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Courtesy / Daigle Commercial Group Inc.
Some of the 25 units at Beach Motel & Suites in Old Orchard Beach were fitted with heat pumps to allow for off-season rentals.
Leveraging an exchange under section 1031 of the IRS tax code, the seller of Beach Motel & Suites at 5 Summit St. in Old Orchard Beach followed up with the purchase of Water’s Edge restaurant at 306 Eddy’s Road in Edgecomb.
“That’s a classic case of the seller becoming the buyer,” said Roger Daigle of Daigle Commercial Group Inc. “That’s happening more and more.”
A 1031 exchange allows an investor to defer paying capital gains taxes on the sale of real estate by buying a similar property.
PDJ Properties LLC sold Beach Motel & Suites to Vindico LLC for an undisclosed price.
Daigle and Julia Langham, also of Daigle Commercial Group Inc., represented the seller in the transaction.
The hotel has 25 guest rooms and suites. Fourteen suites having heat pumps for year-round rentals. The property also includes a heated outdoor pool surrounded by a courtyard with picnic tables and grills.
The seller, PDJ Properties LLC, had owned the property for about three years. When he first bought it, the property needed some rehabilitation.
“He made some improvements to the property, including putting in AC and mini-splits in the rooms so that he could rent rooms in the off-season,” said Daigle. “He’s been able to improve the property’s performance.”
But PDJ Properties LLC was interested in acquiring “a more substantial” property, Daigle said.
So he bought a 200-seat waterfront restaurant and banquet facility known as Water's Edge in Edgecomb for an undisclosed price.
The seller in the Edgecomb deal was Water's Edge Development LLC. Daigle and Langham brokered that deal as well.
The buyer of Beach Motel & Suites was on a roll. Just a month previously, they had bought a resort inn known as Stage Run by the Sea at 2 Kingfield Ave. in Ogunquit for an undisclosed price.
Daigle and Langham represented the seller, Deborah M. Stutes, in that deal.
“Some properties in certain markets — such as Old Orchard, with its close proximity to Portland — lend themselves to renting off-season and this is becoming more commonplace in certain areas,” Daigle noted.
In general, said Daigle, lodging properties are selling close to the asking price.
“There are no properties selling at discounted prices,” he said. “People call us all the time and say, ‘We’re looking for a bargain.’ It’s just not going to happen.”
Strong pricing is attributable to high buyer demand and a shortage of listings.
“We have more buyers than sellers,” he said.
There are a couple of reasons for that.
“Hotel properties have been profitable in Maine and buyers are recognizing that they’re a good investment opportunity, much like other investment properties like shopping centers, retail and apartment buildings, for which there is also a shortage of good listings,” he said.
Also, interest rates have been favorable for buyers, he continued.
“The fact that there’s high demand has fueled the frenzy for identifying and buying properties, because it’s anticipated that interest rates will go up,” he said. “Right now, interest rates are favorable to buyers. Buying a 48-unit motel at 3% interest versus 5% makes a difference.”
Then there’s Maine’s attraction as a travel destination, which has grown over the past two years, he continued.
“We had high post-COVID demand in the 2021 season, such that there was a shortage of help, and yet the owners of these properties were able to do as well as they did in the 2019 season,” he said. “It was anticipated there would be pent-up demand and that proved correct.”
Although many properties experienced a shortfall in occupancy, partly due to lack of business from Canadian travelers, hotel owners were able to bump up their rates and match — and in some cases surpass — their 2019 performance, he said.
“There’s been such pent-up demand to get back to tourist destinations that people were willing pay a bit of a premium,” he said.
An increasing number of buyers are coming from out-of-state, said Daigle.
A few months ago, that included the buyer of the Presque Isle Inn, a 110-unit inn, restaurant and convention center at 116 Main St. in Presque Isle.
The buyer in that deal was from San Francisco.
“He reached out to us and came in with an offer above asking price because he correctly assumed there would be a frenzy for that particular property,” said Daigle. “The property needed work, so it was offered at a very attractive price.”
Daigle noted that the buyer had never been to northern Maine before visiting the property.
“We met him last February in Presque Isle in a snowstorm, and I said, ‘If you can survive this snowstorm, you’ll be okay,’” he recalled.
Daigle’s office is also fielding queries from as far as Florida, Texas and Colorado, as well as New England.
“People are finding our listings and reaching out to us,” he said.
Still, he added, some potential buyers are not as intrepid as the new Presque Isle Inn owner.
“Some properties take a little longer to sell,” he said. “Right now we have an excellent hotel in northern Maine, available at half of what a property would cost if it were in southern Maine, and yet just as profitable. But a lot of our buyers are saying they don’t want to go north of Bangor. Some won’t go north of Portland.”
By contrast, a lodging in Wells went quickly.
Wells-Ogunquit Resort LLC bought a 48-key resort property known as Wells-Ogunquit Resort, at 203 Post Road in Wells, from Peter G. Proach and Sarah W. Proach in an off-market transaction.
The confidential listing had an asking price of $4.35 million.
“The sellers were getting ready to put it on the open market,” said Daigle. “But we negotiated that deal before the property ever hit the market. The price was north of $4 million.”
In 2021, Daigle’s firm closed nine transactions. Less than two months into 2022, the firm has already had four closings and has another property under contract.
“We anticipate 2022 to be strong as 2021,” he said.
He said he anticipates the Caribou Inn and Conference Center, a full-service facility now on the market, to attract attention after a price reduction from $3 million to $2.79 million.
“It has a strong performance record,” he noted.
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