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Many motel sales signal strong real estate market

Those investing millions into real estate are a thermometer for a hot market, SOREB president says
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Penticton’s now-defunct Super 8 motel will be converted into social housing, along with shorter-term housing with Interior Health services on site. It’s just one of several motels that traded hands this year. Dustin Godfrey/Western News

A recent slew of motel sales in Penticton is the product of a strong market, according to former South Okanagan Real Estate Board president Garry Gratton.

But it’s also indicative of a changing landscape for accommodations, shifting from motels to a denser pack of hotels, says Barb Schneiderat, Tiki Shores Motel administrator and past president of the Penticton Hospitality Association.

This year, the site of the former Super 8 motel went to B.C. Housing to build social housing, the former Highland Motel went to Azura Management to build town homes and the El Rancho has gone to an unknown buyer.

The Slumber Lodge motel was also sold, according to a July report from Western Investor, which also published details on the sale of the Jubilee Motel to a numbered company last week.

Related: Moving forward from Highland Motel fire

“The whole market, since last year in the South Okanagan, has been booming with absolutely record-breaking, extraordinary level of sales activity,” Gratton said.

Those spots aren’t going for cheap, either — the Jubilee sold for $1.2 million on a listing for $1.3 million, the Highland ran for $1.05 million and Slumber Lodge went for a total of $3.55 million.

“More often than not, these are the serious investors who are prepared to make long-term commitments, and spending millions and millions of dollars in some cases,” Gratton said.

“We look at them as leading edge consumer confidence. So, when they’re prepared to cut the big checks, it’s a huge, wonderful confirmation of consumer confidence and a rosy future.”

When those groups are willing to spend so much money, it means some of those who make careers out of watching the markets have a positive view of that market’s future.

Related: No opposition to proposed Penticton hotel

While some of the properties might remain as motels, many aren’t. The Super 8 is turning to social housing, and the Highland will be turning to high-end town homes. Beyond Penticton, too, motels are going up for sale in Keremeos and Princeton.

“I think when it comes to motels throughout the South Okanagan, an awful lot of the motel operators have aged out, so to speak, meaning that they’ve probably owned them and operated them for 15, 20, maybe 25 or 30 years, and it’s just time to move on,” Gratton said.

Running a motel — often done in a mom-and-pop fashion, with few staff on the payroll — can be tiring work, Gratton said, which can be some motivation to get out of the game. He pointed to a property he’s listing in Keremeos, with two owners in their 70s looking to retire.

“I think that’s happening a lot, actually,” he said.

Lakeside expansion topped off

Asked if the motel industry is coming to an end, Gratton referred to a long-standing real estate term: highest and best use.

“If you are a real estate investor, you’re always going to focus on the highest and best use of any given piece of property,” he said — investors make decisions based on how much they will invest and what they can expect in return.

“If that means continuing to operate a motel, then that’s what they’ll do. If it means bulldozing the motel and doing something else, then that’s what they’ll do,” he said.

“Some of them are profitable. The one that I’m listing in the South Okanagan later this week is profitable, but I think I would have to say it’s modestly profitable.”

But beyond the franchises, like Super 8 and Accent Inn, “I doubt that very many of these people get very rich,” Gratton said.

Related: Hotel proposal for bingo hall property moving ahead

Schneiderat, too, pointed to a phenomenon of motel owners aging out, adding that the properties are getting re-purposed for housing. But she says it’s more of a process of refreshing the short-term rental stock than of reducing it.

“I don’t think it’s such a bad thing,” she said. “The Agurs at the Ramada, they’re bringing on a new property, the casino is bringing on at the bingo hall, there’ll be a new one built there.”

In Schneiderat’s eyes, there hasn’t been a decrease in Penticton’s inventory of rooms, but potentially an increase.

Schneiderat says while the South Okanagan is losing some motels as the stock of hotels increase, there hasn’t been a complete flip.

“The number of smaller properties that we have still far outnumbers the hotels that we have, and I don’t see that it’s affecting the inventory at all,” she said, adding that there are a total of around 1,800 rooms in Penticton.

“Some of the motels, they’ve got to be turned into housing, and bigger hotels are coming on the line,” she added. “I think it’s a good thing, because it allows the city to go after better conventions.”