a jet plane).

There is approximately zero marketing. Most people in town don't even know that it's been reopened. They had some reopening ceremonies, but with no publicity, few people attended.

So my question is, how does something like this work, financially? They can't be making much of a profit. Is the idea to keep it going, and then someday sell it for more than they've put into it? Are they trying to make a profit, but not doing a good job?

Is it possible this is some kind of money laundering operation?
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Old 04-08-2012, 02:58 PM   #2
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Is it possible this is some kind of money laundering operation?
Sounds like someone laundering lots of money into less. Perhaps a guy with more dreams than clues. I've seen this happen close up, unfortunately more than once.
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Old 04-08-2012, 03:15 PM   #3
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Sounds like someone laundering lots of money into less. Perhaps a guy with more dreams than clues. I've seen this happen close up, unfortunately more than once.
My thinking on the laundering is this: they say that they've taken in $100,000 in cash when in fact they've only taken in $25,000. That way 75K of illegal dough can be channeled into legal accounts. Seems a little transparent though.
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Old 04-08-2012, 03:26 PM   #4
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My thinking on the laundering is this: they say that they've taken in $100,000 in cash when in fact they've only taken in $25,000. That way 75K of illegal dough can be channeled into legal accounts. Seems a little transparent though.
So, using your example, in order to launder $75K per month they need to spend $5m or more upfront, plus operating costs. That's more than 5 years just to break even. But, if in reality they are really losing $30K or so, the net laundering would only be half the $75k, and that would take over a decade to pay off. I don't know much about laundering but I suspect the folks with the cash want a better payout than that.

What might make this laundering is if the purchase money were also of illegitimate origin, but already laundered. That could be.
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Old 04-08-2012, 03:29 PM   #5
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Sounds like what the media tells us about the average person's retirement plan. Not very well thought out.
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Old 04-08-2012, 06:31 PM   #6
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I've forgotten the stats, but the majority of small businesses do not survive 5 years (80+%??). Either they are under capitalized, poorly managed or ill conceived. Sounds like the Inn has at least 2 of these strikes if not all 3. Too bad as it looks like an interesting (non-plastic) place to stay. None of its short-comings (e.g., lack of central heat) would bother me (assuming they have SOME kind of heat). But if I couldn't find out about it (on the web or at least in a travel book) it's unlikely I would stay in such a place if I planned to be in the area.
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Old 04-09-2012, 12:10 PM   #7
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My thinking on the laundering is this: they say that they've taken in $100,000 in cash when in fact they've only taken in $25,000. That way 75K of illegal dough can be channeled into legal accounts. Seems a little transparent though.
John Grisham would have them spending millions of drug money on improving the place and declaring phantom income. They'd pay the revenue taxes and boost the value of the property, freeing up all that squeaky-clean cash to be paid out to the owners.

But that would be ascribing to conspiracy what can be explained by stupidity blind optimism.
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Old 04-09-2012, 01:02 PM   #8
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We have an eastern european "gentlemans club" near us that is the same way. Basically a small bar restaurant occupying the main floor of an otherwise empty three story building sitting on prime land near the water in Toronto. Conservatively I would say that the land/building are worth 1.5MM They open it occasionally on Friday nights and seem to attract about 12 "gentlemen" It also has a really neat habit of closing every 2 years or so, changing the "club" or restaurant name on the marquee and reopening. Same 12 guys, same cars.
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Old 04-09-2012, 06:49 PM   #9
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Is it possible this is some kind of money laundering operation?
That was my first thought.
if they start expanding,then you know for sure
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Old 04-09-2012, 07:34 PM   #10
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Fawlty Towers?
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Old 04-09-2012, 07:58 PM   #11
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Maybe the owners are hoping a sequel to "The Shining" might be filmed there.
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Old 04-09-2012, 08:02 PM   #12
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Well, are the rooms possibly rented hourly?
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Old 04-09-2012, 09:02 PM   #13
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In retirement my father used to do the bookkeeping for a number of small businesses, every one of which was losing money. Pop would explain that they should go out of business, to which the owner would always replay, "But then what would I do?"

Inns seem to be a particularly bad business that looks like so much fun on paper. I can't count the number of times I have stayed in an inn only to have the owner try to sell it to me.
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Old 04-09-2012, 09:29 PM   #14
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It's really hard to imagine that they are that incompetent.

I did a mock-up of a banner they could make cheaply, but they didn't do anything.

EurekaInnFrontBanner.jpg

I'd think that could double the number of patrons at the bar. I wrote a press release for them, but nothing.

I care, because it's a good venue with a nice piano -- one of the few within hundreds of miles.

Two other possibilities:

1. It's a tax shelter.

2. The family owns some other hotels, and this one was bought for the feeble-minded member of the family.
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Old 04-09-2012, 09:39 PM   #15
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Looks legit:

Eureka Inn - Wikipedia, the free encyclopedia
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Old 04-10-2012, 04:15 AM   #16
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My the write up makes the place sound really nice. If I am ever in Eureka again I'll have to check it out.
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Old 04-10-2012, 05:37 AM   #17
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It's really hard to imagine that they are that incompetent.

I did a mock-up of a banner they could make cheaply, but they didn't do anything.


I'd think that could double the number of patrons at the bar. I wrote a press release for them, but nothing.

I care, because it's a good venue with a nice piano -- one of the few within hundreds of miles.

Two other possibilities:

1. It's a tax shelter.

2. The family owns some other hotels, and this one was bought for the feeble-minded member of the family.
Al, they were smart enought to hire you. There is a third possibility, which is they have a business plan, and they are executing it on schedule. Why not give them the benefit of the doubt?
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Old 04-10-2012, 06:55 AM   #18
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"How to make a small fortune in the hotel business: First, you start with a large fortune......"

Seriously, we have a similar situation with a gorgeous landmark restaurant near us. Family owns several of the biggest/best restaurants around and this one (run by a son) is pretty empty most of the time.

My guess is that all the money goes into one pot and sonny-boy just milks it, makes enough to pay the taxes/payroll and everyone is happy.
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Old 04-10-2012, 07:30 AM   #19
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Just imagine the property taxes on this joint .... yeah, they're loosing money.
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Old 04-10-2012, 07:42 AM   #20
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The reviews on Trip Advisor are pretty horrible including "wouldn't stay here if they paid me" and "creepy". It is ranked #7 of 8 B&Bs in Eureka:
Eureka Inn (Eureka, CA) - Inn Reviews - TripAdvisor
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