We would advise our hotel owners clients to always very carefully consider the decision about selling their hotel and start with a basic knowledge and understanding of the market. There are two critical things about this and the first one is correct positioning and second is determining the right price range. It is really important that you know well how your asset is positioned. For example, if you owe a three-star hotel in Madrid, far from the center, you wouldn’t like to be competing with the five-star big flagship hotels and you wouldn’t like to be comparing with their price per room, marketing solutions etc. Knowing where your property is positioned is important in order for you to start the process. Then of course it always comes to determining the right price range.
Once you have the correct positioning and you are well familiar with the price range, what I advise my clients to do is start with a look inside. And the look inside is the correct understanding of your hotel current state. That could be the look of the facade and decoration, the look of the lobby and common areas, the hotel rooms, interior etc. It really makes sense allocating a small budget for minor refurbishment if that would be necessary and in most cases it is. Hotel owners understand well, that once the hotel is up for sale, chances are they will be dealing with international buyers and sooner or later after all Zoom calls and Skype calls and online meetings, it will come to the on-site viewing. And once you do the on-site viewing, it is very possible that the buyer is actually disappointed and all the hard times negotiating, all your efforts you put in preparation, providing numbers etc. might be lost. So I really recommend allocating a small budget for refurbishment. You will never get a second chance to make a first impression.
Next step: you might want to check the way that your hotel is represented online. These are the social networks presence, the presence in hotel rating websites such as booking.com, tripadvisor.com, holidaycheck.com etc. You might need to check your own website and make sure that while you are having negotiations, your buyer might be doing a due diligence on your property and he will find every single link that gets to your hotel on the Internet, he will find every single comment on blogs, forums or social networks. So this might be your best chance to actually get back to these negative reviews received years ago. You should know that your buyer will basically be looking mostly at the negative comments, so you might consider hiring a professional or a freelancer to work on your social media presence, answer your negative reviews explaining, that problems have been fixed etc.
Next step: choose your broker and sign a mandate agreement. Consider exclusivity. While many owners outside of real estate business might believe, that working with multiple brokers will be more efficient, experience shows exactly the opposite. You might get yourself into a process where every broker will be calling you, you will be confused which client comes from which company and every broker will have a list with his clients’ questions and you will have the feeling, that you’ve already answered that same question for someone else. Make sure you choose a communicative and well connected broker to be your mandate. There is enough information right now on the market and you can get recommendations from other owners and hospitality groups, you can make a due diligence and finally make your choice. Your broker will be your face to the market and the community.
Next advice is: prepare a basic information package. People in this business know well, that there is a certain package of information, that you simply need to give to your broker, so once you’ve chosen the right broker, you need to arm him with the right weapons. And the right weapon is actually information. These are the number of rooms, ownership status (is it freehold or leasehold), ownership structure (is it owned by a company or individual/s), the square meters of the land, the square meters of the hotel, amount of debt. In this business there are certain standards and the golden standard is that most probably the potential buyer will ask you financial information three years back. They will need financial statements, gross profit, net profit, payroll. The potential buyer will try to make his calculations about the amount of money, that he will be making and the potential of increasing net income, so my advice: get this information ready on your desk and whenever you have LOI or NDA signed by a potential buyer, you may deliver it to your broker or directly to the potential buyer.
Popular owners’ mistakes
Number one is flooding the market with your property and why in most cases it won’t work. As discussed earlier, when you provide your property to too many sources, initially you might expect that your property will get a better coverage and reach to more people, but not really. The fact, that this hotel or property comes up pretty much everywhere and in pretty much every broker’s portfolio, to the average buyer means one thing: the owner is having financial issues, he needs to sell really fast. And the one result, that you will get from marketing your property everywhere, is actually getting the property undervalued. And that’s the one thing that you don’t want to do.
Next mistake: being inaccessible and wanting too much from potential buyers. Sometimes owner behaves like he doesn’t really want to sell. To every buyers’ question, he asks few questions back about who is the buyer, what are his plans, where his funds come from etc. Especially when dealing with after- Covid market, there are plenty of hotels for sale and just few investors, so in my opinion, being flexible and being communicative is a much better strategy.
Another mistake, that we’ve seen a lot is not selecting the right person to represent the owner. Sending a receptionist to meet the potential buyer on site or some other people from staff is not a really smart move. What you might want to do in order to be successful, is to pay close attention to the process and choose a smart and communicative person, who is also well informed and armed with the necessary information and facts about the property and operations.
Cross-cultural differences are important. I have seen a number of negotiations fail because of people not understanding each other. On this market we are meeting international buyers, so no matter where you are, you might get the chance to get a buyer from the Middle east or Asia or United States. If you don’t understand the joke, if you don’t understand why he said that or why he doesn’t look happy, just speak to your broker. Brokers do this on a daily basis, they are really well informed about cross-cultural differences and they can help you out with this.
*The article is based on a speech by Kalin Stoyanov, managing director of Consultica Properties at an international online seminar „Hotel acquisitions and dispositions. Effective tactics and strategies“ 28.01.2021 with lectors from London, UK and California, US.