I'm currently buying a hotel in the Southeast region of the US.

The hotel is about 40,000 square feet with a little over 100 rooms built in the early 1990's.

Its annual revenue is about $900,000.

Price = 3,000,000


My LOI has been accepted. I have to make a decision to whether to go forward and accept the contract in the next couple of days.

Any of you has experience owning a hotel or buying a hotel? Should I go forward to accept the contract?

Thanks!

AndyK,

I have not owned hotel before, but has managed a couple.

I am just curious. Can you offer additional information, such as expenses, occupancy rate etc? Is the $900k net or gross. I am thinking this may not be a good deal and that depends on your wanted cap rate.

SoFLBroker,

Thanks for your answer. I have the following information on the $3 Mil hotel:



2007
Gross 1,050,000
All expenses and franchise fees: 767,392
Net Operating Income: 282,608

2008
Gross 900,120
All expenses and franchise fees: 740,738
Net Operating Income: 159,382

2009 is doing 10% better in term of gross revenue.




Occupancy

2006 48.0
2007 51.5
2008 40.1
2009 43.5



ADR
2006 43.39
2007 43.74
2008 42.64
2009 43.29


RevPAR
2006 25.64
2007 26.03
2008 22.04
2009 23.04


With the above information, it doesn't look like cap rate is that great. One way to increase net operating income is that I can increase gross revenue and/or reduce expenses.

What do you think about this deal?

Thanks!

If you were in Ga I could help you. With a hotel the location,land area it comes with and a host of other things factor into it besides the current numbers.

Don't just trust numbers provided by the listing broker or seller. They often puff the numbers and hide expenses. There can also be unknown structural issues.

So much depends on the REVPAR and if you have to update the rooms would you get your return?? If you haven't thought of these things and there are tons more issues you need to back out NOW before proceeding. You need guidance with this and take your time as it's a big investment. The last thing you want is to be stuck in a bad deal and when the good ones come by you are over leverages and can't buy anything.

Good luck and no legal advice.

I'd certainly advise you to "make haste slowly."
For instance, the 2008 gross was $150,000 less than in 2007 and the 2008 net was $123,000 lower -- which suggests that the reason for selling is that the hotel is starting to lose money (or at least failing to make what it used to do).
Even now, it shouldn't be too late to contact a commercial buyer agent who could help you carry out a more thorough due diligence investigation. Least of all, you shouldn't be simply relying on what the listing agent is telling you. He/she is NOT focused on YOUR best interests.
When you're talking $3,000,000, you just cannot afford to go by only your own opinion. You need to get a professional one from someone who's going to look after what's best for you not the seller.

Duncan