why might a profitable motel shut down in the long run if the land on which it is located becomes extremely valuable due to surrounding economic development?
The owner might sell the land for a huge profit -- and then build another motel in another location.
1. Why might a profitable motel shut down in the long run if the land on which it is located becomes extremely valuable due to surrounding economic development?
1a. What kinds of costs are involved in making a decision to shut down?
A profitable motel may shut down in the long run if the land on which it is located becomes extremely valuable due to surrounding economic development. Here's an explanation of why this might happen:
1. Increasing property taxes: As the overall economic development increases in the surrounding area, the property value of the motel's land may also rise. This often leads to higher property taxes, which can significantly increase the operating costs for the motel. If these costs surpass the motel's profitability, the owner might consider shutting down.
2. Change in land-use priorities: Economic development often leads to changes in land-use priorities. If the surrounding area experiences significant growth in industries, commercial enterprises, or residential spaces, the demand for lodging might decrease. In such cases, the profitability of the motel can decline, negatively impacting its long-term viability.
3. Redevelopment opportunities: When land becomes highly valuable due to economic development, property owners may be tempted to sell their land for more lucrative redevelopment projects. If developers offer a significant sum to acquire the motel's land, the owner may find it more financially advantageous to sell the property rather than continue running the motel business.
4. Increasing competition: Economic development can attract new businesses, including other lodging establishments in the area. This increased competition can dilute the market share and potentially reduce the profitability of the motel. If the motel cannot compete effectively, running the business may no longer be sustainable.
5. Zoning changes and restrictions: Sometimes, as areas develop, local zoning regulations may change. This can impose new restrictions on the motel's operations or even prohibit certain commercial activities altogether. These restrictions might limit the motel's ability to adapt or expand its business, making it less desirable to continue operating.
6. Rising property values: Economic development often drives up property values, which can make it financially viable for landowners to sell their property and earn a substantial profit. If the motel's owner receives an attractive offer for their land, they may opt to sell rather than continue running the motel business in a highly competitive or changing landscape.
To summarize, when the land on which a profitable motel is located becomes extremely valuable due to surrounding economic development, factors such as increasing property taxes, changes in land-use priorities, redevelopment opportunities, rising competition, zoning regulations, and rising property values can all contribute to the long-term shutdown of the motel.