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?
Perhaps other businesses can make far more money on this land than the motel can make.
Another business may make far more money on this land than the motel can make. Another aspect to consider is the motels property tax may go up far more that the motel can support. They need to look and see if how much their profit is and see how much the land could sell for in comparison to. Will their profits go up with the new businesses around them or will they go down?
A profitable motel could potentially 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. Rising land value: Economic development in the surrounding area can drive up land values significantly. As a result, the value of the motel's land may increase to a point where it becomes more profitable to sell the land rather than operate the motel. Developers or investors may be willing to pay a premium for the land, considering its potential for higher-end development.
2. Opportunity cost: The motel owner might realize that the increasing value of the land presents an opportunity for a more financially rewarding investment. By selling the land, they can capitalize on the rising market value and invest the proceeds in alternative ventures that yield higher returns. This opportunity cost makes shutting down the motel a more attractive option.
3. Redevelopment pressure: With the surrounding economic development, there may be pressure from local authorities, businesses, or community members to utilize the land for other purposes that align better with the area's growth. This could include high-end residential buildings, retail spaces, or office complexes. These factors may further incentivize the motel owner to shutter the business and sell the land for redevelopment.
4. Competitive disadvantage: Economic development often leads to increased competition in the area. As new hotels, resorts, or other accommodations emerge in response to the growing demand, the existing motel may struggle to compete in terms of amenities, pricing, or target market demographics. The potential decline in occupancy rates and profitability can make continued operations unsustainable in the long run.
It is important to note that not all profitable motels would shut down under these circumstances. Many factors, such as the motel's financial situation, market demand, and the owner's long-term vision, play significant roles in determining whether a profitable motel will stay operational or choose to sell the land for redevelopment.