After a tough few years for the hospitality industry, hotel transactions are on the rise. Although new development deals remain scarce nationwide — with recent exceptions in the Dallas area — sales of hotel assets at all levels are transacting again, from luxury full-service hotels to portfolios of select service hotels. Hopefully the improvement in the hotel industry is a positive sign for other asset types as well.
What to expect right now:
- Competition to get the deal. Investment buyers finally seem ready to dip into their funds and bid on quality products in target markets (including Texas). These buyers are paying top dollar with limited contract negotiation to get what they want.
- Re-trading. After beating out the competition with top dollar offers, many buyers, still a little wary about making a good investment, are going back to sellers during the due diligence period to ask for price reductions. Although this approach might work with some hotel properties (with legitimate concerns), beware of the line of potential buyers waiting to step up if the deal falls through.
- Financing issues. Lenders are financing more hotel acquisitions, but still expect to come to the table with a lot of cash in hand. Buyers should make sure they can get the deal done before wasting too much money in due diligence (including costly franchise fees).
- Property Improvement Plans. Although some hotel franchisors may have shown some heart toward struggling owners during the downturn, expect PIP’s to be aggressively enforced as franchisors attempt to get properties back up to standard.
- Portfolios up for grabs. Hotel owners trying to bolster their funds and streamline their holdings are offering up portfolios of mostly select service properties in secondary markets. For those investors looking to get back into the hotel market, these portfolios can be good deals, but expect to conduct badly needed renovations and address other issues holding these properties back.