The sale of The Sand Castle North and Sand Castle South Beach to the Los Angeles investment team of MBSC Property, LLC and MBSC Property South, LLC marks the beginnings of a new era in how The City of Myrtle Beach will operate.
Hybridge Capital Management, a Los Angeles-based investment firm focused on commercial real estate and technology, has acquired the two Myrtle Beach, SC, hotels in an off-market transaction. The two limited liability corporations were formed this past June and July for the specific purpose of purchasing the hotels.
WHY THIS MATTERS
The sale marks the continuation of generational market change we are witnessing in Horry County including:
- The sale of Brittain Resort Hotels to EOS Partners, LLC
- The sale of Mayor Bethune’s Better Brands to a Charleston, S.C. firm for $300 million.
- The sale of the Southern Asphault for $25.2 million.
- The listing of the Sea Mist Resort for $55 million.
- The sale of Wild Water and Wheels to an outside investment group.
- The sale of the Family Kingdom in Myrtle Beach.
Each of these sales have occurred in the last 12 to 24 months.
Real Estate Investment Trusts are the trending choice among hotel acquisitions.
According to Reit.com: A real estate investment trust (“REIT”) is a company that owns, operates or finances income-producing real estate. REITs provide an investment opportunity, like a mutual fund, that makes it possible for everyday Americans—not just Wall Street, banks, and hedge funds—to benefit from valuable real estate.
In the past, the oceanfront in Myrtle Beach consisted of family owned property management firms and family owned hotels. Today’s Myrtle Beach will be highlighted by a large collection of investors who are not connected to the local community. These portfolio investors will care more about the return on their investment than local politics.
So, how will this affect the City of Myrtle Beach and the Myrtle Beach Area Chamber of Commerce?
The City of Myrtle Beach
As has been true with individual condo owners, who make up the bulk of oceanfront holdings in Myrtle Beach, the city will actually gain a stronger foothold over these REIT investors. These investors will have little influence or say on what politically happens in the city as they live all over the world and can’t vote locally.
THE MYRTLE BEACH AREA CHAMBER OF COMMERCE
In the long run, the Myrtle Beach Area Chamber of Commerce will experience an altogether different outcome.
As the landscape oceanfront becomes increasingly owned by one or two large real estate investment trusts, the Myrtle Beach Area Chamber of Commerce’s true membership roles will drop to a small group of REIT managers.
An example is Brittain Resort Hotels, which sold to EOS Investors, LLC.
The Brittain family members were very active in the local Myrtle Beach Area Chamber of Commerce [MBACC], as well as, local politics. They were an influential support group for MBACC as it became the most dominant political force in Horry County.
Once these REITs are fully established in the area, the pencil pushing accountants are sure to follow. The relationship between the Brittains (and other local hotel family owners) and MBACC was close and highly connected. REIT managers will be more hands off, having their own goals apart from MBACC. In short, the direction of MBACC will be much more the chamber’s concern, and not these REITs’ main focus.
REIT investors are looking for a strong portfolio with high returns. Corporate savvy accountants and managers will care more about their hotel group’s own brand than advertising. MBACC will need to adjust. Karen Riordan, MBACC C.E.O., will be negotiating with fewer and fewer actual members. These corporate members will carry great knowledge, greater impact, and a savvy understanding of Net Present Value approaches to marketing versus return on investment ideas.
THE LAW OF DIMINISHING MARGINAL RETURNS
These managers will also understand the law of diminishing marginal returns when it comes to ad buying.
The law of diminishing marginal returns says that the marginal utility from each additional unit declines as consumption reaches a certain level. The marginal return declines into negative utility, as it becomes entirely unfavorable to consume another unit of any product.
Explained simply, if you have a small hanging plant holder with good soil, planting one seed in that soil will likely produce a nice plant. Planting two seeds will also likely produce two plants in that same soil. However, if you plant 1,000 seeds in that same soil, it is virtually impossible to produce 1,000 plants in that small planter.
With $51 million annually spent in advertising, MBACC long ago reached the point of diminishing marginal returns on its ad buys, especially with the outdated city brand it was promoting.
Highly informed, REIT portfolio managers will know this reality even before they come into town.
A DATABASE DISCONNECT
The most valuable thing MBACC owns is its database of visiting Myrtle Beach customers. In fact, the most valuable asset any business owns is its database. Ask Google or Facebook. Their databases are more valuable than gold.
MBACC receives $51 million annually in tax funded revenues to build this database. Yet, when city leaders discuss downtown redevelopment, they NEVER look at MBACC’s database to determine what direction the city should take moving forward.
Current public records list no dedicated department head as MBACC’s Convention and Visitor’s Bureau database manager. This raises some fundamental questions as to why such a disconnect exists.
Redeveloping the downtown without studying MBACC’s client list, amounts to Ford introducing a new line of sedans when the data shows their customers prefer trucks and cross overs. Ford studied the data and got out of the car business, with the exception of the Mustang.
FOREVER CHANGED FOR THE BETTER
The emergence of these new REIT investors changes the tenor of the City of Myrtle Beach forevermore for the better.
Myrtle Beach has been a command economy, top down managed town for 50 years, working to limit competition among existing businesses (and the city itself) in the downtown area.
The page has now turned and the next chapter looks interesting.