I.
Executive Summary
JWT Company, started by three
partners, Megan Johnson, Erin Taylor, Carly Wells, recently invested $1,965,000
into a quaint village home right in the heart of Mendocino, CA. The multi-home
can be easily found and is less than a mile off of Little Road exit on Hwy
1/Shoreline Hwy in northern California (wine country). JWT Company plans to create the home into a
profitable Bed and Breakfast, naming it the Mendocino Village Farm and Winery B&B. The home consists of three
different and separate units (5 bedrooms, 3 baths) that all have a different
unique characteristic about them. However, all rooms have a beautiful view of
the Pacific coast.
The B&B target market is
geared towards middle-aged couples and individuals traveling for the day from San
Fransisco area, as well as, honeymooners and tourists visiting on vacation.
They have an average income of $75,000 or more and work in a professional
business setting.
The property in located in the
village square of Mendocino where the population growth has been pretty slow
over the last decade. However, one of
the main reasons for this is that it is a “hot spot” for tourists to visit, so
the demand for hotel and B&B stay has increased with the wine industry
growth. Our competition will include the
local hotels, motels, and other B&B in the wine country. However, we see opportunities and strengths
in our fabulous location, our built in unique winery, and large plot of land.
The way we plan to leverage our
home is with a 40% down payment of $786,000, and the remaining 60% will be paid
in debt over a 30 year loan. Our NPV of
this investment comes out to $170,170.74 with a 6.79% IRR.
II. Background of the Company:
The JWT Company began in 2012 as a
partnership between three friends, Megan Johnson, Erin Taylor, and Carly Wells,
whose parents had grown up taking annual trips to the “Wine Country” in
California. Each year their parents
would return telling them of how one day, they should start a Bed and Breakfast
(B&B) somewhere in the wine country and get involved with the wine
industry. Megan, Erin, and Carly decided
to make this dream come true. They will
invest into a local home in Mendocino, California that was previously used as a
local home for a family as well as a small winery that makes about four barrels
of wine per year. They hope to
differentiate their B&B service by having this small winery included where
guests can, not only experience the wine country, but learn how to make the
wine as well. Megan, Carly, and Erin’s new company recently purchased this home
and are in the process of making it into a profitable, B&B investment.
They plan to employ the following
people: a chef, wine professional, three yard groomers, and two maids. However, some of these services are only
needed on a limited time basis. For
example, the yard groomers only come once a week in the spring and summer, and
rarely in the winter.
Though it is a small company, JWT
is looking forward to growing this investment and making it into a lifelong
career by becoming expertise in the field of B&B and wine making.
III.
Property Description:
Mendocino
Village Farm and Winery Bed & Breakfast has three residences on a large
.7-acre parcel in the Heart of Mendocino Village. 3/1.5 Victorian Home, 2/1 Watertower
residence. 1/1 Charming apartment, Ocean Views from most rooms. In addition to
the residences is a working home winery, makes four barrels a year,
crusher/stemmer, press and stone lined underground cellar, root cellar, wood
shed, two car garage, second laundry, storage, barn/workshop, chicken coop,
sheds, pond with fish and critters, veggie and flower gardens, large lawn and
large pasture. All very private, though in town. Walk to restaurants, markets,
galleries, theater, the kids can run for ice cream cone and enjoy the state
parks that surround Mendocino. From Village Farm there is access to Big River,
the beach and 100 miles of hiking/biking trails.
 |
| See blue market for location of home. |
 | ||||||||||||
| Wine Cellar in the home
No. Units: 3
Building Size: 4,000 SF
Price/Unit: $650,000
Rooms: 5 bedrooms/ 3
baths
Signage:
Our company plans to pay for a billboard on Highway 1/
Shoreline Hwy advertising and B&B where to exit. We will
also have a sign in our front yard labelled “The Mendocino Village Farm
and Winery B&B”.
Access:
There is front drive way access to our home right off a main
street in Mendocino Village. It is 3
minutes off the main Hwy 1, and you only take 3 short neighbourhood streets
before you arrive at our property 44874 Pine St.
Ingress/Egress:
It is on a .7 acre privately-owned lot that does not share
any type of driveway or land with an adjoining neighbour. As mentioned earlier,
the house has a driveway that you access which faces the front of the home on
Pine Street.
Visibility:
The home can be seen from Pine Street Road. It would not be difficult to find if you were
a tourist coming off of Hwy 1.
III. Market Analysis:Area Analysis Summary:Location: In northern California, the city of Mendocino is located in Mendocino Country. Mendocino County is one of the top 4 places to visit in the wine country, along with Napa Valley, Sonoma, and Lake County. The house is specifically located in Mendocino Village, which is a small historic town on a one mile square peninsula in the Pacific, 153 miles North of San Francisco.District: Mendocino Unified School DistrictThis school district has a 100% Full Credentials for teachers, and a 17 student average per classroom. They rank higher than 50% for every class 2nd through 12th grade. This is an exceptional school district. More specifically, the property is located in the Mendocino High School and Mendocino K-8 School district which has 5 star ratings according to the website below.
See the following website for more statistics: http://www.greatschools.org/cgi-bin/ca/district-profile/369
Zoning: Appropriately zoned for a B&B use.
See below.
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Here are some of the following demographics found in Mendocino, California:
|
2010 Population Growth and Population
Statistics
|
Mendocino, CA
|
|
Total Population
|
841
|
|
Square Miles
|
5.51
|
|
Population Density
|
152.60
|
|
Population Change
Since 1990
|
-0.59%
|
|
Population Change
Since 2000
|
2.06%
|
|
Forecasted Population
Change by 2014
|
1.43%
|
|
Population Male
|
46.49%
|
|
Population Female
|
53.51%
|
|
2010 Employment by
Job Type for Civilian Population (Age 16+)
|
Mendocino, CA
|
|
White Collar
|
83.38%
|
|
Blue Collar
|
16.62%
|
|
Management, Business, and Financial Operations
|
24.54%
|
|
Professional and Related
|
24.07%
|
|
Sales and Office
|
22.22%
|
|
Service
|
15.05%
|
|
Construction, Extraction, and Maintenance
|
6.02%
|
|
Production, Transportation, and Material
Moving
|
8.10%
|
|
2010 Population by
Age
|
Mendocino, CA
|
|
|
Median Age
|
52.80
|
|
|
Age 0 to 5
|
24
|
2.85%
|
|
Age 6 to 11
|
43
|
5.11%
|
|
Age 12 to 17
|
63
|
7.49%
|
|
Age 18 to 24
|
30
|
3.57%
|
|
Age 25 to 34
|
55
|
6.54%
|
|
Age 35 to 44
|
76
|
9.04%
|
|
Age 45 to 54
|
167
|
19.86%
|
|
Age 55 to 64
|
193
|
22.95%
|
|
Age 65 to 74
|
95
|
11.30%
|
|
Age 75 to 84
|
76
|
9.04%
|
|
Age 85+
|
19
|
2.26%
|
|
2010 Population by Race and Ethnicity
|
Mendocino, CA
|
|
|
White
|
799
|
95.01%
|
|
Black or African
American
|
2
|
0.24%
|
|
American Indian and
Alaska Native
|
6
|
0.71%
|
|
Asian
|
11
|
1.31%
|
|
Native Hawaiian and
Other Pacific Islander
|
0
|
0.00%
|
|
Other
|
23
|
2.73%
|
|
Population Hispanic
|
38
|
4.52%
|
|
2010 Homeowner
Statistics and Home Values
|
Mendocino, CA
|
|
|
Owner Occupied Units
|
320
|
|
|
Owner Households, With Mortgage Any
|
179
|
55.94%
|
|
Owner Households, With No Mortgage
|
141
|
44.06%
|
|
Housing, Median Value Owner Households
|
$498,780
|
|
|
Valued $40,000-$59,999
|
1
|
0.31%
|
|
Valued $60,000-$79,999
|
1
|
0.31%
|
|
Valued $80,000-$99,999
|
1
|
0.31%
|
|
Valued $100,000-$124,999
|
1
|
0.31%
|
|
Valued $125,000-$149,999
|
1
|
0.31%
|
|
Valued $150,000-$174,999
|
2
|
0.62%
|
|
Valued $175,000-$199,999
|
2
|
0.62%
|
|
Valued $200,000-$249,999
|
2
|
0.62%
|
|
Valued $250,000-$299,999
|
17
|
5.31%
|
|
Valued $300,000-$399,999
|
51
|
15.94%
|
|
Valued $400,000-$499,999
|
82
|
25.62%
|
|
Valued $500,000-$749,999
|
107
|
33.44%
|
|
Valued $750,000-$999,999
|
24
|
7.50%
|
|
Valued More than $1,000,000
|
28
|
8.75%
|
|
2010 Household Income
Statistics
|
Mendocino, CA
|
|
|
Total Area Household Income
|
$32,336,260
|
|
|
Median Household Income
|
$61,806
|
|
|
Average Household Income
|
$76,626
|
|
|
Per Capita Household Income
|
$38,450
|
|
|
Income Less than $15,000
|
59
|
13.98%
|
|
Income $15,000 to $24,999
|
35
|
8.29%
|
|
Income $25,000 to $34,999
|
33
|
7.82%
|
|
Income $35,000 to $49,999
|
50
|
11.85%
|
|
Income $50,000 to $74,999
|
72
|
17.06%
|
|
Income $75,000 to $99,999
|
83
|
19.67%
|
|
Income $100,000 to $124,999
|
41
|
9.72%
|
|
Income $125,000 to $149,999
|
15
|
3.55%
|
|
Income $150,000 to $199,999
|
18
|
4.27%
|
|
Income $200,000 and Over
|
16
|
3.79%
|
Property Analysis:
Accessibility:
Front
driveway access. Neighbors are all less than one block from each other. Less than 3 minute drive after exiting from
Hwy 1/Shoreline Hwy. Ocean can be seen
from almost every window in the home.
Directions after
exiting CA-1 North-Hwy:
1. Turn left onto Little Lake
Road
2. Take the first left on School Street
3. Take first left on Pine Street
Arrive at
destination: 44875 Pine Street
Surrounding Neighborhood Land Use:
Neighborhood with similar size
homes as the B&B as well as a baseball field located one block away. This property is located in Mendocino Village
which is a small historic town on a one mile square peninsula in the Pacific.
Growth Path:
Neighborhood: Slow growth.
District: Slow growth.
Community: Mendocino is not known to have extreme growth rates, and
has grown relatively slowly over the past decade. However, they have a constant growth in the
wine tourism industry over the last decade which has caused an increase the
need to B&B and hotels for visitors.
This property is located in a place of high demand for tourists to stay
while in the wine country.
Proximity to Environmental
Considerations:
The following issues should be
considered: water pollution, air pollution, mercury pollution, and earthquakes.
Target Market:
The target markets are people
looking for a vacation destination, “honeymooners”, and drop-in customers. This
includes many professional married and single customers making the trip to
enjoy the beautiful coast of California and visit wineries. Located right off the main highway 101, there
will be a sign that will lead the wine tourists right to the village farm’s
location. Not only does this village
farm serve as a place to stay for the tourists, but it also has a built in
small winery where they can learn the ins and outs of making their very own
wine for when they leave.
Geographics
- Our immediate geographic market is the San Francisco Bay area with a population of over one million people.
- A 200-mile geographic area would want to use the kind of services we offer.
- The total target area population is estimated at two million people.
- Male and female.
- Married and single.
- Combined annual income in excess of $75,000.
- Age range of 25 to 65 years. with a median age of 40.
- Work in a professional business setting.
Basic Employers:
Barry Cusick
Realtor and homeowner
Mendo Realty
(707) 937-5822
Other B&B
Rental Prices and Comparables:
1. Sea Rock
Inn
11101 Lansing St.
P.O. Box 906
Mendocino, CA 95460
Rates for
Cottage #1 (Basic): $299 double occupancy rate, add $20 each additional per person
Amenities
At the cliff side Sea Rock Inn, we seek to provide you with
everything you need to have a splendid Mendocino getaway.
On Site:
- Spectacular ocean views from every room and/or deck
- Lovely garden benches for whale watching
- Cliff side benches for enjoying the beautiful sunsets
- Property wide Wireless Internet access
- Off street parking
- Sumptuous breakfast served buffet style
- Complimentary Husch wine upon arrival
- Massage and sauna rooms.
2. Agate Cove Inn
11201 N. Lansing St.
Mendocino, CA 95460
Price: Amber Room(Basic): $279/night
Amenities:
Spectacular ocean
views: This is the best ocean front view on the Mendocino Coast.
- Breakfast: We offer homemade muffins, scones or bread to compliment our legendary full course breakfast. Our breakfast room features restaurant style seating with the most stunning white water ocean view on the North Coast.
- Private Cottages: Eight of our 10 rooms are private cottages. All rooms have private baths (most with spa tubs) and private exterior entrances. All rooms have fireplaces, decks, refrigerators, microwaves, robes, coffee makers, sherry, HBO and WiFi.
- Beautiful Gardens: The colorful coastal gardens feature, fountains, the hammock for two, ocean view hot tub, love seat swing and Adirondack chairs for a front row seat to watch the sunset over the Pacific.
- Concierge Service: We can help plan your visit to Mendocino. We have an innkeeper on site for 12 hours every day to help you with your plans.
Demand:
We have a cyclical season with our peak season in the Spring
and Summer months (March-September) and lowest troughs during the winter. Starting in February is when we will do the
most promoting for our business through advertising in the newspapers,
magazines, social networks, etc. We also
have a economic cycle we must keep in mind.
Vacations are one of the first areas to be cut in people’s lives when
there is a recession. Therefore, if the
economy is in a recession, the B&B industry in the wine country can expect
a hit. However, when looking at the chart below you can also see the rapid
growth the wine industry has had in California.
As these new wineries opens up, it is directly correlated with other
areas of the tourism industry like restaurants, hotels, and Bed and
Breakfasts. As the wine industry
continues to boom, it attracts more and more customers which is good for our
property and it’s revenues.
When looking at other B&B in Mendocino and checking
their availability, I found that there are usually 1-2 rooms available in a 5-6
bedroom home during busy season. I would
assume that during the winter months you could find 3-4 rooms available out of
a 5-6 bedroom home.
|
Year
|
California Bonded Wineries
|
|
2000
|
1,450
|
|
2001
|
1,562
|
|
2002
|
1704
|
|
2003
|
1,869
|
|
2004
|
2,059
|
|
2005
|
2,275
|
|
2006
|
2,447
|
|
2007
|
2,687
|
|
2008
|
2,843
|
|
2009
|
2,972
|
|
2010
|
3,364
|
Supply:
There are 21 total B&B in the Mendocino area that we
will compete with year round. Not only will we need to worry about our current
B&B competitors, but we will also need to be ready for new B&B to enter
the market. In addition, there are also
hotels and motels in which people will stay that we need to keep in mind.
California is America’s top wine producer making 90% of all their wine, and is
also the world’s fourth leading wine producer after France, Italy, and Spain.
There are currently 3,540 bonded wineries (Up 108% from 1,704 wineries in
1992), and they are nearly all family owned businesses. With this rapid growth in the supply of
wineries, we can expect a continual increase in the supply of hotels, motels,
and B&B as well.
Permit Needed to Have B&B: Business Permit (Applications
offered in the Ukiah office).They
will review proposal between 1-30 days.
Timing/Economy:
Inflation is expected to remain a little above or below the
latest average of 2% inflation. Interest
rates will remain low at 0-.25%.
SWOT Analysis
The following SWOT analysis captures the key strength and
weaknesses within the company and describe the opportunities and threats facing
The Mendocino Village Farm and Winery Bed & Breakfast
Strengths
- Great location.
- Fantastic facility
- Differentiation strategy with small winery included
- Quaint, family feel that tourists are drawn to in the wine country
- Wireless Internet
- Beach view from all windows
- Located in the heart of Mendocino Village
- Great chef on staff daily
Weaknesses
- Brand visibility
- Limited number of rooms means limited amount of sales.
- The struggle with taking care of everything with low labor overhead.
Opportunities
- Growing market with a significant percentage still not aware of The Mendocino Village Farm and Winery Bed & Breakfast
- Placing a billboard on Highway 1 will raise awareness from customers
- The ability to become more efficient as the learning curve steepens over time
- Baby boomers (main customers) are traveling more and more in retirement
Threats
- Competition from new B&B entrants
- The introduction of a B&B-style hotel that understands the basic market need
- An economic recession decreasing people's discretionary income
IV. Financial Analysis:
Acquisition Cost: $1,965,000
Amortization period: 30
Payments Per Year: 12
Interest rate: 5%
Loan-to-Value: 1,179,000/1,965,000=60%
Discount points: 2%
Holding Period: 10
Selling costs: $2,738,400
“Going In” cap rate: 11.8%
“Residual” cap rate: 15%
PGI
grew at 6%/yr
OI
grew 1.5%/yr
VCL 5% of PGI
OE 30% of
PGI and grew at 1.5%/yr
NPV: $175,170.74
IRR: 6.79%
OER: 25.4%
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