Retention of Low Cost Visitor Lodging in
the Coastal Zone
PATRICK TIERNEY PH.D.
DEPT. OF RECREATION, PARKS, AND TOURISM
PTIERNEY@SFSU.EDU
Major Factors Influencing Economics of Coastal Zone Lower Cost
Visitor Lodging (CZLCL)
 Focus in this presentation is on non-camping CZLCL. Not looking at ownership by
nonprofits (hostels). Looking at inns, motels, lodges, B&Bs
 CZLCL (under $130/night) when within 1-3 hours drive time of major urban centers
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Very high demand by visitors, can charge high prices, (some exceptions for area and season)
Higher costs of real estate, and to operate: labor, maintenance, supplies and services
Limited supply of formal tax-paying CZLCL
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Low season= 5 in Monterey, 3 in Half Moon Bay, 8+ in Santa Cruz
Difficult to get local community support for constructing new visitor CZLCL
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Neighbors opposed to any new development
Officials prefer high end development for maximum boost to tax base
Individual investors want “cold bed” condos
 CZLCL when more than 3 hours drive time from major urban centers
 Highly seasonal demand
 Slightly lower costs of real estate, maintenance and services
 CZLCL is often aging, has deferred maintenance or is in need of updating
Common Financial Factors Impacting Retention of Existing CZLCL
Capital cost factors that favor retention
 Property was purchased and built prior to 1980
 Has been family owned and operated for many years
 Has not been sold more than once
 Have paid off mortgage
Financial Factors Influencing Retention and Profitability of
Existing CZLCL
Many Have Much Lower Operating Costs Due To:
 Low Proposition 13 tax rates
 Family heavily involved in management and operation
 Family currently/one-time lived on property
Have substantial inheritance or family money
 Wealthy family pays much of initial cost for them (BNB) or their child
 Only need to cover operating expenses with fees charged
There is a supplemental source of income
 Family member has income from non-lodging source
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Stocks, or on-site activities like ranching, art
 Without these financial factors it is very difficult to be profitable at CZLCL rates
Other Significant Factors Influencing Retention of CZLCL
Some owners are interested in a “lifestyle” business
 Willing to trade less financial return for a better lifestyle
 Allows them to live comfortably in a rural, beautiful, less stressful area
Owners have a historic or family connection to property
 Land has been in family for years
 Buildings are unique/historic and owners want them protected
Without financial and other non-financial factors there is much less
incentive to retain CZLCL
 Relatively low return on investment from operations
 Owners can make a much larger financial return by other uses of property
 Leads to demand for demolitions and conversions
Alternative Corporate Franchise Model of CZLCL
 A great deal of the new CZLCL construction in last 20 years has been
through national franchises inside city limits
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Can be profitable
Often lacks character or uniqueness
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Rectangular concrete box with a paved parking lot
The “Motel 6” model can work
Keeps construction and operating costs low enough to be profitable
 Many consumers are willing to forgo amenities for lower cost
 Franchise branding, marketing, reservation system and lower supply costs are large benefits
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Big financial question is the land/property costs
Impact of Land Costs on Opportunity for CZLCL
 Extremely high demand for coastal zone land
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Residences for owners
Investment properties for the wealthy
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Houses sit empty for 355 days of the year
Vacation rentals by private owners
 Has driven up land/property prices beyond what allows CZLCL to be
profitable- Lots selling from $180,000-$300,000; B&Bs selling for $895,000
to $4 million.
 Just one sale of a CZLCL property at current market rates may mean the
recovery of capital costs requires change to moderate or luxury pricing
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Monthly mortgage payment impact is huge on motel cost model
Will Emerging Shared Economy Lodging (VRBO and AirBNB)
Open Up New CZLCL
 Yes it can, and mid and lower range motels are worried in SF and elsewhere
 One study concluded: “We find that Airbnb has negatively impacted the
revenues of lower-tier hotels.” No longer same lack of lower cost lodging
alternatives
- CZLCL owners will need to employ shared sites (AirBNB) to find more
business, or they’ll have much less revenue in the future
Time Is Critical For Retention of Existing CZLCL with Character
 Many factors are driving conversion of CZLCL and these will increase
 So retention of existing CZLCL with character is critical
 Time is of the essence
 Many owners of CZLCL are nearing retirement and considering selling
 The lodging is their “retirement” fund
 Inheritance, family and financial factors encourage selling vs. retaining
 Coastal Commission should be proactive in retention efforts
 Current in-lieu fees approach
 New approaches may be needed
New Strategies for Retention of CZLCL
 Personal opinion- we will loose much of our unique, character-enhanced
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legal, private, non-shared CZLCL in the next 10 years if left to the market
Many similarities to retention of small farmer agriculture along the coast
Some similarities to efforts at protecting natural areas along the coast
Similar to people affording energy efficiency upgrades in their homes
Can we use some successful retention approaches borrowed from ag
lands, retention of natural areas and financing energy efficiency?
Some initial retention ideas….
Some Initial Retention Ideas- Direct Financial
 Conservation
(low cost lodging) easements -local district buys
use/development right/limit, owners retain title
 Property Assessed Clean Energy (value lodging) program- borrow
money for upgrades and pay back over long time on their property tax
bill. Debt with property, not owner
 Low interest loans for needed upgrade or expansion in exchange for
contracted rates
 Conservation/mitigation banking- In exchange for permanently
protecting habitat (value pricing), a mitigation bank operator is allowed
to sell or transfer “habitat” (in-lieu value pricing) credits to project
proponents who need to satisfy legal requirements for mitigating the
environmental impacts of other projects.
Indirect Support For Retention
 Non-direct financial incentives:
 “Value Coastal Housing” webpage - CCC creates a webpage and promotes it
(under Resources Page or Explore Your Coast)
 Funds used to hire business consultant to co-prepare business plan for property
upgrade/expansion
 Requirement
to receive support
 Thank you for listening