Hotel Conversion

[Trevor Haasch]

I have been approached with a deal to purchase an older vacant hotel. There are currently 6 apartments 22 hotel rooms and a 3 bedroom house on site. Purchase price would be 150k and needs about 200k in improvements. Seller is willing to finance entire deal at 5% interest. The more I look into it the more potential I see. It's located in a small town about 3 hours away. I just finished turning over a 33 unit apartment complex that is now 100% full. I have the experience and time to commit to turning this place around too. I spoke with the city this morning and found there is a housing need especially for transient workers during the summer and fall. Original plan was to convert entire place to studios or one bedroom rentals with 12 month leases but now after talking with the city I'm thinking converting the 2nd floor to long term rentals and the main floor to short term month to month furnished rentals. The city was really excited to hear we are interested in transforming the property and will work with us to rezone the property and possibly provide some financial assistance to help with improvements. Anyone have any experience with hotel conversions or short te rentals?

[Chris Winterhalter]

@Trevor Haasch 

Franchising will be very difficult even with the economy brands.  How old is the property?  The property is too small & probably too old for a brand, even with a significant renovation.  There are a few select brands that specialize in tertiary markets up your way.  Americinn & Cobblestone are two brands that will take on smaller properties.  However your 200k in improvements probably wouldn't cover the costs needed to bring the exterior & interior up to par for a brand.  I'm just guessing based on your comments.  Check out Cobblestone's website under their conversion brand, I believe it's the Boarders Inn product.  Look at the existing construction of some of the properties to get an idea for what you would need to do on the renovation side.  

Beyond that I would make sure that there's demand for a hotel in this market.  Just because it doesn't have a hotel nearby within 15 miles doesn't mean a hotel should be there in the first place.  The current owner is selling for a reason (with owner financing), & maybe that means the market needs a fresh new hotel property or maybe that means it doesn't have the demand.  

You don't have the luxury of looking at a STR report to comp nearby properties because of the lack of supply. However you could pull a STR report from other similar towns nearby, find a product that will match yours and get an idea for ADR, Occupancy & ultimately RevPar. Like @Jimmy Klein mentioned location is very important.  And also take note of his comments on FF&E wear and tear.  FF&E is something you should reserve for on a yearly basis (3-5%).  Also when you have a brand you will have brand standards, which need to be accounted for.  Good luck!