Random Hotel Exterior

Increase your chances of getting a deal done, starting with your offer

March 19, 2021 3:13 pm

Making an offer on a hotel property in today’s environment.

If you have followed our Posts, you know that we have posted several articles about obtaining financing for hotel acquisition.  You might also recall that our posts zeroed in on the most active segment of the acquisition market, which for us has been $5MM and below, for both independent and franchised hotels.

However, we have noticed that another key aspect of hotel acquisition is often ignored by investors, but one that has become extremely important, and that is:  How to make that offer and how to position oneself to catch the attention of a seller.

We must confess that the past 12 months of sale activity have been unlike anything we have seen in 30 years of transacting hotel real estate.  Certainly, there is no debate that the market was distressed and that buyers treated the market that way.   We have had more “no money down offers” than one could count.  Lease purchase options came out of the woodwork.   Seller financing was another common aspect of offers.  People with no money made offers.   The number of offers we have fielded over the last 12 months have exceeded any previous year in our existence.  Whew!!!

Anyway, we thought it would be helpful to publish a brief “how to do it” when presenting an offer.  Here are some of the key points:

  • As we have mentioned in our previous posts, in the $5MM and below price point, the SBA will probably need to be involved, unless the buyer is committing to significant equity, say 30-50%. We have been told (by buyers) that they will get financed with 10-15% down.  We just have not seen that, and in our world, 25% down is more likely.  If you think you can do 10%, don’t shoot your mouth off that you can do 10-15%, unless you have a lender and can provide the lender’s contact information for verification.
  • If you have been “pre-approved” by a lender, we are not sure what that means, so certainly be prepared to offer that lender’s contact information for verification. By the way, loan brokers are not a lender and can’t commit to preapproval without the end lender.
  • If you are making an offer, most reasonable brokers will ask you for verification of funds. You can’t buy a $150K residence without a pre-approval letter, so there should be no hesitation when you are asked to produce proof of funds.  Investment statements, bank statements or a personal financial statement would all be satisfactory.  Again, 10-15% equity will not get anyone excited, but 25-30% will.
  • Let the seller know that you have business or hotel experience, by providing a resume. It tells the seller a little bit about who you are and providing a resume of your hotel ownership and operational experience will be extremely positive for a seller.  Even if you have no hotel experience, your history of general business will be extremely helpful.  If you happen to strike a deal, a resume will be helpful when talking to a lender.
  • If you have a bank/lender that understands your operations, but is not interested in financing another acquisition, have that lender write a brief recommendation of your stellar operating expertise.
  • When making an offer, put your best foot forward. Offer Proof of Funds and a resume.  Include the partners.  The better you look to a seller, the better the results will be.

Remember, any real estate transaction needs 2 parties to move forward.  Just because you made an offer, doesn’t mean it will go anywhere.  However, if you make an offer with proof of funds, a list of the partners and a resume of operating experience, then you just might have something.   You might even buy a deal for less money than the next guy, simply because you have shown that you can get the deal to the finish line, and someone else didn’t go through the trouble.  Buying a smaller hotel deal in this environment is a challenge, but one that can be realized with the right planning and preliminary steps.