A Passion for New Mexico

New Mexico Business Journal, Dec, 2001

That seems to be an unusual approach. Is it?

LONG: I think it's the only approach for the kind of assets that we buy, which are turnaround kind of assets.

Let's talk a little bit about that turnaround philosophy. What you are doing is buying a property that's in poor financial shape. There is a certain amount of hubris in saying, "I can do better." How is it that you can? What do you do that's different from what the previous owners did?

LONG: The difference is very simple. We don't have the leverage. We tend to be the third owner. Usually the developer builds a project. The lender may foreclose on the asset and then we buy into it at a different cost basis. That cost basis brings to the project a large amount of equity We don't put a lot of leverage on our properties so we position ourselves at the outset for a much lower cost of operating. We have a smaller nut to crack, and as a result of that we can focus our energies not on servicing a large amount of debt but on capital improvements to the property, the necessary marketing, the development of a good staff. Nothing we do is very complex. It's just basic, run-of-the mill good management. We think there's a lot less risk for us in buying projects like that.

Some people would call you a scavenger. Would that be fair?

LONG: That's probably the best that I've been called. We'll proudly wear that banner. We're bottom fishers. I'll give you a couple of examples. A few years ago we bought a Radisson hotel in Union City, California, a community in the general area of Silicon Valley. For about nine months, believe it or not, there were exceptional property values. It is a 330-room hotel, which was built for around $25 million and sold to us for $8 million. The property had a negative economic performance, even before debt service. We applied some common sense management. Within two months we completely turned around the asset.

In two months? How do you do that?

LONG: Well, you look at every single cost and decide what's necessary and what's not. In this case, there were a lot of unnecessary costs Not very good vendor contracts, property taxes, insurance costs that were too high, that sort of thing. Within a 12-month period our net operating profit was about $2 million. We sold it two months later for $14 million.

Is that typical?

LONG: That's typical. But we'll usually keep our assets, depending on cash flow, for a very long period. Our philosophy is to keep assets that have reliable cash flow. We're buying a hotel in the Midwest that was built about 12 years ago for about $18 million. We're paying $1 million. It has a negative cash flow, but I suspect that within a month or two we'll turn it around.

In New Mexico you are promoting five hotels, two in Santa Fe, two in Albuquerque and one in Las Cruces as the Heritage Hotels.

New Mexico is a whole different component of our business. Because of our love for the state, we treat our investments differently than others. We are trying to redefine with our holdings in New Mexico a new relationship between business and the arts, which serves to emphasize my artistic side.