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Sunday, February 13, 2011

Eight Gables and the Lesson of Debt

We are spending a long Valentine's Day weekend once again in Gatlinburg at Eight Gables Inn, a favorite of ours for some years. This year we've met the third owner since we began coming here. The results of this new ownership, in place since November, is significant. The situation here has a lesson to teach for businesses and individuals about debt.

The last owner, a dear lady who we liked a lot, simply paid too much for this property. During her tenure prices went up to cover that debt, which was structured pre-recession. During the recession, due in part to the higher prices, occupancy went down as did service and the number of available staff.

The new owners, from all indications, paid considerably less. The property had been on the market for some time before it sold. The new owners also operate a string of wedding chapels in Gatlinburg so this property is an adjacency for them; book the chapel and house the wedding party in one package: operate the Inn as normal otherwise.

The impact is noticeable. First of all, prices have dropped about 30%. The parking lot was full this morning, and there are about three times more staff than usual. The facilities are still a little tired from years of ownership that couldn't reinvest, but there are small visible improvements with more planned. The place has the feel of something about to come roaring back.

Have you seen a business example of this recently? How many companies are straddled with pre-recession debt and can't invest in people or infrastructure? How about a friend (I have a couple) who overbuys for their home as compared to their income and has a great house in a great neighborhood, but no shrubs?

The lesson is to never overpay for anything. Whether it be a car, a home, or a business you can operate smaller and better rather than over reaching and struggling. This should be one of the rules for the "new normal" of the post recession economy.

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