Other articles by Conor Dougherty:

Wet-hop beers appearing now Mask your fears Airport eats Watching the clock

Sales and Marketing
EVER-READY GLASS
SALES REPS Finance and Accounting
FLOWERS, RIEGER & ASSOCIATES
TAX STAFF

Bed and breakfasts have thrived for decades by promising to make guests feel like family. Now, a number of B&Bs are being taken over by families who have no intention of leaving.

In a side effect of the real estate boom, scores of traditional bed and breakfasts are closing down as new buyers turn them back into private residences. Behind the vanishing inns is a simple equation: Many B&Bs are worth more as properties than as businesses. And with the real estate market showing signs of softening, innkeepers now have an immediate incentive to sell out and reap a windfall.

Rising interest rates have also made it more difficult for innkeepers to pay the monthly mortgage and still turn a profit by renting rooms to weekenders.

As a result, many operators have served their last apple pancake. In Lenox, Mass., tree-lined Cliffwood Street has one B&B, down from three in the late 1990s. In Cape May, N.J., the owner of the Columns by the Sea turned her beachfront B&B into separate condominiums she's selling for up to $1.5 million.

In Aspen, Colo., the owners of the Sardy House converted the inn into a six-bedroom single-family home, now on the market for $20 million. (The property also comes with a townhouse and an eight-bedroom carriage house.) In late 2003, the owners of Mount Misery Bed & Breakfast in St. Michaels, Md., decided it wouldn't be much use wooing would-be innkeepers, so they marketed it as a private home. It sold, for $1.5 million, to Secretary of Defense Donald Rumsfeld.

The dynamic is playing out across the country. The California Association of Bed and Breakfast Inns says seven of its members sold their properties last year — each to buyers planning to convert them into private homes. Overall, the Professional Association of Innkeepers International says the number of rooms in B&Bs and country inns decreased 11 percent in 2004 compared with 2002, to 148,000, the latest data available.

The innkeeper association has seen the transformation firsthand: Since 2000, three of its seven board members sold their own inns as private homes.

That means fewer options for travelers like Linda Myers. For 15 years, the auditor from Hayward, Calif., stayed at the same B&B when she visited Ashland, Ore., for the Oregon Shakespeare Festival. Myers liked reading on the home's park-view porch and staying up late to talk Shakespeare with fellow guests over lemonade and cookies, things she couldn't do at a motel. But about a year or so ago she received a form letter saying that the place had been sold.

"It was a 'To Whom It May Concern' kind of thing," says Myers, who has found a new B&B in town. "I was sort of hurt."

Historically, bed and breakfasts have sold for four to six times a year's gross revenues. Under that model, new owners could afford to buy a home, pay the mortgage and expenses and bank the difference.

But because real estate values have soared so quickly the formula no longer works. Now, such homes are selling at eight times annual revenues — and often much more. Revenues, meanwhile, are up only slightly: The average bed and breakfast room price is $144, up about five percent since 2002, according to the international innkeeper association.

For many operators, rising home and mortgage costs are the final nail in the coffin. Bed and breakfasts have traditionally been low-margin businesses that work best when home payments are small.

Rising costs for liability insurance cut further into bottom lines. And these inns also have low occupancy rates in the hospitality business. Hotel rooms now stand at close to 71 percent occupancy, according to Smith Travel Research. Partly because B&Bs depend less on weekday business travel than on seasonal and weekend guests, their occupancy rates are closer to 41 percent, according to the innkeeper association.

Running an inn becomes a labor of love, says Bill Carroll, senior lecturer at the School of Hotel Administration at Cornell University. "You had better like making beds," he says. "Unless you're getting some psychic value out it, I have trouble understanding how you can make a business of it."