Sourcing opportunities
Experienced investors call it “accessing deal flow”. They want to be shown a selection of hotel investment opportunities. This gives them a sense of values in the current market and lets them choose the best deal for their investment criteria.
In the search for your hotel deal, you will research a selection of opportunities to understand the overall market. You may find potential opportunities on hotel brokerage websites, at hotel conferences (where you may also meet brokers), through conversations with hotel owners as well as operators and franchise representatives and in other ways. As you review opportunities, you will get a good sense of current market values and the kinds of hotels and markets that interest you. When you identify a project that has potential for you, you will negotiate and (hopefully) secure the deal. If not, you will move on to the next.
Hotel brokers are the most direct source of prospective acquisitions. Collectively, brokerage houses are the best place to search for prospective investments.
Hotel brokers
Hotel brokers represent hotel owners who are ready to sell their property. The broker studies the hotel itself as well as its market and financial performance. That information is compiled into a broker’s package which is used to promote the property to prospective buyers. The broker also assembles detailed and confidential information to make available to likely prospects. The detailed information is typically housed in an on-line vault available only to qualified and selected prospects.
Brokers expose the hotel acquisition opportunity to possible buyers through the brokerage’s website, email marketing, advertising, social media and direct contact. As a prospective buyer, you can view hotels on broker websites and access the packages by registering. When you register, the broker will qualify you and ascertain which hotels to promote to you. Brokers maintain databases of qualified buyers and expose hotels to people they consider likely prospects. Hotels are specialized real estate and many (although not all) hotels are sold through experienced hotel brokers.
Hotel owners are sensitive about letting customers and employees know that the hotel is for sale. They do not want to lose employees and they do not want to make themselves vulnerable to their competition. It is good business to be aware of these concerns. Because of this, brokers often list hotels that are not shown on their websites but may be an opportunity for you, if the broker decides you are a reasonable prospect.
Brokers are knowledgeable about the many aspects of hotel transactions from franchise change of ownership to PIPs to financing. Hotel brokers understand both real estate values and the value of the hotel’s operating business. They often have ideas about what can drive upside potential for a hotel. It is valuable to explore those ideas, although not all will prove fruitful. Hotel brokers bring strong relationships within the industry to enable the sale and they are skilled at negotiating and closing sales. They can be your best resource in your search for a hotel acquisition. It is smart to identify brokers that list hotels you might be interested in, introduce yourself, and benefit from their expertise.
Buying or selling a hotel is a time-consuming process and it helps to work with a broker you respect. A good hotel broker brings these values to your transaction:
- An understanding of the franchise process including franchise requirements, PIPs, alternative brands for the hotel and personal relationships with the brands to facilitate the process.
- Experience with management companies and relationships that can match you with expertise.
- Banker/lender relationships and knowledge of financing to assist in bringing all the pieces necessary to close the sale.
- Experience in interpreting hotel operations to assess performance, needs and opportunities.
- Experience in interpreting hotel markets with a deep understanding of the local competitive set.
- Team that tracks and delivers paperwork for sellers, accountants, attorneys, management companies, franchisors, lenders, government and tax authorities and investors.
- Excellent sales skills – brokers represent the seller, under contract. Although most are reasonably honest and direct, you should be aware that they will present every aspect of the deal in the best light for the seller, not you.
Broker websites are the best place to learn about the hotels on the market and compare opportunities. Once you have a sense of the materials provided and the salient information you want, call and talk to brokers. Explore the properties they represent. Inquire about listings not on the website.
When you have identified a property that interests you, the broker will ask you to sign a Confidentiality Agreement (CA) or Non-Disclosure Agreement (NDA) to access information about the hotel. The two terms are used interchangeably.
Brokers make information available in stages.
- Broker’s package (sometimes referred to as an Offering Memorandum or “OM”): the first level of information is the sales package that presents the asset, its market, and a summary of financial performance. Packages are informative and are also glossy sales pieces.
- Vault: additional information is kept in an on-line secured vault. It is only accessible to qualified buyers who are good prospects and who have signed a CA. Respecting the CA is important. To share information from the vault with your team, they should also be cleared with the broker and sign a CA. The vault contains financial, market, and other information about the physical asset.
- Requested information: once you have studied the information in the vault, you or your attorney and other advisors, may need additional information for due diligence or to prepare for closing. You can request this information through the broker. Understand that some may not be available, or the seller may not wish to disclose it. Reasonable requests for available information are generally fulfilled, or a reasonable substitute is provided.
Hotel brokers are in a position to expose a hotel to more qualified prospective buyers than most owners. Brokers who specialize in hotels bring expertise to the process as well as a book of prospective hotel-specific buyers. They also help sellers move through an emotional process with clarity of purpose, which can improve the odds of completing the sale.
Hunter Hotel Advisors www.HunterHotels.net
Avison Young https://hospitality.avisonyoung.com
Dowdle Real Estate www.linkedin.com/in/lynn-dowdle-39772012/
Mumford Companies www.MumfordCompany.com
Newmark NGKF www.ngkf.com
Hotel Broker One www.hotelbrokerone.com/
HotelBrokers.Com www.hotelbrokers.com
HREC www.hrec.com/
HWE Hodges Ward Elliott https://hodgeswardelliott.com/
JLL www.US.JLL.com
CBRE www.CBRE.us
Colliers www2.colliers.com/en/services/hospitality-services/
Hodges Ward Elliott www.hodgeswardelliott.com
The Plasencia Group https://tpghotels.com/
Paramount www.paramountlodging.com
Auctions
Auctions are a relatively small share of sales and tend to be for smaller assets. However, there are hotel auction companies to consider. The sales process tends to be comparatively fast. They generally require quick decisions and cash on hand for the purchase.
Ten-X www.ten-x.com/commercial/search/hotel_pt/
LoopNet www.loopnet.com/search/commercial-real-estate/usa/auctions/
Real Insight Marketplace https://rimarketplace.com/
Being the chosen buyer
Your reputation as a prospective customer is important. Present yourself as a prospective buyer and provide good information so they find you credible and will be interested in showing you relevant deals. Brokers have discretion about which buyers they recommend to their clients for the hotel sale.
The most obvious reason an owner hires a broker to sell his/her hotel is to achieve the highest price the market will bear. You may have a meeting of the minds at the “highest price” in the beginning but getting the deal closed under these terms is where the real work occurs. Therefore, owners want and hire experienced brokers who will bring in the highest price achievable with the greatest “certainty of close.” To be a competitive buyer, this means:
- Closing at the price you agreed upon – that is no “re-trade” of the agreed upon purchase price.
- Closing within the timeline you agreed upon – typically a 30 to 45-day DD (Due Diligence) period and an additional 30 to 45-day period to close.
- Posting your earnest money as agreed at the beginning and the end of your DD period – once posted at the end of DD period the earnest money deposit becomes non-refundable under the terms of the PSA (Purchase and Sale Agreement) – this is known as “hard” earnest money.
- Performing on time each item agreed to in the PSA – such as hiring existing employees, changing over vendors, completing the new franchise, completing the appraisal through the bank, getting the loan ready to close and delivering the promised equity.
