Frequently Asked Questions About Hotel Real Estate
Over the course of our brokerage practice, we field numerous questions about the sale or purchase of hotel real estate. The following questions are the most frequently asked, especially from those unfamiliar with us or with the sales process.
How Long Have You Been In Hospitality Brokerage And What Is Your Experience?
Leisure Real Estate Advisors was formed in 1998 and has grown to be among the regional and national leaders in hospitality brokerage. With regards to experience, our professionals average 20 years experience in hotel brokerage. with a combined experience of over 100 years. Collectively, their efforts represent over a billion dollars in transactions. Go to the About Us section of our site to learn more about our company and about each team member.
What Is My Hotel Worth?
We find that most owners have a general idea of the value of their property. They read trade publications, review property offerings/listings and follow local sales. On the other hand, most owners do not have the wealth of information available to our professionals, which is a result of our experience and our daily work transacting hotel real estate. We are constantly interacting with buyers, sellers, lenders and appraisers, so we have a unique insight to hotel investment. If you wish to discuss the value of your property, we would enjoy hearing from you. And, we would certainly consider it a privilege to provide a no cost evaluation of your property. Of course, we will maintain the highest level of confidentiality when working with your information.
If I List My Hotel For Sale, What Information Do I Need To Supply To Leisure?
For the optimum results, it is advisable to take the time, upfront, to supply all of the information requested by your broker. We will provide you with a comprehensive checklist of due diligence items needed to effectively market your property.
What Are Your Fees To Exclusively Market My Hotel For Sale?
Our fee structure varies with each deal and each marketing assignment is specific to each asset. One of our experienced professionals would enjoy the opportunity to discuss your property and your objectives. At that time, our marketing program and proposed fee schedule would be explained. A personal face-to-face meeting at your hotel or at a location of your choosing is highly recommended. Of course, there are no fees until we close the deal.
I Don’t Want To “Tie Up” My Hotel. Will You Market My Hotel Without An Exclusive Listing?
No, except in very unusual circumstances. We have found that exposure to the market place is key to maximizing the value of your hotel. Open listings will provide limited exposure for your property simply because brokers contact those few prospects where the broker has a “protected relationship”. Secondly, the property information is often insufficient because the owner (and broker) do not devote the necessary time to compile complete information. Both of the foregoing activities are a disservice to the marketing effort and provide the least amount of exposure to investors. On rare occasions, we will accept a one time open listing for a specific purpose. However, it is not our standard practice. We highly discourage our brokers from accepting non-exclusive assignments. We owe our “exclusive” clients our full attention and effort. Open listings will never get the attention required to market the property effectively, no matter who the seller is or who has the “listing”.
I Am Concerned That Placing My Hotel For Sale Will Alarm My Staff And Cause Defection. Can The Property Be Marketed Confidentially?
Yes, it can but your staff might still be nervous about a possible sale. However strict confidentiality, (which would include limited or no advertising) can hinder the marketing effort to the extent that the property information will be presented to a smaller universe of buyers. As a result of limited exposure there is a good chance that the owner will not achieve the best value for his or her asset.
At Leisure Real Estate Advisors, it has been our experience that staff members deal with a possible sale better than owners do. In virtually every one of our transactions, most or all of the staff are retained upon transfer of ownership. Even though you, as owner, attempt to remain as discreet as possible, your staff will know that something is up, especially as the hotel is shown to prospects. As you enter into a contract, especially on a smaller property, the pending sale will be nearly impossible to disguise. Notwithstanding any special circumstances, we have found that direct and honest communication with the manager first then staff later creates less stress for all. For those wanting strict confidentiality, the larger the asset, the easier it is to maintain confidentiality.
If You Find A Buyer For My Property, Will You Help With The Contract And The Closing?
We pride ourselves with monitoring the process from Contract to Closing. We have standard (attorney approved) hotel contracts that are available for use by you or your attorney. Or, your attorney may provide his/her own document. Through our comprehensive and detailed checklists, we will manage the deal path closely and will assist the buyer and seller in fulfilling the terms of the Contract.
How Much Down Payment Will I Need To Purchase A Hotel?
The answer to this question varies with a number of factors, including (but certainly not limited to) your net worth and available cash, credit history, type of property and performance of the property.
Within our practice, the minimum down payment is can be as low as 15% of the purchase price, and is available only through one of the SBA or USDA programs. However, since the Great Recession and now the Covid 19 crisis, 20 – 25% down is more common with these SBA programs.
For conventional loan programs, minimum equity requirements increase to 25% and may go much higher, depending on the deal. We always advise our prospects to retain some of their cash for as a reserve working capital or unforeseen expenses. Some lenders are requiring a “cash reserve” as part part of their loan package.
The Price Seems A Bit High. Will Your Seller Take Less? Or…What Is The Seller’s Bottom Line?
Anyone contemplating the purchase of a hotel would love to know the answer. However, as the seller’s representative, we cannot legally disclose the seller’s “number”, even if we knew it. While we can give a buyer pricing advice, as agents for the seller, it is our responsibility to create the best possible deal for our client. Correspondingly, it is also our duty to serve our buyer prospects with honesty and integrity. Our best advise is to make a reasonable offer based on your own evaluation and let the seller respond.
Should I Purchase A Franchised Or Independent Property?
There are too many variables to provide a direct answer to this question within the context of this format. However, a couple of thoughts may be helpful as you evaluate offerings.
Typically, franchised hotels are easier to finance (lender’s prefer franchises). In addition, franchises provide a reservation system, a standardized business model, and standards of business practice. On the other hand, franchised hotels incur ongoing fees that can exceed 10 – 15% of revenue, which can be expensive. There is also an “up front” franchise fee, in order to become part of the system. In spite of the higher costs, it is interesting to note that in our practice, requests for franchised properties over the independent hotels are estimated to be 10 to 1.
As a contrast, we have clients who specifically request independent properties. Although they tend to be more difficult to finance, there aren’t any franchise fees to pay, which seems to be the most common motivator for those who wish to purchase an independent hotel. Correspondingly, for independent operators, the standards of the business are set by the owner, not the franchise company and a fair number of operators prefer the independence. The ability to create cash flow is the key, so one must weigh their preferences on how they get there.
As you might expect, the foregoing answers are generalized in nature and may or may not apply to your specific situation. We are always ready to visit with you about any listing or about your property and its sale potential.