Resorting to patience

Resorting to patience

Tourism by Mark Gordon | Managing Editor

Two distinct sides of the condo collapse can be found a short walk from one of the Gulf Coast's most pristine beaches: Despair and opportunity.

George Rauch was nearly overcome with joy on the day in 2005 when he heard the owners of the Sara Sea Beach Resort, a kitschy old-Florida motel on Siesta Key, were putting the joint up for sale.

Rauch and his family already owned two other properties next to the once-popular Sara Sea and he and his top executives saw the 22-room L-shaped motel with no-interior corridors as the third leg of what they could turn into a Siesta Key daily-rental trifecta. "We've wanted it for years," says Dawn Van Lanen, the general manger of Tropical Beach Resorts, the company that runs the motels for Rauch, a Longboat Key entrepreneur. "We've always been in love with it."

But Rauch wasn't in love with the price - $4.25 million for the 7,500 square foot motel originally built in 1953. That averages out to about $193,000 a room, excluding renovation costs, and he didn't see a way to make the deal work. So he balked at making a bid.

The prudence paid off: Rauch was finally able to buy his jewel earlier this summer, shaving 27% of the 2005 price by paying $3.35 million in a deal that closed June 30. Rauch and his partners bought the property from Warren Hickernell, a Sarasota-based commercial Realtor who specializes in buying rundown resorts and motels and converting the buildings into condos - a niche market that, obviously, has come on hard times during the housing bust.

In many ways, however, this is when the really hard work begins for Tropical Beach Resorts. Van Lanen is shepherding a renovation of the project, including new landscaping for the entire grounds, adding 32-inch flat screen TVs to each room and turning one room into an office. "A lot of it is minor details," says Van Lanen. "But minor details could take time."

Not to mention money and financing, which, in the current tourism industry isn't as plentiful as it has been in past years. For example, while Tropical Beach Resorts says it's still growing its year-over-year occupancy rates, Van Lanen admits the growth rate has slowed. "We are having to work a little bit harder," she says. "Stays are shorter and the rooms are turning over quicker."

A key for Rauch and Van Lanen lies in the marketing strategy of the Sara Sea, which they expect to be ready for occupancy by the beginning of the 2008 tourist season in November. The company's other two resorts are family and children focused, so this one will be geared toward adults.

And Rauch is clear that while the insides of the renovated Sara Sea rooms might feature luxuries such as marble countertops, new beds and white fluffy bathrobes, it's still not luxury. At least not by some of the tonier standards set by of other Gulf Coast beachfront properties.

Instead, the Sara Sea will be an adults-focused, hassle-free resort where guests can pull their cars right up to their front doors. A bare-foot walk to the beach is less than a football field away.

"There are people that like that sort of thing," says Rauch. "And there are people that like to stay at the Ritz."

Major disappointment

While the Ritz it isn't, the Sara Sea is nonetheless a popular spot. In early July for instance, mere days after taking over the Sara Sea phone number, Tropical Beach Resort's lines began buzzing. Van Lanen says she's since received about 10 to 15 calls a day from potential guests - and the company has yet to advertise the new resort in any travel publications or Web sites.

Van Lanen says the interest is partly due to the lore of the Sara Sea. From the time it opened in the 1950s, when it was one of the first motels on Siesta Key, through most of the 1990s, the Sara Sea was a top destination for both newcomers to the Key and returning vacationers.

The hotel was even featured in a 1997 New York Times travel article on places to stay in Sarasota. Says Van Lanen: "We want to maintain the charm, but update it with modern conveniences."

It's the same lore that drew Hickernell to the Sara Sea three years ago, when he bought it from the former owners, a German family. Hickernell, a certified public accountant and onetime postal inspector in Pennsylvania, paid $4.25 million for the property back then, with the intention of turning it into luxury condos.

Hickernell thought the design and location of the Sara Sea would be enough to help the condo conversion project succeed in spite of the market troubles. But over the past year, as sales market-wide slowed from a drip to a drought, the bank holding Hickernell's loans on the property told him it was going to put the project on the market. Hickernell considered the bank's decision a pre-foreclose effort to cut its losses.

Hickernell's disappointment in the failed condo conversion project, one he pumped several hundred thousand dollars of his own money into, is deep. "It's like losing one of my pets," says Hickernell. "I wouldn't say it's like losing one of my children, but it's close."

Marketing strategies

Van Lanen is confident the Tropical Beach Resorts renovation of the Sara Sea won't meet the same fate. For starters, she's relying on the successful business model the company has used with its two other properties, going back to 1990 when it started with just one staff member and a few rooms.

The company has since grown to own four buildings totaling 48 rooms, with a staff of 18 employees. About one-third of the company's growth occurred in 2001, when it bought the Tropical Sun next door to its original Tropical Shores property.

After renovating the rooms at the Tropical Sun, Van Lanen - who moved to Florida from Wisconsin in 1993 to work as a teacher - quickly set about crafting a new marketing strategy for both properties.

The most important aspect of the strategy, says Van Lanen, was to highlight the property's differences. That included the big things, such as setting up different price points, as well as more subtle changes, including maintaining separate Web sites for each property and coming up with different color literature for each property.

In addition to marketing, Van Lanen has resisted the urge to change the company's price structure from daily to weekly or monthly, a move going against the current trend on Siesta Key and other Gulf Coast barrier islands. The trade-off was clear: Tropical Beach Resorts was willing to give up the potential revenue boost of long-term commitments for the consistency and security of short-term stays.

The strategy has worked. The hotel has had an occupancy rate of 90% or higher for the past three years, Van Lanen and Rauch say, a high rate even in normally popular Siesta Key. In addition, the pair of Tropical Beach Resorts is well thought of in travel circles. The Discovery Travel Channel recently ranked the properties number one in the state for family-based Florida beach resorts, for instance.

It's success like that has Rauch, a former Wall Street investment banker who also owns resort properties in Vail, Colo., confident in the Sara Sea purchase as well - even with a soft economy. In addition to the historic draw of the property, Rauch is relying on two business basics: Positive cash flow and supply and demand forces.

The high occupancy rates cover the cash flow part, while the lack of daily, mid-price level hotel rooms on the Key takes care of the supply and demand aspect.

The rest, says Rauch, is patience. "It's pretty hard not to make it work," he says, "once you get past the first few years."

REVIEW SUMMARY

Company. Tropical Beach Resorts, Siesta Key

Industry. Tourism

Key. The beach resort company is looking to continue growing by renovating an historic motel.