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+ What information do you cover in your hotel buying workshop?

Hotels are an exciting and dynamic business! Success in the hotel industry begins before you buy the hotel. Do you want to know how buying a hotel is different from other real estate investing? Would you like the details on how to find a good hotel project? And, do you want to learn how you can raise the capital to buy your first hotel?

We answer all those questions and more in our hotel buying workshop. The purpose of this workshop is to help you get all of the information you need in order to buy your first hotel. We will cover the following topics:

• Setting your buying criteria. What should you look for and why? What are the key economic drivers that provide consistent growth – even during economic downturns and pandemics.
• Hotel numbers analysis. What numbers to look at when reviewing a hotel buying opportunity. Competitive data, what this means and how this translates into upside for your hotel.
• Value add discovery & evaluation. Good deal opportunities and what you can do to increase your revenue and cash flow.
• Operations analysis. Questions to ask and details needed to determine operational opportunities with each investment.
• Hotel tour & evaluation. Touring hotels on market, reviewing properties and determining the upside opportunity.
• Making offers. Process for making offers on hotels, LOI templates, timelines and expectations.
• Detailed due diligence. We’ll go through the due diligence process once an LOI has been accepted. This includes all the financials, contracts, staff and vendors.
• Commercial lending process. We’ll go through which options are available, the pros/cons of each and what will be required.
• Syndication structures. Setting up a syndication and engaging with investors to create a win/win.
• Raising capital. The process we’ve leverage to raise capital and bring investors into our hotel deals.
  

+ What should I look for when buying a hotel?

Hotel real estate utilizes a few sector-specific metrics to track performance — the two chief calculations being Average Daily Rate (ADR) and Revenue Per Available Room (RevPar). ADR is the measure of the average nightly rate paid for rooms at a hotel, and is calculated by dividing room revenue by rooms sold over a particular period of time.

RevPar is calculated by multiplying the ADR by the occupancy rate. Investors can also think of it as the total room revenue divided by the total number of available rooms. RevPar complements ADR because while ADR only considers the average rate of rooms sold, RevPar takes into consideration the number of rooms that were actually occupied at that rate over a given period.

Hotel owners and operators use daily, weekly, monthly and annual RevPAR trends to gain insight into factors impacting the hotel’s performance. Even better, comparing a hotel’s RevPar over the last year to the RevPar of competitor hotels can provide a powerful metric for judging the performance and competitiveness of any hotel over a given period.

Relative to other property types, hotels focus heavily on the performance of their “competitive set.” This is because guests tend to make lodging decisions in real-time and weigh factors such as cleanliness, service, amenities and location relative to certain moving demand drivers (e.g., events, stadiums, offices, restaurants and shops).

We leverage the competitive set data to determine a hotel’s current performance and opportunities for improvement. We look for hotels that are under-performing and have strong upside through operational, renovation and/or sales improvements.

+ Is owning a hotel profitable?

We’ve found that hotels provide better income long-term versus other commercial real estate asset classes. How? Let’s compare hotels to apartment complexes because that's the niche we've been in for years. It's also a space that has been very hot in many markets across the country. During the past 7+ years in the Phoenix metro market, investment into apartment complexes has driven up the purchase cost and placed downward pressure on investor returns. And, as of early 2020, there are currently 90 active large apartment complex development projects in process in the greater Phoenix metro area. But even before the higher purchase price for an apartment complex, our conservative numbers were that each apartment would give you $100 in cash per month after all expenses and mortgage payment. Can you do better than this with some properties? Yes, perhaps up to even $200 per unit per month…... but $100 is a consistent number that we saw across a wide range of long-term rental properties.

In the hotel space, our conservative cash on cash return is $400 per room per month. Bringing Airbnb into this, if you talk with anyone who has a short-term rental (in the right location) compared to a long-term rental. You'll find a similar large delta. A hotel is essentially a short-term rental at scale.

Hotel investing also gives us a number of levers to increase net profit including:

1. Dynamic pricing. Pricing on a per night basis is automatically adjusted to align with market rates. In apartment complexes with longer-term lease agreements, you could be below market rents until the next renewal which is a lost revenue opportunity.
2. Opportunities to further monetize the space. Rent out the hotel breakfast area or conference room, sell inexpensive memberships to the fitness center for those who live locally, sell blocks of time after a room has been cleaned but before the next guest checks in.
3. Create corporate packages and memberships.
4. Renegotiate contracts. Yes, you'll have some expense contracts in the apartment complex such as maintenance and property management but there are more contracts & opportunities in hotels. Examples include food, cleaning supplies, and marketing.
5. Add food & beverage quick options or create partnerships with local restaurants.

There will always be pros/cons of any business or real estate niche. But whether we are talking about apartment complexes, hotels or short-term home rentals, any successful real estate investment has these qualities:

1. The property is in a good location. What is "good" depends on the use case but location should always be your number one criteria.
2. Purchase on value so that you have upside but also so that you have a hedge against economic uncertainty which impacts every niche.
3. Work with experienced management that can find ways to maximize your profit.
   

+ How do you get started in hotel investing?

We recommend partnering with an experienced hotel operator for your first hotel. Getting loans and funding will require some type of experience and hotels have a heavier operational component versus other commercial real estate types.

Partnering with an experienced operator is exactly how we got started. our broker introduced us to a 20+ year hotel veteran a few years before we sold our apartment complex. We already had some familiarity with the kind of numbers we could expect with hotels and we knew that the profitably was higher than we saw in multi-family. When we couldn’t find mf to meet our criteria, we connected with the hotel veteran and asked if he knew of any off-market hotels.

With his connections in the hotel space, he found a great property that met our investment criteria. We partnered with him on the operations side because we didn’t have the experience to secure funding. This partnership allowed us to learn the business while knowing that our asset was being properly managed.

We embraced the hotel industry and worked to learn as much as possible. We continued to acquire hotels and were able to secure funding and resources once we gained this initial experience. Through our coaching and support programs, we help our students move into their initial hotel purchase through operational partnership recommendations.

+ What is your hotel buying due diligence checklist?

Here’s a high-level starting point listing of the components involved in due diligence for acquiring a hotel property:

• Property Information
• Appraisal
• Physical Inspection Reports/Surveys
• Structural
• Seismic
• MEP
• Mold
• ADA
• Soils
• Fire Systems and Health
• Elevator Safety Inspections
• LEED Certification/Survey
• Copies of any current warranties (roof, hvac, etc.)
• Any leases
• List of Plans and specifications
• Financial Audit
• 3 years of financials
• Seller bank accounts, tax returns
• List of accounts receivable
• List of Seller’s payables
• List of reservation agreements and deposits
• STAR Reports
• List of maintenance and service contracts
• Employees
• List of employees
• List of employment contracts
• Accrued vacation/sick pay
• Employee benefit plans
• Employee withholding tax bills
• Litigation search
• List of litigation
• Schedule of construction work in progress
• Books and records
• Operating reports and financial statements
• Bank account listing
• Accrued/prepaid expenses
• Real property tax bills
• Sales/general excise tax bills
• Transient occupancy tax bills
• List of tax returns and copies of canceled checks
• List of licenses and permits
• Certificates of occupancy
• Building permits/entitlements
• Liquor license
• Inventory
• Existing management agreement
• Corporate Contracts
• Other contracts
• Utility bills
• Marketing videos and brochures
  

Market Research

• Metro Area
• Sufficient population and job growth
• Projected future job growth
• Diversified economy- not overly dependent on a single industry or employer
• Business favorable government
• Strong anchors – universities, healthcare hubs, logistics, etc.
• Location
• Proximity to employers
• Close to entertainment centers
• Close by restaurants
• Not overly depending on a single industry/employer
• Limited development in similar hotel class

Hotel Specifics

• Opportunity/Growth
• Competition
• STAR reports
• Online Reviews
• Where are bookings coming from
• Franchise Reputation
  

+ Hotels for sale – how do you evaluate options?

Relative to other property types, hotels focus heavily on the performance of their “competitive set.” This is because guests tend to make lodging decisions in real-time and weigh factors such as cleanliness, service, amenities and location relative to certain moving demand drivers (e.g., events, stadiums, offices, restaurants and shops).

We leverage the competitive set data to determine a hotel’s current performance and opportunities for improvement. We look for hotels that are under-performing and have strong upside through operational, renovation and/or sales improvements.

+ How does your partnership program work?

We enable members to submit deals for a potential partnership with us in which our equity firm, Gateway Private Equity Group, raises all or part of the equity needed for the deal and you remain involved as a general partner. You will find the deal, analyze and pre-negotiate the deal, have some involvement in due diligence and asset management after closing. We will then raise the funds needed to close on the property. The more you do and/or bring to the table, the more equity you receive as a GP.

To submit a deal, you’ll need to be a member of our Hotel Buyers Program which allows you to submit your hotel opportunity for review. You then go through one or more paid coaching calls to qualify the deal and also help you to get your offer accepted in alignment with Gateway’s requirement.

Hotel Buyers Program – this is a monthly subscription support service that allows you to get feedback from Mike on your analysis, connect with other investors and access to submit a hotel buying opportunity. To find out more about the Hotel Buyers Program, please click here.