| by Kirby D. Payne, CHA , May 2000
Virtually full disclosure and detailed analysis is what typically happens
in a sales transaction involving a larger hotel particularly when a corporate
or institutional type buyer is involved in the transaction. However,
what if you are selling a smaller limited service property and the buyer
is essentially an individual?
Here are some ideas:
| Why not just give the buyer ADR and Occupancy data for some previous
period of time such as two to four years? Back it up with sales tax
returns if the buyer insists on seeing something more substantial.
Be prepared to explain in general the small discrepancies between the two
pieces of information. |
| Be upfront with potential buyers and make it clear you do not have
the time or the interest in quibbling over the sales price of the hotel.
Either ask them to give you an indication of what they are willing to pay
or tell them the minimum you are willing to take (only slightly exaggerated)
and be done with it. If you are not close why bother to go through
the exercise? |
| There is no rule or law that the full Profit & Loss Statement must
be provided to the buyer. Let the buyer always think s/he can manage
the hotel more efficiently than you can. Provide utility bills, real
estate taxes, and insurance costs. Give them tours of the property
but let them decide what their revenues and expenses might be under their
management style. What about the argument, the lender will want to
see it? Well what does the lender see in the way of history on an
application for a new development deal? Not history, but the applicant’s
pro-forma of how s/he believes they will operate the hotel. Obviously
this strategy works best when the buyer has operating experience and established
banking relationships. You do not have to provide Profit & Loss
Statements. |
| Don’t spend the money to fix things up because essentially the physical
shortcomings are already reflected in the ADR and Occupancy and you won’t
realize any additional sales price for them. When the buyer throws
deferred maintenance issues at you as a way of trying too get the price
down remind them you were achieving your revenues with those deficiencies
and weren’t planning on fixing them even for yourself. |
| Don’t volunteer information that you know is not helpful to your position.
Do volunteer information that is helpful. You have an obligation
to be honest when asked a direct question but you do not need to expand
on your answer. Instruct staff not to discuss any hotel issue, even
“how was business last week”, with anyone. Have the General Manager
and Engineer refer questions to you. Research the question with your
staff and give a brief honest answer or tell the buyer you’d prefer if
they had someone look at the item. |
| Always take the position; you haven’t spent the necessary time to run
the hotel to its full potential for whatever reason. It is all right
for the buyer to believe they are a better operator than you might be.
This isn’t about your ego and reputation it is about maximizing the sales
price! |
| Morning closings are nice because you have time to run late.
The financial cut off does not need to be at midnight. Try this:
1. Last night’s revenues to the seller; 2. Today’s room cleaning
and A shift at the front desk are the seller’s expense (you got the revenue);
3. All other revenues and expenses on day of closing are the buyers; and
4. The seller controls management until the closing is finalized.
An employee meeting should be scheduled for early afternoon. Don’t
make it a hardship on employees who are off and do not want to come in
and do not cancel the meeting if the closing falls apart. Let the
staff know what happened. |
| Keep the staff appropriately informed at different levels. If
staff members get nervous about job security and leave, you will be the
one who suffers especially if the sale does not happen. Explain to
the staff that no buyer has a vanload of room attendants or guest service
agents waiting for his or her next acquisition. The reality is the
higher up in management a person is the higher their risk of losing their
job. The closer the person is to line level the more secure they
are but they worry more! You owe it to your employees to keep their
anxiety level down by being honest with them. When and if the hotel
sells, do something nice for the staff as a way of saying thank you. |
| In spite of the additional cost, your attorney should draft the purchase
agreement. In this manner you control the details of the terms.
You should use an attorney familiar with commercial real estate transactions,
preferably one who is very experienced in hotel and motel transactions.
Controlling the details of the transaction will ultimately result in significant
savings. |
Hotels are sold for a variety of reasons. As the seller you have
a right to get as much for your hotel as you honestly and legally can.
Don’t be bashful as it may make a difference of hundreds of thousands of
dollars in the sales price.
Kirby D. Payne, CHA, Is President of Minneapolis based American
Hospitality Management, LLC a growing hotel management, development and
consulting firm with offices in Saint Cloud, MN and West Palm Beach, FL.
He also serves as Treasurer of the American Hotel & Motel Association.
This article originally published in Lodging Real Estate June 2000 |
