Looking to purchase a small 26 room Hotel. What do I look for?

Question

What would be an efficient and effective way to analyze a small hotel? What are some key issues to look out for?

Kristi Kandel · Answer

Talk to lenders to see what/how they are lending today - regional banks are the best option

Franchise or non-franchise (HUGE difference & both impact future budgets and marketing)

Motel Operations:security, cleaning, maintenance, front desk, etc.

Do you want another job? A hotel/motel is a business and will require much more time than even STRs require

deferred maintenance on the building(s) and how soon will those need addressed

You will need 65-70% occupancy to really make money so pay attention to the current numbers and your expected operational enhancements to achieve that vs competition

FF&E: reserves & replacements

• soft goods (carpet/drapes/etc) 5-7 years
• case goods (dressers/bed frames/etc) 10-12 years

Finally note there is a huge consolidation happening in the industry right now

Henry Clark · Answer

Congrats on your first post.  Looks like you have been in the industry for a while.  May sound unnecessary to you, but recommend you make a checklist.

1.  Include everything, everyone above mentioned.

2.  Make different categories:  A. Structural- Roof, hvac, rugs amenities, driveways, plumbing, windows, doors, etc., B.  Legal- permits, zoning, EPA, OSHA, Handicap, any grandfathered in items which you will lose such as fire sprinkler noncompliance; Kitchen or Stove fire suppression, smoke detectors, carbon monoxide detectors, maintenance/inspection checklists, C.  Financial- property tax adjustment after sale, insurance with you, ownership, financing, etc., D.  Market analysis- both your property, adjacent properties or future, customer base, advertising, E.  Contract- terms, make sure you get a list/pictures/inventory of Personal property (don't want all of the furniture and equipment to walk out the door your first day), F.  Sundry- billboards, signage, name rights, website or website take down, Google pin map, etc.; G.  Any long-term contracted rooms that you want evacuated beforehand, H.  etc.

26 room hotel sounds like a great learning curve size to start with.  But would only do if you plan to scale.  Otherwise, you're paying for the learning curve and only benefiting once.

Sounds like a great deal.  Especially if you can live on site.

Darnell Lockett · Answer

Hi @Walter Jones. From a lenders perspective, a few things I have potential clients take into consideration are: 1. Do they have experience running/owning a small hotel? 2. Do they have a sponsor (experienced in hotel operations) if they don't have experience? What's the condition of the property? 3. Will there be any upgrades? If so, what's the projected costs per room/unit? 4. Will the current owner/operator remain in place, or will they bring someone new in? A 26 room hotel seems too small to have a property manager. PM expenses will really cut into profits for a hotel of this size. That's where the borrowers experience would come into play...imo.

Logan Singleton · Answer

Hello,When I evaluate a hotel, motel, etc, for a potential client, there are several factors I look at as a lender.

- It is a flag hotel (Hilton, Mariott, etc.)

-What is the condition of the property (Roof, HVAC, Plumbing, etc)

-Does the owner have prior experience in this asset class

Ronald Rohde · Answer

Have you run hospitality before? Id say labor is your #1 factor

Elaine Cobb · Answer

I'm interested in hearing about others' experience with this. I'm looking at an 18 room motel. I was throwing around ideas: Motel, Senior Accommodations, STR, MTR, LTR, and possibly a combination of these.

Brock Hoffman · Answer

You need to gather information about the property especially income and expenses to do a good analysis. Financials from the seller are a great place to start. Look for similar hotels nearby that you could call and get rates from over the phone and see how that aligns with your prospective hotel. Who knows maybe the owner/operator would be willing to share more info as well. Cap ex expenses are always a concern and looking into big tickets items such as hvac and roofing conditions are a must. Be honest about expenses and repairs when you do your analysis. Good luck!

Chad Hart · Answer

I'd go connect with @Rich Somers. He's an expert on boutique hotels. Should probably join his group and you'll get a lot of help there.

Michael K Gallagher · Answer

there is a bunch of good stuff here but but as many others have echoed I'd say the most important factor is the current performance of the hotel, and if the operator has a track record in the space.

Michael Margarella · Answer

Great post! In addition to the advice above, do your due diligence on the operators. It is as much - if not more - an investment in the jockey not the horse.

Also, analyze how they arrived at their projections. For example, did they project a quick sale at today’s cap rates with aggressive rent appreciation and occupancy levels built in? Or, did they add 0.5-1 point to the cap rate and project more conservative rent appreciation and occupancy?

Looking to purchase a small 26 room Hotel. What do I look for?

Most Popular Reply