The town that private equity ruined
For 13 years, I’ve spent my summers in southern Maine, a place that holds so many memories. Back in 2011, you could rent an average hotel or small cottage for around $200 a night. Today, $600 is the norm—a 3x increase, and it’s starting to feel like price fixing. Private equity owns the largest hotel group in town. At first glance, this might not seem like a big deal—until you talk to the locals.
“How was the season?” I asked a popular veteran bartender. Oddly enough, despite warmer weather than in past years, August, usually the busiest month, was slow.
Now, think about it. With average nightly rates at $600, even at less than 75% occupancy, the hotels are still more profitable than they would be with 100% occupancy at lower rates. Fewer guests mean less wear and tear, fewer staff needed. So, who stays in southern Maine anymore? It’s primarily the wealthier generations—those who’ve inherited wealth or spent their lives working to afford this luxury. They shuttle between Naples, Florida, and Kennebunkport, Maine, while the rising costs stoke a growing tension beneath the surface.
Socializing isn’t cheap either. A martini that used to cost $8 to $12 just a decade ago is now $17 to $20, not including food. An average night out can easily exceed $100—something that was almost unthinkable just ten years ago.
The Economics of Private Equity
This isn’t just a matter of rising prices—it’s about how private equity has reshaped the local economy to maximize profits. Let’s break down the math of how this works.
In 2011, when average nightly rates were around $200, a hotel might have been operating at 90-100% occupancy during peak season. The revenue generated from a fully booked hotel with 100 rooms would be:
2011:
• Nightly rate: $200
• Occupancy: 100 rooms (100% full)
• Revenue per night: $20,000
Now, in 2024, with higher nightly rates of $600 but a reduced occupancy rate (say 75%), the revenue still climbs:
2024:
• Nightly rate: $600
• Occupancy: 75 rooms (75% full)
• Revenue per night: $45,000
Despite having fewer guests, the hotel’s revenue more than doubles. This 125% increase in revenue comes with fewer rooms to clean and fewer guests to serve, reducing operational strain. From the perspective of private equity, this is an optimization victory.
Labor Costs and Profit Margins
One of the biggest cost centers for hotels is labor. In 2011, when occupancy was high, labor costs were likely around 40% of total revenue:
2011 Labor Costs:
• Revenue per night: $20,000
• Labor costs (40%): $8,000
With fewer guests in 2024, fewer housekeepers, servers, and staff are needed. Private equity often reduces staff as a cost-saving measure, which is why labor costs as a percentage of revenue have dropped to 30%:
2024 Labor Costs:
• Revenue per night: $45,000
• Labor costs (30%): $13,500
Even though labor costs are higher in absolute terms, they take up a smaller share of total revenue, which means higher profit margins for the hotels. This allows private equity to make more money while employing fewer people and serving fewer guests. It’s a classic efficiency play—maximize the return while minimizing costs.
The Consequences of Optimization
The problem with this model is that it’s great for profits but terrible for the community. These hotels are no longer catering to the middle class or the regular families who once vacationed here. The rising costs mean only the wealthy can afford to stay in southern Maine, while locals—who relied on steady tourism—find themselves squeezed. Small businesses, once vibrant and lively, now cater to a shrinking customer base, and the cost of living in these towns continues to rise.
Here’s my concern: Today’s “finance bros” are being indoctrinated into a version of capitalism that values profit and optimization over people and culture. This “finance class,” obsessed with spreadsheets and AI algorithms, seems to dismiss the small-town and small-business American experience. By the time they realize they’ve eroded the authenticity of these places, it will be too late. They’ll have already collected their salaries, bonuses, and built lives within their own safe, isolated bubbles.
I predict that in less than two decades, we’ll lose any semblance of authenticity. From Sysco-supplied restaurants to home service companies hiking prices on routine maintenance, to veterinary hospitals and dentist offices maximizing profits, the trend will continue. Labor will be cut, choices will shrink, and demand will be tightly controlled. And before we know it, we’ll be living in a virtual world, nostalgic for days gone by—the days of The Sandlot, Cheers, and Friends.
The final insult? The very “finance class” that sparked this shift will retreat into gated communities, insulated from the realities of the world they’ve created. Meanwhile, the rest of us will look back at what was lost and wonder when everything became just another number on a spreadsheet.
