By embracing these strategies and being well-prepared at every stage, hotel owners will manage the complexities of the hotel sales process more confidently and successfully, positioning themselves to maximize returns and ensure a smooth transition for all parties involved.
Whether it’s a boutique hotel or a bed-and-breakfast, buying a lodging business is a big decision. It’s not just a substantial investment but it also comes with a significant amount of risk and can require tremendous time and resources to operate.
On the upside, however, being a hotel owner can offer a challenging and rewarding work life, produce a steady source of income, and be a savvy investment that grows in value over time.
Aspiring hospitality entrepreneurs are well advised to take an organized and exacting approach to the purchase process to help ensure smart decisions that lead to the most favorable outcomes. Here, we introduce some key steps involved in buying an existing property, from finding the right spot to closing the deal.
It’s crucial to clarify your motivations for wanting to own a hotel. Is it purely an investment, or will you want to take a hands-on approach to managing the property? Maybe you have worked in the hospitality industry for years and finally want to be your own boss.
In any case, it’s a good idea to consider both short-term and long-term objectives. This will help you determine the type of property you want to purchase and other decisions along the purchase journey, including:
The lodging category. Accommodation businesses come in all shapes and sizes these days. Do you want to buy a full-service resort, a seaside inn, a city hostel, vacation rental property, or a combination of your favorites?
The hotel concept. What do you want the property to look and feel like, and what will the guest experience be like? Your concept includes everything from interior design to service style to on-site facilities and your hotel brand.
The business model. Do you wish to operate the property as an independent hotel or as a hotel franchise affiliated with a well-known brand? Or do you want to hand over operations to a hotel management company?
Before determining what kind of property to buy, you will need to get your finances in order. How much capital will you be able to access, and how much financing will you require? What are your financing options – will you apply for a bank loan or work with investors? Will you need a business partner who can contribute capital and operational expertise?
Answers to the questions will not only help narrow down the type of property you can afford (and downpayment you’ll require), but they will also help determine the return on investment (ROI) needed to obtain financing and keep up with loan payments.
According to a study from HVS, the average cost of developing a hotel ranged from almost $150,000 for a limited-service hotel to $805,000 for a luxury hotel – and that’s not for the whole hotel; it’s per room or “key.” The costs of purchasing a property can be considerably higher.
A small property such as a hostel, B&B, or vacation rental property may cost much less, but costs will depend on the size of the property, location, and other factors. For any type of property, the higher the caliber of the guest experience, the higher the prices you should be able to charge.
As a first-time small business owner, it’s important to understand all of the costs you’ll have to incur when buying a hotel property. Aside from the purchase price, you will also need to account for related costs such as:
When starting a new business, it’s essential to work with seasoned professionals who can advise you on the feasibility of your hotel investment, the procedures to follow, and the local regulations with which to comply. Generally, this will include a hotel valuation and appraisal firm, a real estate broker specializing in hotel transactions, a property inspector, and an asset manager.
Location. Is it centrally located, close to downtown, shopping, a convention center, the beach, mountains, or local attractions? The property’s location will greatly affect its performance, including demand for rooms, seasonality, and the market segments it can attract.
The property’s condition. Generally, there is less risk involved in purchasing an existing hotel because you can inspect the building and grounds. Is it a turn-key operation that will be up and running fast to start recouping your investment? Or does it need major renovations requiring closure for an extended period?
The property’s performance. If the property is currently in operation, how is it performing regarding occupancy rate, average rate, and profit margins? How does its performance compare to its competitor set and similar properties in the region? If the property is no longer in operation, why did it shut down?
The local market. You may have big plans for upgrading the property and charging premium rates, but the market generally decides what travelers are willing to pay. How does the accommodation sector in the area perform as a whole? Is there a glut of supply of hotel rooms or a shortage? Is travel to the region seasonal or steady year-round?
Hotels for sale ThailandThe property’s reputation. If the property is well-run and has a good reputation, you will benefit from positive awareness and built-in guest loyalty, which will help generate demand. However, if it has a bad reputation, it will be harder to attract guests, and it may take a long time to build a positive reputation.
Work with a hotel broker or commercial real estate company to find a suitable location and determine if any properties are for sale in the area. When you find a property you’re interested in purchasing, develop a hotel business plan to share with the bank or investors.
Determine where you can get financing from – personal investments, bank loans, outside investors, or other sources? Remember, you will need capital to not only purchase the property but also to operate it until it becomes profitable.
Commission a feasibility study – an analysis to determine the property’s potential as a sustainable and viable financial investment. The study should analyze everything from the location and local market conditions to the economic landscape and regulations in the hotel market.
Review the hotel’s profit & loss statements from the past several years, as well as its accounts, cash flow, assets and liabilities, debts, contracts, and any legal encumbrances. Is the property under a franchise agreement or other long-term contracts? Are there any zoning requirements or hidden requirements you should be aware of? Commission an inspection to evaluate the physical condition of the property and building.
Work with a financial expert to forecast the costs of renovations and project revenue, expenses, and profitability in the first years of operation. This will include daily rates, revenue from rooms (RevPAR), food & beverage, and other sources, the costs of loan payments, interest rates, insurance, property taxes, and utilities, as well as pre-and post-opening operating costs.
Labor shortages have been a big issue in hotels in recent years for hoteliers, so you should research the labor market and average wages to determine key staff members to budget for (and consider how you may want to use technology to support your team).
If everything looks good, a real estate broker can assist with submitting a formal offer or letter of intent detailing the purchase terms, as well as subsequent negotiations.
If the offer is accepted, financing arrangements will need to be finalized with the lender. An attorney can help draft the purchase agreement and ensure all needed documents are in order. After all conditions have been met on the closing date, ownership will be transferred to the purchaser.
Buying a hotel is a substantial and complex endeavor that demands careful planning and financial foresight. When assessing potential properties, factors such as the type of hotel, location, condition, performance, local market dynamics, and reputation are pivotal in determining success. Be thorough in the research and discovery process and ensure you find a property to help you achieve your short- and long-term objectives. Do your due diligence when examining past performance and make sure that you’re clear on why the existing owners are looking to sell. Don’t be afraid to ask for help from advisors, consultants, and other hotel industry professionals throughout the process.
It’s not on the average person’s to-do list to buy a hotel, or sell one, for that matter. Therefore finding trusted guidance and information on how to buy and sell hotel real estate can be difficult or outdated. Whether you’re interested in this topic because you’re doing research on how to go about buying a hotel property in the future, or whether you’re actively buying or selling a hotel at the moment and need to answer some burning questions, or you’re simply curious about the hotel real estate market and the hotel industry itself - this guide will put you on the right track.
The first thing anybody needs to know about hotel investment is that hotels are unlike any other properties. It is a real estate property but it is so different from any other property type.
What exactly is 'real estate'? The definition says that it is tangible assets such as land parcels and improvements on the land (e.g. buildings or fences) which are immovable and permanently attached to the land. When a real estate asset is purchased it comes with a bundle of rights. Mastering real estate concepts, valuation in particular, is one of the key ingredients for industry leadership in the hotel industry.
Hotels have a complex operational aspect and depend highly on guests to decide a lease per night (accommodation rental per night) compared to a one-year lease apartment or even a 20-year lease of an office for example. This makes hotels unlike other properties and highly responsive to changes in the market. They can take full advantage of a busy period or diminish the risks of a low season period. Hotels can also organize capital or operational improvements in a faster way compared to other sectors.
Full-Service Hotels: From luxury brands and resorts to upscale and midscale brands. These hotels offer many services and amenities like on-site retail, spas, meeting rooms, restaurants. These hotels will generally require a large volume of staff and depend heavily on the existing competition on the market. This category includes hotels like Four Seasons, St Regis, Aman, Marriotts, Hiltons and Wyndhams.
Select-Service Hotels: This is a category between full and limited-service hotel offerings. They have some limited services like in the Limited-Service properties but still have a subset of the services you could find in a full-service property. This category includes Aloft, Hilton Garden Inn, Hotel Indigo, Courtyard.
