Competing For Deals – How to Get Your Offer Accepted
December 18, 2013 11:19am
By William G Sipple
While the transaction market is heating up, compared to other cycles, there still remains a shortage of hotel properties coming to market. One major factor driving this is that many owners are looking at their improving operating metrics and deciding to delay selling their assets in hopes of realizing greater gains in the future. A second factor is that low interest rates and aggressive competition among lenders has resulted in a market where owners can receive high loan proceeds should they choose to refinance rather than sell. When viewed on an after-tax basis, the refinancing scenario may very well yield higher proceeds than a sale. That said, the common view is that we will see more hotel transactions in 2014 and 2015.
There is an assorted collection of buyers today that include Public REIT’s, Private REIT’s, private equity funds, hedge funds, family offices and sovereign wealth funds. Many of these buyers have similar investment strategies and look for assets in the top 10 to 25 markets. The cost of capital for these buyers can be very low compared to typical individual buyers. Accordingly, many individual buyers have been seeking deals in secondary, tertiary, or even smaller markets. Even so, competition remains strong for almost any type of hotel with a decent location, a productive existing brand or attractive rebranding options, and good bones.
Buyers often find themselves one of literally hundreds of competing entities in trying to purchase an asset. One recent sale our firm handled is a prime example. Within ten days of bringing the hotel to market we had 210 signed confidentiality agreements. This resulted in over 25 offers for the asset. This was a great situation for the seller, but potentially very frustrating for a buyer. We are often asked by buyers how, short of a ridiculously high bid, they can increase the odds that theirs will be the winning offer in the process. Here are a few suggestions:
These are just a few things a buyer can do to make their offer more attractive. We see many offers that do very little to reduce the execution risk for the seller. The offer selected is not always the highest bid, but rather the highest bid with the greatest likelihood of closing.
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Contact: Bill Sipple
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