We simply showed the insurance companies our projections and they sold for 50 or 60 cents on the dollar
Another interesting result was the ability to make very accurate economic projections. For example, we were asked by an investor group to assess the market for hotels and motels in Orlando, Florida not long after Disneyworld opened. Disney’s projections of demand were not made public and the State of Florida’s published one’s projected about 10 percent of the demand that actually arose. As a result, the demand for hotels and motels in Orlando far exceeded the supply.
And, as a result of that, a building boom ensued. About 26,000 rooms were built in two years, flooding the market. My clients intuitively figured that some opportunities would arise from the fact that the insurance companies providing the mortgages for the hotels and motels would eventually foreclose lots of them and would then sell them to the highest bidder.
So we studied consumer behavior and compared what we found with Orlando’s supply of hotel and motel rooms. We expressed the result in terms of three cases: worst, probable, and best. The worst case presupposed something like a war or major civil disturbances, something that would really shock the populace.
And, two months after we submitted our findings, the worst case occurred – the oil crisis. Gasoline was just not available. People had to stand in line for hours to get a few gallons.
And since essentially all of the traffic to Orlando came from the more northern areas of the east coast, this counted as a catastrophe for the hotels and motels there. Occupancy rates dropped precipitously.
Our projections expressed in terms of occupancy rates, however, turned out to be extremely accurate – within 3% of actual over the ensuing 12 months. After the first month’s results showed we were on track with our projections, our investors asked us to work with them to devise a strategy to take advantage. That was actually pretty simple. It was two part. The first focused on buying cheap. We simply showed the insurance companies our projections and they sold for 50 or 60 cents on the dollar.
The second focused on creating demand. That was more interesting. At the time, the railroads had created what they called the Auto Train. This ran from outside Washington, D.C. to Orlando. Passengers loaded their cars onto the train and rode in comfortable railroad cars with them to Orlando. So we had our clients lock up most of the available seats on the Auto Train.
Pretty soon the properties they’d bought were operating at over 80% occupancy and making money.
Tags: clients, Hotels, Hotels, market, motels, occupancy, projections, rates, result, train