If you’re a seller today, you don’t want to feel like you’re selling your property at a low valuation and leaving money on the table. And as a buyer, you should feel like you’re getting fair value with some upside. It’s incumbent upon the buyer to know what that upside is.
Consultants can help a buyer secure institutional equity. They can also help a seller when it comes to timing.
If you’re a buyer, have your equity in place before making your offer. From a seller’s standpoint, things to think about include time period for due diligence; a seller wants to keep that as short as possible, typically no more than 45 days so the property isn’t left dangling. However, to secure financing for a property typically takes at least 90 days.
Narrowing that gap becomes the issue. Sellers will look for upfront deposits in exchange for longer due diligence times. Buyers must be serious; at the end of the day, bridging that divide weeds out the folks who are just looking around and captures the serious ones with the wherewithal to close the deal.
One scenario to present a lender involves proving you can reduce expenses, which is likely in this era of ever-increasing operating efficiencies. But it’s harder to convince a lender that you’re going to be able to grow revenues significantly faster than a previous owner.
Operating history helps; it’s easier for a veteran than a newcomer to secure a loan, just as it’s easier to work with a franchise than an independent. Say you own five hotels and can lay down realistic ROI projections based on your experience. A lender will listen.
You need to spend only as much as you can to prove that you can generate ROI greater than the present one. Proof like that is music to a lender’s ears.
If you’re looking to acquire a franchised property, be sure to nail down the franchisor’s PIP requirements – and whether or not the franchisor aims to stay in place with a new owner. Continuity is reassuring. Also key to a franchise deal: fees, liquidated damages and franchise breakage costs.
In the case of an independent, you have to know how it does in its competitive set and ask whether it should be a franchise and if so, which one. Independents do make sense in certain markets.
Franchise or independent, of course, keep these words in mind: location, location, location.