Mr. Tess

Finance & Investment

Motels of the 1950s and Historic Investment Tax Credits

By John Tess, President & CEO, Heritage Consulting

That threshold is 1955, an era for the hotel industry marked by the startling rise of chain motels - often around newly constructed interstate highway exchanges. These motels targeted the family vacationer, focusing on standardized quality, family-friendly amenities and convenience for the automobile traveler. The traveling public considered doormen, bellhops and luxurious lobbies negatives; it meant dealing with inner city traffic and parking, and tips, tips, tips. For the frugal family, the motel was simpler: Drive up to the office, get your room and then drive to you room. You parked free right outside the door - allowing easy unpacking and a quick escape to the highway in the morning. Miles, not memories, were the measure of vacation success.

Rise of the Motel: As detailed in The Motel in America, the roots of the term "motel" lie in a cacophony of building forms. Where the first motel was established is a matter of conjecture, with one possibility being the Askins' Cottage Camp established in 1901 in Douglas, Arizona. The term itself was first used in San Luis Obispo, California in 1926 when Arthur Heineman opened the "Milestone Mo-tel", contracting the words motor and hotel. Dozens of synonyms were used -- included motor court, tourist court, auto court, hotel court, cottage court, tour-o-tels, to name just a few. In these years, it was easier to define a motel in terms of what it was not - it was not a hotel, whether in town or rural resort. It was not multi-story. It was not large. It did not include expansive formal spaces such as grand lobbies, dining rooms or ballrooms. It did not have elevators, corridors, doormen or bellman. The motel was typically a one-story affair comprising several small buildings.

In mid-century America, the motel concept boomed. In the ten year period beginning in 1928, the number grew from 3,000 to 13,521. By 1954, the number was 29,426 and in 1961, it peaked at 60,951. The rise of the motel followed from America's adoption of the automobile as the preferred mode of transportation. The growth in motels paralleled the growth in automobile registrations that aided in part by the rise of the federal interstate highway program, begun in 1956.

In the post-war world, motel generally described a motor court. These lodging enterprises were organized around large courtyards rendered as informal outdoor "lobbies." A frequent amenity was the swimming pool incorporated as part of this courtyard. Parking was typically restricted to the outside of the U-shaped courts and rooms were provided with both front and back doors, often with a patio on the pool side.

"Perhaps no other society experienced more profound changes than the U.S. society did in the fifteen years after 1945. Demands pent up during the Depression and World War II broke loose in every facet of life during an unprecedented era of peace and prosperity. By the mid-1950s, Americans, who constituted but 6% of the world's population, consumed more than one-third of the earth's goods and services."

This era of prosperity directly translated into leisure dollars. In 1956, the average American income was 50% higher than in 1929. More importantly, disposable income and leisure time boomed. Whereas prewar mortgages demanded 50% down payments and repayment in 10 years, mortgages in the 1950s allowed small down payments and mortgages to be paid over 30 years. Labor hours dropped substantially, from 52 hours per week in the 1920s without vacation to 40 hours per week in the 1960s with 8 paid vacation days annually. By 1950, Americans spent twice as much on entertainment as they did on rent and society encouraged consumption over savings.

By the 1950s, leisure had become an industry. The Architectural Record estimated that in 1952 86% of all travelers went by car and that in 1953, 40 million people nationwide, two-thirds of those traveling by car, would stop at a motel. Florida in the 1950s was second only to California in the number of motels with 5,000 taking in an average of $300,000 a night.

Motels at mid-century were not the chains but "mom and pop" operations. The great chains and the notion of "place-product-packaging" embedded in American travel culture did not appear substantially until the late 1950s. Hotel chains were not uncommon in the first half of the 1900s, led by J. B. Pound, Albert Pick, Ellsworth Statler and Conrad Hilton, but these chains were largely regional, did not embrace uniformity in design and were mostly threatened by motels. Alamo Plaza Hotel Courts pioneered the concept of a motel chain, including the notion of uniformity of design, beginning in 1929 in Texas - though the firm eventually strayed from its concept. Subsequent recognized names (e.g., TraveLodge, Holiday Inn, Howard Johnson's), all came to fruition as chains in the mid-1950s; marketing associations (e.g., Best Western, Superior Motels) followed a similar timetable.

In 1950, motels were a popular small business enterprise. They offered sweat-equity, high cash flow, and strong capital gains. It was comparatively easy to start a motel, operational knowledge was not yet specialized, little capital was required, construction was generally simple -- even construction kits were available. Rarely was an architect involved in the construction and typically motels were owner-managed.

But even with "Mom & Pop" operations, the industry offered clear rules of thumb:

Motels and Historic Preservation Tax Credits: Much like the phenomenal rise of boutique hotels in downtowns beginning in the 1990s, hotel developers are beginning to look at the rehabilitation of 1950s-era motels as a smart rehabilitation project.

There has always been a curiosity and affection for the remnants of roadside America, from Burma Shave signs to painted barn signs to supersized Paul Bunyans. By 1977, public enthusiasm joined with a fear of lost heritage to prompt the founding of the Society of Commercial Archaeology (www.sca-roadside.org), a group dedicated to buildings, artifacts, structures, signs and symbols of the 20th century commercial landscape.

But increasingly, interest is turning into profit as these old motels are rehabbed and returned to their intended use. In the first instance, most of these properties have superior construction values to modern construction. In the second, the motels typically are well located. Many of the motels were built as a destination resort in prime locations, such as along the Atlantic Ocean beaches. Many of the motels too were built at the highway approaches to communities where it remains today or in some instances where the community has since grown up around it. Finally, whether western, Polynesian, or other, most of these motels featured a fun theme boldly announced by oversized neon signs.

As the boutique market becomes saturated, and developers look for new products, the 1950s era motels have good bones. In part, development regulations limit redevelopment options. A redeveloped ocean front motel site may not yield sufficient new square footage to warrant new construction. Certainly, signage regulations rarely allow new signs of the scale from that of the earlier era. The upshot is that these properties are being cleaned up and brought to modern industry standards at relatively nominal costs. In the case of one motel in Portland, Oregon, the one-time family dining room has now been transformed into a trendy club setting. Some destination resorts are even being transitioned into an upscale "spa" setting. They are also being adapted into senior and affordable housing.

What is often forgotten in the redevelopment process is that these properties now can qualify for the federal investment tax credit for historic preservation. This credit allows 20% of the rehabilitation costs to be used as a credit against taxes owed. In the right circumstances, this credit can also be sold at a slight discount to bring money into the rehabilitation, thereby making the project even more attractive. Adding to the mix, many state and local governments offer incentives and ease regulations for historic buildings; the very process of securing federal historic preservation investment tax credits opens the door to other benefits.

In closing, a word of caution: As I have discussed before, any historic rehabilitation project using the federal tax credits must meet the Secretary of Interior's Standards for Rehabilitation. While flexible, these standards do place limits on what can be done in rehabilitation. Thus, as with any rehabilitation effort, it is important to engage a preservation professional at the earliest stages of conceptual development.

John M. Tess is President of Heritage Consulting Group, a firm that assists property owners, attorneys, accountants, financial institutions and investors maximize the value of historic real estate assets through the use of federal tax incentives and other tools. Heritage has represented projects totaling more than $1 billion. Heritage specializes in linking developers with corporate and institutional investors active in historic tax credits. Heritage Consulting Group is headquartered in Portland, with offices in San Francisco and Washington, D.C. Mr. Tess can be contacted at 503-228-0272 or jmtess@heritage-consulting.com Extended Bio...

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