With transactions in hotel real estate escalating during 2022 and into 2023, best practices in partnering with brokers have again become topical. Sellers want to get the most out of that relationship and optimize the process of bringing their property to market and landing a great deal. LODGING recently spoke with Newport News, Virginia-based Mumford Company, a brokerage that has thrived on long-term relationships, on the occasion of its 45th anniversary. Managing Principal Steve Kirby provides insights on current trends in the brokerage space, qualities to look for in a broker, how sellers can facilitate property evaluation, branding strategies, and more. Like Managing Principal Ed James, Kirby is celebrating 40 years in the hotel business, yet both are still ambitious when it comes to growing their venerable company. “While I am based in Atlanta, we also have offices in Chicago, Dallas, and Washington, D.C., and we’re looking to expand further west,” says Kirby. Post-pandemic transactions are in full swing, and the time is ripe for many brokers to expand their national presence.
How robust is your current level of transaction activity, and what is your overall projection for 2023?
In 2022, we came roaring back, and now we have a promising pipeline of deals that are under contract. And we have a solid level of properties for sale. So, we have high hopes, but there are some headwinds out there, such as a potential recession and higher interest rates that make it hard to underwrite deals. Basically, you’re paying twice as much in debt service this year than you were this time last year. I think that will temper buyer interest. Under those terms, it’s harder to borrow at this point, because the lenders are looking much more closely at the collateral and the sponsors. But, at the same time, if investors find the right property at the right price they want, they will buy. So, we think there will be plenty of transactions this year, though not as many as last year.
Is transaction activity particularly high in any market segments?
The highest demand is for the mid-market select-service properties right now, because they’re typically the best money-makers. Regionally, the Sun Belt states have had higher transaction levels than a lot of the other areas.
What traits do you feel are indicative of a top broker?
Honesty and integrity. A go-getter but also relationship oriented. Many people turn to brokerage and are transaction oriented. However, at Mumford Company, we are a relationship-driven company. We are not solely focused on the present deal, but looking to form a relationship with both the buyer and seller so we can continue to work with them on any deals over the long haul.
What are the advantages of opting for a broker with decades of experience?
First of all, you tend to get better brand awareness. And investors know that the bigger shops typically have a better portfolio of properties for sale. You also get strong industry connections. We have relationships with buyers, franchisors, lenders, appraisers, attorneys, and consultants across the United States, which is an advantage. We try to pair up our sellers and buyers with solid third-party sources. And oftentimes, because of the relationships we’ve developed over the years, we know who to reach out to in order to help expedite PIPs, source financing, and other third-party deal requirements.
How can the seller help the broker in the property valuation phase?
Typically, the seller is going to be in the best position to provide market knowledge. If the property is in Atlanta, for example, everything is pretty much reported on in the papers and it’s easy for me to find. But if the property is in Peoria, Illinois, or Sebring, Florida, for example, there may be some local knowledge that the seller can provide. He or she may be connected through the Chamber of Commerce and know that there is a new project coming that hasn’t been officially announced and could increase the valuation. Sellers don’t always volunteer that information. For every seller, there are people who say, “Oh, they’re only selling it because the market is going down.” That’s not necessarily true; there are many different motivations for any asset.
How can the seller assist the broker during property tours?
The seller can provide a lot of information about the state of the hotel, such as the age of the roof and when it was last repaired, whether there are any warranties to be conveyed to the buyer, and other things the broker typically wouldn’t find out based on their inspection. You want to be transparent with the potential buyer on any issues or concerns when they tour the property, because the worst thing you can do is lose credibility by not sharing accurate and complete information.
Can you give an example of information that is helpful to highlight in a property listing but is sometimes overlooked?
We have added the condition of the hotel’s WiFi infrastructure. One of the biggest guest complaints in a lot of hotels is that the WiFi is slow. So, it’s more attractive to a buyer if a property already has a robust bandwidth, as opposed to the buyer having to enhance that themselves, which can be very expensive.
What should a seller consider when deciding whether to renovate before going to market?
For a sophisticated owner with multiple properties and perhaps their own construction arm, we may encourage them to go ahead and do the renovation. That’s because there are many buyers—especially post-COVID—who don’t want the headache of dealing with the high cost of labor and the supply chain issues. But it depends on the seller’s motivation for selling. Perhaps they want to part ways with their partners and get out as soon as possible. Or they may already be building another hotel and don’t want to commit any of their personal bandwidth to renovating. So instead, they sell the property at a discount. There are buyers who will see that as an opportunity: “I see the PIP estimate is $2 million? Well, I can bring in my team and we can do it for $1 million.”
It has been recommended that sellers generally wait about 30 days before dropping their price. Has that timeframe changed based on trends in the industry?
It’s changed due to technology. In the past, you needed longer to expose the property because you sent out your offer package to people and you wanted to make sure that you’ve covered the potential buyers. Now, you can communicate with 100 people in a day to let them know that it’s for sale. We encourage sellers to review all offers because there may be terms that make a lower price more acceptable, such as surety of closing. For example, you’re asking for $7 million, and the offer is $5.5 million but including a $1 million nonrefundable deposit.
Can you share any other words of wisdom for sellers?
Ensure that your broker has experience, and don’t hire a general commercial broker. It’s better to hire somebody who specializes in whatever the product type is, in this case, hotels. And stay in touch with them; if your broker is not staying in touch with you, that’s a problem. Lastly, provide feedback to the broker. I like to recap with my sellers afterward to find out what we did well and what we didn’t do well, if anything. Their suggestions for improvement are important.
Branding Advice: Brokers Can Bring an Advantage to the Seller by Evaluating Conversion Opportunities
Top brokers have strong brand awareness and can advise sellers on branding possibilities for their hotel. If a hotel is underperforming, a rebranding may bring an improvement, and the property can be marketed to buyers based on that potential. “Our first step is to look at the STR report and see what the hotel’s market penetration is,” says Steve Kirby, managing principal of Mumford Company. “For properties already doing over 100 percent occupancy and 125 percent RevPAR penetration, you’re probably not going to want to change the brand. But if, for example, you’re at 70 percent market penetration, the next thing we do is consider the reason for the subpar performance. Is it the brand, the operator, or the property’s condition?”
Assuming the brand is a weak point, the next step is to look at new branding opportunities in the market as well as local developments that can inform the choice of brand. For example, if an Amazon training facility is opening in the city, shifting to an extended-stay brand may be the right move. “We’ve had properties move both up and down the chain scale, and oftentimes that repositioning is beneficial to the new owner based on market conditions and the introduction of any new inventory,” Kirby relates.
A broker’s franchise connections can be invaluable for sellers looking to capitalize on rebranding possibilities when they go to market. “We consult with the franchisor about branding opportunities for the hotel and even ask if they know somebody that may be interested in buying the property,” says Kirby. “For example, there may be a new brand available within the same franchise family that might be a better option for the property at that time. Buyers should consider all potential brands that might work for the specific asset.”
