In the hard and fast, numbers-based world of hotel asset transactions, a surprising amount of emotion can come into play. “There is more of a personal aspect to hotel sales than most other types of commercial real estate,” says Peter Nichols, vice president and national director of the Hospitality Group at Marcus & Millichap, a real estate brokerage firm. “Particularly with private clients, there may be an emotional attachment. They often think their properties are worth more than what the market will bear in terms of pricing.”
This is why, Nichols says, would-be hotel sellers would be well advised to seek out the services of a hotel broker. “We can use our metrics and the story we create around the property to help nudge the buyers closer to the seller’s desired number, taking emotion out of the transaction,” he explains. “You want someone who knows the market, how to determine the value of a property based on what the market is saying about supply and demand, and how to best position your property for sale in that marketplace. But, beyond that, you want someone who can tell what I call ‘the story’ about the opportunity your hotel creates for an investor.”
Among 1,700 agents around the United States who use Marcus & Millichap’s proprietary platform, 85 of them are in the Hospitality Group Nichols oversees. “Our agents handle 20 different types of commercial real estate, including office buildings, triple net lease, storage, multi-family, assisted living, senior living, apartments, and industrial.”
He says because their platform is highly collaborative, all agents can use it to identify opportunities in markets other than their own that are handled by M&M brokers. He uses the example of a hotel specialist who was able to interest a multi-family owner in the hospitality space by presenting the attractive return that could be had by purchasing a hotel instead. “We not only told them how much revenue it generates and how much net operating income it produces, we calculated the benefits of using the 1031 exchange from a tax standpoint to the owner, who was selling the multi-family and buying the hotel.” The agent accustomed to handling such transactions can also explain what purchasing a hotel involves—e.g., negotiating a franchise agreement and addressing the property improvement plan (PIP) with the brands—and can provide support that will ensure the success of the property as well as the purchase transaction. “We can advise buyers on financing terms through Marcus & Millichap Capital Corp and help source the best debt options for the project.”
A former broker himself, Anthony Falor, managing director of the National Hospitality Group at Ten-X, agrees that most people—especially sellers—appreciate the value of involving “a competent brokerage firm to provide personal life support and market expertise” throughout the transaction. “There’s a general experience with the marketplace, and if that person is geographically local, he or she understands the demand generators that occur within a particular region as well as the industry in terms of pricing, cap rates, and market trends.” He also echoes Nichols in saying “conveying the sale story credibly to potential buyers is most important of all.”
However, Falor says, in recent years, the lay of the land has changed drastically, largely as a result of expanded communication—mainly through the internet—plus economic realities, which became especially apparent during the economic downturn.
“Coming out of the 2007 through the 2011 cycle, we have found new types of buyer groups. What we are finding across the board is that, in this cycle, investors have been diversifying their holdings, looking at assets that they may not have traditionally considered. The number of new crossover investors—that is, owners of other commercial real estate asset classes such as multi-family, office, retail, etc.,—who are now investing in the hospitality space is truly unprecedented.”
What Tex-X, which specializes in online transactions, brings to the table, he says, is visibility and connectivity. “Our online platform offers our customers the opportunity to find assets in any geography in any commercial discipline that makes sense for future investment. It identifies commercial real estate that may be in other silos or other commercial disciplines nationally or even internationally.”
The Ten-X platform, which is available at no charge to brokers and sellers, he says, provides a means to expand the buyer universe, while enabling buyers, sellers, and real estate professionals to transact real estate online. “Our platform enables the broker entrusted to sell his/her client’s assets a confidence level that no stone was left unturned as far as the marketing process, to expose opportunities outside those of the broker’s database of real estate property owners.”
Noting that almost 50 percent of hotel assets coming to the Ten-X platform are brought from brokers, Falor describes what he calls a great two-way relationship, “The brokers benefit from the various distribution mechanisms of qualified investors our company identifies, and we benefit from their relationships and local knowledge or expertise of that specific market.”
