Chapter 11

For several years, a nice hotel on the outskirts of Newton had been struggling. At one time, it was a Ramada Inn. It had 80 rooms, a large lobby, a cocktail lounge, and a large restaurant with an indoor pool and hot tub. In short, it was a typical Ramada hotel with full-service amenities. It didn’t perform well enough to retain the Ramada name, so a local name change occurred; however, for some reason, the hotel continued to slide into financial failure. Eventually, the owner closed the hotel and attempted to keep the cocktail lounge and restaurant open, but they, too, eventually closed. The building and nearly a city block lot went up for sale.

Many times, as Garrett and Kathy drove past the beautiful brick building (which still looked great on the outside), he would comment about the potential of the old building. One day he said, “I don’t understand why someone doesn’t buy that old building and convert it to apartments and retail space. They could put a convenience store and gas station on the corner and use the lobby for the station. I think a small, limited restaurant and bar would be a killer moneymaker, too. I mean, you have a captive audience from the apartments. Hell, you could even leave, say, 20 rooms for rent as a motel, and if they didn’t rent, you could always convert them to apartments as well. Sixty rooms out of the 80 converted to apartments, say, ten two-bedroom apartments and 20 one-bedroom apartments, would leave the 20 rooms to rent either by the week or as hotel rooms.

“Being conservative, the apartment rentals if the building were fully rented would come to about $17,000 a month. It would be difficult to determine the income you could generate from the bar, restaurant, convenience store, and fuel sales, but I am sure it would be substantial. If the owner didn’t want to operate the businesses himself, he could put a reasonable rental on the space and, say, take a percentage of the gross or profits. I really think that would be doable.”

After he stopped talking, Kathy said, “Well, it seems to me as if either you are the only one with that vision for the building, or there is something that stops others from doing it. It has been on the market much too long for some reason. I think you need to put your money where your mouth is, or at least check on the possibility.”

They were stopped at the traffic light beside the building when the conversation took place. Kathy grabbed her notebook and a pen and wrote down the agent’s phone number. As Garrett pulled away from the now green light, Kathy made the call to the listing agent. When she told him what she was calling about, you could hear the change in his voice. He almost begged her to meet him there. He said he could be there immediately if she could.

Kathy looked over at Garrett and said, “Honey, the agent says he can come meet us at the hotel right now if you want to do it. He sounds anxious here.”

Garrett sighed and said, “I suppose we could. We have all day, and our errands won’t take long. Okay, but I still think something is wrong; the building would have been sold by now. We need to be damn careful with this.”

Garrett and Kathy discovered that the hotel was part of an estate, and the executor was anxious to sell it so they could finalize the estate’s closure. It was listed for $1.3 million, marked down from $2.7 million. When he heard that, Garrett grinned at Kathy and said, “Well, that is a little steep, but I might be interested if things work out. Of course, we need to do our due diligence, and I will need to inspect the building carefully to determine what repairs and upgrades are necessary. Could we have the keys, or do you want to be with us while we inspect the premises in more detail?”

“Well, I thought that was what we were doing here today?”

“No, today we are looking at the property to see if we MIGHT be interested in it. I think it is safe to say we are, but I need to know how much more I will have to spend to get it in rentable condition if we purchase the building.”

“Well, how long do you think that will take?”

“I’m not really sure. I think I can have my inspection completed in three or four days if I have access to the building.”

“Oh, I can’t spend that much time here with you. I’m sorry, but that just isn’t possible.”

“Well then, I suggest you find someone to stay with us during the inspection, let us in unsupervised, or we will have to pass on the deal. I sure don’t want to buy a pig in a poke here. I have no idea what condition the building is in if I can’t give it a thorough inspection. I am exceedingly reluctant to make any offer until I know the condition of the building. Of course, any offer would be contingent on the seller presenting a clear title and either repairing serious defects or making a cash allowance for them.”

“What would it take for you to make an offer right now? My seller is very interested in selling this building. As I stated earlier, this building is in an estate and must be sold so the executor can close out the estate. The seller is extremely motivated.”

“Let my wife and I talk for a few minutes, and we’ll see. I’m not promising anything. You do realize we are just inspecting the premises for our employer? If we recommend a purchase, the purchase will be made by GKM Properties, LLC if we do the deal?”

“That’s no problem. Why don’t I walk over here and let you two talk for a few minutes? If it would help, I would be glad to discuss this building with someone in the office of GKM Properties.”

“No, that won’t be necessary. We have the authority to negotiate and sign contracts for the business.”

Kathy watched the agent walk off, then turned to Garrett. She said, “What’s on your mind? You surely aren’t thinking about making an offer until we inspect every room and assess its condition. We don’t even know if the heating and air conditioning work, or the condition of the roof, or anything else. All we know right now is the public areas of the building aren’t trashed.”

“Well, we know a little more than that. I walked into the restrooms near the bar and café, and they’re pretty run down. They’ll need a complete makeover. The décor of the restaurant and bar is pitiful, as is the lobby. The pool area features a plain, unfinished concrete floor with painted cinder block walls. I don’t see any evidence of roof leaks in the public areas. We need to make an ultra low-ball offer, then if it’s refused, we threaten to walk away again if we can’t get in to do an in-depth inspection.”

“Ok. You’re the boss here. What number were you thinking?”

“Oh, I thought I would hit him with a half mil. If they refuse and counter, I will go as high as three quarters.”

Kathy laughed and said, “You asshole. We could completely strip the interior at that price and come out ahead. Go for it.”

When the agent saw the couple walking toward him, he smiled and said, “Well, shall I put in the offer at the asking price? I assure you that the building is a steal at that price. You couldn’t build this building back for less than about $4 million.”

“Well, we will put in an offer, but not for that amount. Since you won’t take the time to let us inspect the building fully and in detail, we are only willing to pay $500,000. Include that in an offer with possession at closing, and we will give it a try. Of course, we will need a title search to ensure we obtain a clear title and so forth, as is normal. We also need termite inspections and the general inspections normally done on transactions. You can contact Kathy here for the exact wording of the contract. She is an agent for another agency, so she knows about that part of the business.”

The agent’s face fell, and his smile disappeared when he heard the offering price and that he would be dealing with another real estate agent. He gamely pulled his papers from his briefcase and began filling them out, though. As he did so, he said, “I don’t think the executor will take this offer. It’s almost insulting. In fact, I have to tell you I will advise him not to accept.”

“Well, you will both do what you have to do, but need I remind you this property has been on the market now for three years? I’ll wager we are the first people to make an offer of any kind in that time.”

After the papers were signed, Garrett and Kathy continued running their errands, and the agent went to get a reply to their offer.

Two days later, Garrett received a phone call from the agent. After the usual pleasantries, he said, “Mr. Mans, the executor agrees with me on the price you offered for the motel. He refused it, but he did make a counteroffer. He will let the place go for one million dollars, even.”

“Nope, not gonna happen. Tell you what. I think I may have low-balled you a little. I’ll raise my offer to $600,000.”

The agent spluttered a little, then said, “That just won’t do. I’m sorry we couldn’t do business.”

“Yeah, me too. Tell your principal if he wants to be reasonable, my offer will stand until I receive a signed refusal or for three weeks.”

The following Monday, Garrett received another phone call from the agent. This time, he was so obsequious it almost made Garrett’s skin crawl. The agent said, “Mr. Mans, congratulations, you have purchased a motel if you will agree to just a small price increase. The executor states that he will accept $675,999 for the building and lot, as is. Can you do that for us, please, sir?”

Garrett didn’t even think before he said, “Ok. Done deal. I assume you will bring the completed contract to our business offices so we can sign it and give you some earnest money?”

“Yes, sir. I can be there in about an hour if that is convenient?”

It took over two months for the motel deal to close. After that time, Garrett spent another month reviewing every space in the building, making notes of things he needed to do to it. Unfortunately, this building was located in a municipality with zoning regulations and building codes, so he had to follow them. All work had to be done by certified, licensed craftsmen and approved by building inspectors. Thankfully, Garrett had all the necessary licenses for construction, plumbing, and electrical so he could do the work himself. The plan was to renovate a floor at a time. They would rent it for reduced rates until the construction was complete, then raise the rent to the final amount.

It took Garrett 13 months to prepare the first apartments for rent on the second floor. Of course, he also had the pool area renovated and the pool and spa filled so the tenants could use them. The common area was also renovated. The bar and restaurant were blocked off and left as they were for the time being. He next began work on the bottom floor, taking almost a year to complete it.

To his surprise, when he advertised the bottom floor for rent, he received a phone call from the director of housing at the local college. They wanted to rent the entire floor and use it for dormitory overflow. They offered the going rate for the rooms and a three-year contract if Garrett would agree to it. He and Kathy jumped on the offer. Now, all they had to do was obtain permission to install gas pumps, open the convenience store, and then finish the bar and restaurant. Those tasks became very important now that they had all the apartments rented. They hoped the college students would spend big bucks in the three small businesses if they got them open. They even agreed to use one of the smaller offices as a study room and lounge for the students.

It took Garrett another six months and way too much money to complete those three tasks, but he did so. The bar was the first business to open. It was a moneymaker from the start. The convenience store and gas station were essentially a break-even proposition, and the restaurant contributed only about $1,000 a month to the bottom line. They decided to keep the three businesses open for at least two years, unless they started losing money rapidly, to see if business improved.