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Hospitality Conversations: Selling Your Hotel
In a Sluggish Economy


February 16, 2010 - When planning topics for columns, I assess issues and concerns that face hotel owners, managers and professionals.   In 2009, I considered a series of columns that would include specific insights from professionals who serve the industry in a variety of roles.  For several reasons, I decided to defer the new series, to be known as my "HOW TO" columns until 2010.  While the economy is still lagging behind where we hope it to be, I am confident that delivering optimistic and realistic messages can have a positive impact on the industry’s forward direction. 

The current economic downturn is the fourth I have seen in my business career.

1. In the 1970s, high rates of inflation and gasoline shortages dramatically affected the hospitality industry.  Many large convention hotels literally closed entire floors for weeks at a time.

2. From the mid -1980s to the early 1990s, a recession again hit the industry hard. Substantially caused by the savings and loan crisis from real estate loans that did not have adequate equity, many major brands were forced into bankruptcy, mergers or partnerships. There were staggering statistics from the American Hotel & Motel Association (earlier name of AH&LA) about the number of hotels that were unable to meet debt service in the early 1990s, yet the industry adjusted and recovered.

3. The events of 9.11.2001 changed the way the US and global economies interacted.  We recall the eerie silence of no US air travel for almost a week.  Business was no longer conducted “as usual” and attentiveness to security became intensified.

4. The current financial slump differs from others in its’ global reach and the connectivity of world credit impacted by unsound lending practices from many large institutions. The intervention of many governments in an attempt to bolster certain segments of industry has met with mixed responses.

In the launch of my "HOW TO" columns, I begin with a series of HOSPITALITY CONVERSATIONS. As every hotel, inn, conference center and lodging property will eventually change hands,  I selected a topic that is of universal interest to all hotel owners: HOW TO SELL YOUR HOTEL in a sluggish economy.

I reached out to two qualified professionals in nationally known companies, Steven Marx of Hotel Source, Inc. and Eric Belfrage of CB Richard Ellis Hotels.  I asked each of them these two fundamental questions:

Question #1
In a sluggish economy, why should hotel owners incur the cost of a broker?  Why not save the commission and sell the hotel privately within the owner’s network of contacts?

Their responses:

Steven J. Marx, Hotel Source, Inc.

In a sluggish economy, engaging a competent hotel broker is even more important than in a non-sluggish economy. A few reasons of why to hire a broker:

  • Hotel brokers are more likely to achieve a higher price than an owner selling on their own.
  • Hotel brokers are able to expose the opportunity to more of the most likely buyers therefore bettering the owner's negotiating position and increasing the chances of creating a bidding war. Hotel owners tend to have a "handful" of potential buyers, and ultimately end up exposing the opportunity to only a few buyers.
  • Hotel brokers have a significant incentive to achieve the highest sale price; they earn more money the higher the selling price. 
  • Hotel brokers have a better understanding of market values and are more likely to market the property at the most appropriate value. 
  • Hotel brokers have a multi-step marketing process that includes actual marketing materials. Marketing materials are important in the initial step of filtering out whether or not the opportunity fits certain buyers' acquisition criteria. 
  • Transaction management. In a sluggish economy, many hotel buyers are experienced hoteliers who have significant transaction experience that include many strategies for extended due diligence periods, price reductions, etc. Hotel brokers recognize and are able to counter these attempts. 
  • Confidentiality from staff.
Eric E. Belfrage, CB Richard Ellis Hotels 

This is exactly when superior exposure is essential to a successful marketing plan.

  •  We typically expose a listing to literally thousands of prospective buyers. We also sell hotels every day.
  •  Owners are excellent operators but are not daily involved in the market.
  •  We can help buyers find financing.
  •  Often, through the competitive bid process, our efforts generate multiple offers.
Question #2
What are the most critical factors in successfully deciding which broker to use?

Eric E. Belfrage

We find the following to be essential:

  •  Do you relate well with them?
  •  Can they develop a good pitch strategy for the asset?
  •  Do they have the national, regional, and state platform to expose the asset to the maximum group?
  •  Are they knowledgeable?
  •  Can they educate buyers?
Steven J. Marx

The most critical factors in deciding which broker to use include answering the following:

  • Does the Broker understand what drives the value of your hotel? Repositionings, operational turnarounds and stabilized properties all appeal to different buyer groups, but can be very similar in size, location and franchise.
  • Actual valuation; Improperly valued hotels will result in a much lower selling price
  • Marketing strategy; does the broker have a step-by-step process that exposes the property to the most likely buyers?
  • How does the broker determine who are the most likely buyers? 
  • Means for reaching the most likely buyers? How does your broker distribute the materials?
Steve Marx, Founder and President of of Hotel Source, Inc, has over past twenty-five years successfully completing a wide variety of hotel dispositions and advisory assignments during many economic cycles.  Steve gained operations experience with Hyatt, Four Seasons, Fairmont, Sheraton, Holiday Inn and independent hotels. During his employment with Fairmont, Steve assisted in the opening of the 700-room Fairmont Hotel Chicago and implemented policies and procedures required to achieve five-star standards. In addition, Steve has gained experience working at several Chicago commercial real estate firms. He is a member of the International Society of Hospitality Consultants (ISHC), International Council of Shopping Centers (ICSC) and Turnaround Management Association (TMA). Prior to forming Hotel Source, Inc., he worked for the Chicago-based hospitality brokerage firm Hotel Partners, where he was consistently a top sales producer. smarx@hotelsource.com / www.hotelsource.com

Eric E. Belfrage, CRE, ISHC, MAI  is  Vice President  Investment Properties  CBRE | Hotels  in the CB Richard Ellis' Columbus office and serves as a member of the Investment Services Hotel and Leisure Group.  Eric's professional knowledge includes almost 30 years of experience in the hospitality industry and is very well known and respected for his vast knowledge of hotel properties throughout Ohio.  Eric holds the Counselor of Real Estate (CRE) designation, as well as being a member of the International Society of Hospitality Consultants (ISHC) and the Appraisal Institute (MAI Designation). Since joining CB Richard Ellis Investment Properties | CBRE Hotels, Mr. Belfrage has been involved in over $70 million of hotel transaction activity within the Midwest and south regions.  Mr. Belfrage has marketed  several brands including:  Intercontinental, Hilton, Marriott, Choice, Carlson, Best Western and several independent brands.  eric.belfrage@cbre.com / www.cbrehotels.com
 

“The larger the island of knowledge, the longer the shoreline of wonder.”
                                           Ralph W. Sockman (1899-1970) 
                                           Author, Speaker, Minister

KEYS TO SUCCESS is the umbrella title for my new 2010 programs, hospitality services and columns. This year’s writings will focus on a wide variety of topics for hotel owners, managers and professionals including both my "HOW TO" articles, and a number of  HOSPITALITY CONVERSATIONS.

Feel free to share an idea for a column at johnjhogan@yahoo.com anytime or contact me regarding consulting, customized workshops, speaking engagements ………….

And remember – we all need a regular dose of common sense.

Autographed copies of LESSONS FROM THE FIELD – a COMMON SENSE APPROACH TO EFFECTIVE HOTEL SALES are available from THE ROOMS CHRONICLE www.roomschronicle.com, www.smartbizzonline.com  and other industry sources. 

All rights reserved by John Hogan and this column may be included in an upcoming book on hotel management.   The opinions expressed in this article are those of the author and do not necessarily reflect the views of this publication

John Hogan is a successful hospitality executive, educator, author and consultant and is a frequent keynote speaker and seminar leader at many hospitality industry events. http://www.linkedin.com/in/drjohnhoganchache

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Contact: 

Dr. John Hogan, CHA MHS CHE
johnjhogan@yahoo.com
 

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