Mr. Glincher

Hospitality Law

How to Position a Hotel Property for Sale

By Andrew Glincher, Office Managing Partner, Nixon Peabody LLP

Positioning a property for sale means getting into the mind of a potential buyer. Every potential buyer wants to believe that the property he is purchasing is vibrant and profitable - or at least potentially profitable. So prospective sellers should take whatever short-term steps they can to make the property's finances and condition as attractive as possible. In many cases, a little market research and a few renovations can have a significant impact on both the number and size of the offers received.

Many successful hotels routinely commit approximately 5% of annual revenues to renovations, but when trying to position a property for sale, it makes sense to take a good look around and see whether there are any relatively minor and inexpensive improvements that can be added to the list and done immediately, rather than deferred, that could add luster and value to the property. Focus on first impressions. A good positive initial impression can be worth a significant amount of money. The parking lots should be well lit and clear of litter, the lobby should be bright and well maintained. There should be fresh flowers and fresh newspapers, in addition to well-dressed, professional and courteous staff members.

There are several very substantive areas that a property owner should examine to determine whether or not the hotel is meeting the industry standard.

Reviewing your competition, both in terms of operations and comparable sales is essential to understanding your property's valuation. Also, you should consult with several brokers with hotel sales experience prior to choosing a broker and putting it on the market.

How do your room rates and occupancy compare with other local hotels? Are other hotels offering more amenities? Does the competition typically make conference rooms and ballrooms available for social and corporate functions or meetings? Income from professional meetings and conference rooms can significantly add to a property's value so it may be worthwhile to incorporate these into the hotel's package. Do you have space you could carve out for such uses? If the hotel currently accommodates corporate functions, determine whether or not the space is adequate or can be divided or expanded to accommodate the average sized corporate gathering.

Also, be sure all in-room and corporate amenities, from Internet connections to audiovisual systems, function properly. Sometimes increasing the size of an overhead screen or television can make all the difference between repeat guests and alarmingly negative experiences. The inability on one day for an executive to send or receive a fax, or check e-mail, probably translates into customers who will never return to that hotel.

All of these details are things that potential buyers recognize very quickly.

Can the hotel be improved with any other cosmetic or small renovations that may help with increasing actual income? The cost should be factored in before embarking on any renovations. Most hotels can improve their appearance significantly by changing worn carpets in highly trafficked areas such as the lobby or bar area. Updating to brighter wallpaper or modernizing bathroom fixtures can also brighten a property. Obviously, you must first do a cost benefit analysis, prior to any extensive renovations. When demand and the economy are down significantly, lower cost may be the best selling point.

Look at the available land to see if there is room for expansion. If it's not feasible with the hotel's current revenue, consider whether or not it makes sense to lease the property for development, or sell separately. Also, take steps to ensure the new business is a good fit with the hotel - perhaps a sports club or trendy restaurant or certain boutique businesses. What role does your website and internet play in your business? Are you using technology to your best advantage?

Also, how much space does the hotel lease to coffee shops, gift shops, or restaurants? Do those tenants make a good impression? Do they meet the current industry standard? If leases are about to expire, are they comparable to the market or do they need to be updated? For that matter, does it make sense to explore an entirely different type of tenant mix?

Finally, it's always good marketing research to survey your guests after their stay. If it's a group package or corporate conference, be sure to check-in with organizers to determine whether adequate service was provided. While not everyone will actually fill out room surveys, sometimes the few completed can be enough to indicate a problem before it turns into an epidemic. Conversely, a high level of satisfaction will be a sign to potential buyers of a stable base of repeat business.

Clearly, it's easy to say that the value of a property relates to revenues, profits and some cut and dry financial analyses. And it's true that those are at the crux of valuation. But often, these peripheral additional factors can cumulatively have an effect that makes a significant difference.

Andrew Glincher specializes in the negotiation and resolution of business and real estate disputes. Mr. Glincher has represented developers and owners of retail centers, hotels, movie theatres, office and industrial buildings and parks, utilities, restaurants, subdivisions, apartment complexes, assisted living housing complexes, long-term care facilities and condominium projects. Mr. Glincher is admitted to practice in Massachusetts, the U.S. Court of Appeals, Third Circuit, the U.S. District Court, District of Massachusetts and the U.S. Tax Court. Mr. Glincher can be contacted at 617-345-1222 or aglincher@nixonpeabody.com Extended Bio...

HotelExecutive.com retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by HotelExecutive.com.