Hotels are a special type of commercial real estate (CRE). These CRE properties include real estate used for special purposes coupled with an existing business. If you’re wondering how to find hotels for sale, you should also understand this is a complex process. There are several details that must be addressed.
The first question a buyer should take into consideration is why they want to buy a hotel. For most, it’s purely the economics of it. For others, though, it’s an emotional purchase—maybe they’ve always dreamed of owning their own slice of the accommodations industry pie, buying into the hotel industry as a luxury destination, or boosting their reputation in the travel industry.
But, speaking of the travel industry, is now a good time to venture into this realm of commercial real estate? With the current impact on travel around the nation, this could be a double-edged sword. On the one hand, fewer people are traveling for business or pleasure—on the other, that could mean hotel sales prices could be at their lowest ever.
What is the Hotel Acquisitions Process?
Regardless of the reasons for buying a hotel, it’s a good idea to brush up on the hotel acquisitions process. Because of the combined nature of hotel purchases we mentioned above, it’s necessary for a buyer to recognize the practical human—and financial—limitations of a potential field of prospects. On the other hand, there are real benefits associated with gathering as much information as possible, as buyers with the most information tend to find the best deals.
While there are certainly variations in the buying process, there are nine logical steps most buyers take:
- Determining what they’re looking for in a hotel
- Identifying potential leads
- Putting together a team of hotel purchase professionals
- Evaluating each potential hotel
- Calculating a bidding price
- Communicating with the seller
- Negotiating the purchase and contract terms
- Doing due diligence
- Closing the sale
How long each step in the process takes depends on many factors, such as access to financing and the climate of the overall market.
2 Ways to Find Hotels for Sale
The two main approaches in discovering hotels for sale include:
- Searching commercial listing platforms like ProspectNow.
- Finding motivated sellers that haven’t listed their properties, also known as an off-market sale.
Both approaches have their own lists of pros and cons. The good news is ProspectNow can help brokers find both on- and off-market properties.
Search for hotel sale listings on ProspectNow
Online listings platforms like ProspectNow can help tremendously by already having done the legwork for you. You can search by property type, location, and other search criteria.
Find motivated off-market sellers
Hotels for sale are almost never listed on any MLS and searchable only in a few specialized online marketplaces. But, you can also discover sellers who haven’t put their property on the market just yet if you know where to look..
The CRE market, despite recent setbacks from the pandemic, has remained incredibly strong and viable. This could mean a buyer might not find exactly what they’re looking for—or they may, and the competition is stiff. But in an off-market search, this is rarely the case.
Quick Hotel Valuation Guide
When considering buying a hotel, there are several things to think about—one of the most important is valuation. For instance, boutique hotels in tourist areas have fewer guest rooms than large hotel chains, but normally charge higher nightly fees because of special amenities. According to the US Travel Association, the total overall hotel occupancy in the United States during the first week of December 2020 was just 37% compared to 60% for the same week in 2019. Luxury hotels have taken the biggest hit—the first week of December saw occupancy rates of just 19% compared to 75% in December 2019.
Maybe there is no right (or wrong) time to buy or sell a hotel, but what’s the best approach to figuring out if a particular hotel purchase is the right one?
These are the main approaches applied to hotel valuation:
- Income capitalization—Valuing a property that’s currently producing income is determined by multiplying its net return. This is an especially good method for buyers looking at investment opportunities.
- Cost—Just as the word implies, cost valuation takes into account the amount a buyer has to spend and helps them decide whether they should buy a hotel or build one instead. This isn’t a favored valuation method for the fact it doesn’t take into account current income production or other economic factors.
- Sales comparison—This is a useful valuation method that looks at previous hotel sales in a specific market or location, determines ranges, and considers the current momentum of hotel sale pricing when compared to similar hotels.
While these three valuation methods are all different and apply to various types of transactions, it’s likely a buyer will use a combination of these methods to come to a final purchasing decision, especially if they plan to be an owner-operator. Look at it this way:
It makes sense to purchase a property that generates income (income capitalization), but it also matters how much money a buyer has to spend (cost) upfront while being certain they’re not paying more than the hotel’s worth (sales comparison) compared to others in the same location. These same methods apply to those looking to sell a hotel, too.
ProspectNow has been helping people just like you find the data they need since 2008. Brokers can find listings for buying or selling properties—and for much less than other platforms. For more information, please contact one of our knowledgeable reps who’d be happy to assist. ProspectNow has an established A1 reputation—we help brokers like you close more deals and make more money.