Optimising your under performing Hotel Property in Romania

I thought it worth sharing two success stories, as there are Property owners around the world with assets in Romania, perhaps inherited, perhaps bought, but for a number of reasons, it is not working well for the person.

As a rule, your rented property in Romania should be producing around…

  • 6% of the current salable value in rent, for residential property
  • 8% of the current salable value in rent, for office property
  • 9-12 % of the current salable value in rent, for commercial or industrial property

Over the past years, two Hotel owners have come to us for help.

Case 1 – small (10 room) tourist hotel in Bran, near Brasov

Problem: the property, a 10 bedroom hotel, was sublet to an inexperienced hobbyist manager, who ran the hotel more as a kind of past time, generating income only sufficient to live from. As a result, it had a low client rating, low occupancy, minimal incomes and as a result, maintenance had fallen behind, thereby devaluing the property.

Resolution: We made the following contribution

  • evaluation of the property,
  • made recommendations giving the non-resident owner a range of options for selling, renting and optimizing,
  • brought the old tenancy agreement to a close,
  • found a new tenant
  • assisted the new tenant in getting the hotel running
  • managed the property for the owner to ensure rent was incoming & bills were paid.

Result: Currently the hotel is ranked 9.7/ 10 on booking.com, one of the highest in the town of Bran, near Brasov, with 227 reviews, & on Google maps it is ranked 4.8/ 5 with 175 testimonials.

 

The result is now, after 6 years of smooth rental income, the value of the hotel is just over double the value it was in 2014, with zero income from the owner. The tenant has had an excellent business, with good incomes, and Bran tourists enjoy a hotel with a standard, that far exceeds the majority of the competition.

  • Value then – euro 320,000
  • Value now – euro 750 to 850, 000
  • Investment by the owner, during the period, zero.

Case 2: medium (55 room) tourist hotel near Brasov

Problem: the property was inherited after an elderly gentleman passed away & left it to an enlarged family living abroad, & it was rented to a local manager, but who lacked the experience & management skills necessary to get the most from the building. Despite the significant, constant investment by the owners, large parts of the hotel were never put into service as they lacked, for example, local approval for certain guest activities. The owners benefited from no annual rental income & were indeed obliged to contribute more investment each year just to cover running costs.

Resolution: We made the following contribution

  • evaluation of the property,
  • make a full market analysis including competitor performance, tourism rates, forthcoming infrastructure and market trends
  • produced a detailed report giving the non-resident owner a range of options for selling, renting and optimizing,
  • sourced a range of 3 potential tenants
  • assisted in bringing the old tenancy agreement to a close,
  • assisted in clearing up accounting errors, taxation issues and related matters
  • proposed a stable, creditworthy tenant with a proven track record, who will rent at a 4% return for the owner, which is below norms, but the tenant has made a commitment to invest to bring the hotel back to competitive standards, which will add circa euro 1 million to the asset value.

Interim Result: Currently the hotel is ranked 8.5/ 10 on booking.com. It will be interesting to see how the tenancy works out and if indeed, the hotel standard, and capital value improves as a result of our stragegy recommendations. Watch this space.

 

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