August 20, 2013 9:56 am
Leisure Real Estate Advisors, LLC, is very pleased to announce the successful closed sale of the Holiday Inn Express, Bonner Springs, KS. Bonner Springs is the first I-70 suburb as one approaches Kansas City from the West. Leisure Real Estate Advisors represented the Owner, Midamerican Investments, LLC, a REO subsidiary of a local regional bank. Dream Venture, Inc, a Phoenix based company, purchased the 63 unit hotel for an undisclosed price. The listing price was $3,800,000. “It is well known that a Holiday Inn Express branded hotel is a favored investment for mid-market hoteliers and anytime we list one, we will get activity,” comments Brent A. Jaynes, co-founder and managing partner of Leisure Real Estate Advisors. “This particular asset was bank owned and it attracted a lot of interest, however, it was bank owned for a reason”, observes Jaynes.
The Keys to the Deal – Mold, PIP, & Casualty Loss
When the owner-lender reclaimed this hotel via foreclosure, it was soon thereafter discovered the hotel had a mold issue. The owner immediately responded by engaging a certified mold remediation company, with continued oversight from an environmental engineering firm. The remediation was accomplished and upon the completion of the project, the remediation was then again, tested and certified. As one would expect, during the remediation, the owner did not market the hotel for sale, which created a longer holding period than was originally planned. Fortunately for the owner, the hotel did perform well after the remediation, and it was decided to hold the asset for a period of time, in order to recoup some the remediation costs, via the cash flow. In this case, and because of the way the remediation and inspections were handled, the mold remediation did not affect the marketability of the hotel.
To add “insult to injury”, this hotel, while certainly performing well, was given a 60 page PIP by IHG, in order to re-license the hotel for another 10 years. Remember, this is a 63 unit hotel. The estimates for the renovation were well over a million dollars, which did create at bit of an obstacle for any buyer, as well as the affect it had on value for the current owner. In the final analysis this deal hinged on a buyer who was not intimidated by the scope of the PIP and an owner that took a realistic view of the value of the asset, after the PIP was received. It was helpful that the buyer was an experienced IHG franchisee, and had the relationship necessary to a gain approval from IHG to move forward with the re-licensing. Furthermore, the size of the PIP expense created a financing issue, in that the buyer and its lender had to become creative in order to structure the acquisition loan, of which included a significant portion of the PIP improvements.
Unfortunately, the foregoing issues were not the only obstacles incurred prior to closing. Two weeks prior to the scheduled closing, a significant thunderstorm struck the area with heavy rains and high winds. The storm created water damage in the ceiling of the lobby and breakfast area. While the damage was not significant, it did create a timing issue related to a 1031 exchange. As a result, the damage issue had to be negotiated and handled prior to closing in order to avoid any mechanics lien issues that would cause the title company to exclude mechanics lien coverage from the title policy.
“Both of these parties worked very diligently to overcome the many and daunting obstacles in this deal path. They had a common objective and that was to get the deal done. Each party stuck with the process and saw it through. It would have been easy for either side to punt any number of times, but they did not,” says Jaynes.
For more information on this sale or to discuss the investment market in general, please direct your questions to:
Brent A. Jaynes
Leisure Real Estate Advisors