Given the market condition for the hospitality industry, it seems likely there might be opportunities to purchase hotels at a reduced price.
What vacancy rate does one use for analyzing the hotel?
Are there management companies available to manage the property? Is so, what are their fees or rates?
What type of financing is available for hotels?
Does anyone have any experience or insight to point me in the right direction?
Hotels are a retail business. They can be very profitable but are also very fragile and sensitive to economic downturns like 2009 and right now. This is not the best time to enter the business as a novice at least not without a mentor or partner who knows the business inside and out and significant financial liquidity. It's going to take some deep pockets to ride out the current environment and get hotels back to break even and ultimately profitability.
There are third party management companies you can hire that will run operations for you. There are a lot of industry associations out there with lot's of great info on the business. You can do a quick google search and find lots of resources..
I would stay away from the hotel industry for a little while. You will have to wait till hotels go into bankruptcies if you want to find a good deal right now. Hotels are going through extreme pain as demand for many areas have dropped by 60-80% from last year. Many of the hotel are being bailed out by PPP loans and EIDL loans so they will get through for a short period. All the people who purchased hotels in the last 3-4 years will have the hardest time paying their bank mortgage, and that is where you will find deals. My short recommendation is that you have to purchase a hotel that is generating at least above $4-5Million in revenue a year if you want to hire a property management company and be able to make enough $ for yourself. Unless you want to quit your current job and try to manage it yourself. The smaller low class to mid class hotels with less than a 100 rooms don't generate enough revenue for you to justify hiring a property management company unless you want to make only 30-40K a year. Property management companies are not cheap, and franchise fees are also expensive so it'll squeeze into your margins. Running a hotel is a hefty operation. If you can get into a property with more than 150 rooms, generating $4-5M in annual revenue, in a good location, with stable corporate business, that is a good investment. My suggestion is to find a few other people to partner with to pool the downpayment together in order to invest in a hotel like i mentioned. In a smaller market the price for a hotel like that would be around $12-15M. Find a good commercial broker and network. There are some brokers who are well connected to hotel owners. Hope this helps.
There is less pain for immediate hotel owners than say a MF owner who overleveraged his syndication. Lenders are not renewing so his 2 yr bridge loan coming due is going to force a sale. Hotel owners have lost a lot of cash, but they aren't necessarily forced to sell yet. I talk a lot of steps buyers can do to prep for distressed asset purchase on my YouTube channel.
Given the market condition for the hospitality industry, it seems likely there might be opportunities to purchase hotels at a reduced price.
What vacancy rate does one use for analyzing the hotel?
Are there management companies available to manage the property? Is so, what are their fees or rates?
What type of financing is available for hotels?
Does anyone have any experience or insight to point me in the right direction?
Hotels are a retail business. They can be very profitable but are also very fragile and sensitive to economic downturns like 2009 and right now. This is not the best time to enter the business as a novice at least not without a mentor or partner who knows the business inside and out and significant financial liquidity. It's going to take some deep pockets to ride out the current environment and get hotels back to break even and ultimately profitability.
There are third party management companies you can hire that will run operations for you. There are a lot of industry associations out there with lot's of great info on the business. You can do a quick google search and find lots of resources..
Thanks. Where would you recommend gathering industry information to educate myself. I won't be investing immediately, my thought process is there will be some distressed opportunities a year from now.
I would start by educating yourself on the different hotel franchises out there. Every franchise has its pros and cons. For example, Choice has a very big network and many different brands to choose from but many not offer as much sales support as a Best Western. It would be good to understand the differences between the franchises, the fees associated, how much support they give you, how much of the operation you will be responsible for, and the restrictions for renovating your hotel all vary. I would also look into getting your certificate through AHLEI and get your CHA. This will show banks and other people how serious you are about getting into the industry. It will also give you some general knowledge of how to operate a hotel. Our families have been in the hotel business since 2007 and we survived the crash miraculously. Its a bit difficult now. However, the pandemic will eventually pass and those that have taken the right steps to prepare will survive and reap the profits. Hope this helps. It can be a bit daunting but we love the hotel industry.
Craig, I'm a hotel real estate agent working with a brokerage primarily in the southwest. As mentioned above, PPP, EIDL, and SBA deferment has helped out hotel owners tremendously. We don't know what the industry will look like in Q4 when these incentives are supposed to slow down. Majority of the big box hotels (Hilton, Marriott) are struggling, many of the smaller economy brands are still above water. I'm selling a hotel in Phoenix that had higher revenue June 2020 compared to June 2019 so it all really depends on the area.
Since March we have been working with multi-family investors that are converting hotels to an alternative use. This seems to be common nowadays and something you may want to look into.