How to Analyze a Hotel

Question

I have been presented a hotel that is for sale, but have no idea how to analyze it. Is it the same as an apartment? Do you ask for T-12 or vacancy rate? Any tips would be very helpful.

Greg Dickerson · Answer

Hotels are very specialized and require serious expertise especially right now. They are nothing like apartments. Hotels are a retail business inside of a real estate asset so you will be analyzing the P&L, Balance sheet and tax returns. There are lots of metrics and KPI's specific to the hotel industry you need to know in order to properly evaluate the deal not to mention the franchise agreement etc. if its a flagged hotel.

Steve Osowicz · Answer

@Patrick Gray like has already been mentioned, I think it is a little more complex to evaluate. I'll add onto @Greg Dickerson said about P&L, Balance Sheet & Tax Returns. Ask for the last 3 years STR  reports (if available) to look at metrics of competitors in the same market area, from there you can look at the ADR (Average Daily Rate), Occupancy and RevPAR (revenue per available room) from similar hotels. This is just kind of scratching the surface, location, last renovation date, amenities offered, etc. You will need to do quite a bit of due diligence, if you aren't comfortable evaluating it, you may enlist a local commercial appraisal firm or commercial broker who is very experienced with hotels for assistance.

Rubin Ranat · Answer

@Patrick Gray.

First off, glad to see you are taking an interest in the hospitality sector.

I agree with most of the past responses to your question.

One of the challenges in this market is obtaining financing.  In addition to performing your diligence, you will need to consider how the property is going to be managed.  Hotels/motels are labor intensive and many have failed because of high operating costs (e.g., labor).

There will be some challenges for the next year, but it will bounce back.  My suggestion is that your pro forma for the next 18 months should be a conservative estimate, followed by a ramp up.  As a result, your purchase price should reflect this.

Feel free to reach out to me if you have questions.  I have a couple hospitality deals in the pipeline so happy to share my experience with you.  Good luck!

Gaspare U. · Answer

@Patrick Gray actually doing this right now. PM sent

Ronald Rohde · Answer

Hotels right now are catching a falling knife, you need to know the business. Is it motel or full service? Restaurant? national flag, do you know brand standards?

Ron Jacobsen · Answer

@Patrick Gray @gregdickerson gave you very sound advice.  Having spent 20 years in developing and managing hotels, hotels are only for the most experienced investors who are prepared to risk big $$ and perhaps win big $$.

How to Analyze a Hotel

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