July 12, 2021by Peter Mukulu0

Questions to Answer Before You Sell

Before you market your hotel or restaurant asset for sale, you should already know the answers to the most important questions that any sophisticated buyer will ask. Knowing the answers, and properly positioning your asset before listing will eliminate surprises during the buyer’s due diligence process, provide for a smooth, trouble free transaction, and help you maximize the sales price and return on your investment.

Owners learn more about their hospitality business during the sale process than ever before. Don’t get surprised by your buyer’s due diligence. Prepare in advance.

Why are you selling this asset at this particular time?

You should know this answer even before starting work on answering any other questions.

  • Is it time to cash out on a top performing asset?
  • Do you need to adjust portfolio exposure in particular markets or brands?
  • Are you focusing on other development opportunities?
  • Do you lack the resources necessary to maintain the property?
  • Are you looking for an investment or management partner?

Knowing your reasons to sell will make it easier to evaluate purchase offers, and to respond to due diligence questions from potential buyers.

Market Position and Branding – Is your property maximizing its revenue potential in its market?

Hotel and restaurant asset pricing is all about value, and nothing drives asset value more than top line revenues.

  • How is your property positioned in its competitive set?
  • Is the property capturing more than its market share of rate, occupancy, and sales?
  • Are there opportunities to improve market position or economics through improved selling, marketing, re-branding, renovation, or re-development?
  • Are there barriers to entry in your property’s market?
  • How stable is your property’s revenue stream?

It is critical to know both the opportunities and the risks that the property faces in its competitive market, and the associated impacts on revenues.

Management and Operations – Is your property being operated at peak efficiency and customer satisfaction?

Management and operations are the foundation that supports top line revenue, and the engine that delivers product quality and profit through customer service delivery and efficient hotel and restaurant operations.

  • Do you have the right Management Company operating your property?
  • The right management teams?
  • Is product delivery and customer satisfaction at the high end of the scale?
  • Are labor costs in line?
  • Is the building being operated and maintained efficiently?
  • Are there cost savings opportunities?

Improving customer satisfaction, and operating at peak cost efficiency contribute to top line revenue, improve operating profit, and boost property value.

Asset Condition – Is your property well maintained and in good condition?

Property condition is of equal importance to customer service in supporting hospitality product delivery. The friendliest staff in the world cannot make up for a broken-down mattress, worn out carpet, or non-functional air-conditioning.

  • Will the sale of the property trigger a Property Improvement Plan (“PIP”) requirement by the brand?
  • How extensive will the PIP be?
  • Are there any deferred maintenance or deferred capital issues?
  • Unmet regulatory or inspection requirements for elevators, fire and life safety systems, ADA, VGBA, EPA, OSHA, etc.?
  • What will re-branding opportunities require in renovation and CapEx costs?

A well-maintained asset contributes to property reputation and repeat business, improves operational efficiency, and lowers the risk of equipment failures and service disruption. Well maintained properties also generally enjoy lower R&M and capital costs over the long term.

Value – What is your asset worth?

Market position, management, operations, and property condition are the primary factors driving revenue, profit, capital costs, and ultimate value. However, there are a multitude of other factors that may affect the value of the hotel or restaurant and the sales price.

  • Do I know how the market will value my asset?
  • How should I value the asset – current and potential cash flow or real estate value or a combination of both?
  • Are there termination requirements in the Management, Franchise, or loan agreements that will affect the sale?
  • Limits on land use?
  • Zoning changes?
  • Disclosure requirements?

Developing an objective and complete evaluation of property value can be a daunting task for even the most sophisticated owner.

Allow Cayuga Hospitality Consultants to put together a team of experts to help you answer these questions and more when it comes to selling your hotel or restaurant asset.

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