Reasonable commercial investment before corona virus? Thoughts from more experienced members
[{"id": "gdcarqi", "text": "Hopefully someone will chime in with more hotel experience than myself, but what is the NOI over the last 6 months? A hotel located near an airport is unlikely to be doing well during COVID so I doubt it is a 19% cap on recent performance. Once you have current NOI, I\u2019d talk to a lender as that will heavily impact loan proceeds.\n\nA 19% cap on loopnet that has been posted for 5 months flashes a lot of warning signs in my mind, but take it with a grain of salt as I\u2019m not a hotel guy.", "replies": [{"id": "gdcy663", "text": "Take Anything posted on loopnet with a grain of salt", "replies": [], "depth": 2}], "depth": 1}, {"id": "gdcenbj", "text": "A true 19.12 cap rate is amazing. Review the financials, you'll find out that this is probably not the case.\n\nAlso, LoopNet is very bad about keeping their searches up to date, I would also confirm to see if this is still available.", "replies": [{"id": "gdd8srg", "text": "My guess is the cap is based on t12 from a while ago picking up pre-covid numbers. I\u2019d also guess that the pro forma cap is a hell of a lot lower than that", "replies": [], "depth": 2}], "depth": 1}, {"id": "gdczm8n", "text": "Hospitality is one of those property types where buying them is a lot more like buying a business than buying a building. I wouldn't want to get into a business I know nothing about right now. Returns are going to be lower in more \"hands-off\" property types, but you're way less likely to lose your shirt, too.", "replies": [], "depth": 1}, {"id": "gdd5adt", "text": "I spent a ton of time doing distressed hotels earlier in my career. (1) t12 hotel NOI iS BS, you need to look at booking curve (pace reports). Given this is a BW in middle of nowhere it\u2019s probably mostly 45 day transient business. I don\u2019t see any reference to group facilities which sucks because you can\u2019t get rate compression without group bookings. (2) BW will 100% PIP you when you buy it. What\u2019s the scope for a new BW PIP? What will it cost? (3) I don\u2019t have to get a PCA to tell you that fucker is full of mold. Mold loves VWC in bathrooms and ice rooms of shitty old hotels. But an environmental insurance policy, worth its weight in gold. (4) how much time is left on the franchise agreement (back to point 2)? Are you at the end of it and BW won\u2019t renew because you\u2019re an old gen hotel that they\u2019re phasing out? Will you end up with an unbranded low-ADR hotel where people go to smoke meth with their paid for lady friends? (5) what are the demand drivers for leisure / transient? Can\u2019t tell what they are. \n\nHard pass, ton of work for not a lot of money and lots and lots of risk. Oh an good luck getting a loan for a hotel right now it would have been tough as a first time operator impossible now that we\u2019re in COVID and every lender and their cousin is trying to dump hospitality loans off their books. \n\nHard pass, my $0.002\n\nEdit - also just saw you\u2019re assuming you can get 75% LTC, not happening right now for hotels unless you\u2019re like pledging your first born with a full recourse guarantee\n\nEdit 2 - also to add to hit the NOI guidance listed you\u2019d need REVPAR of like $55 which based off of their current list rates implies an occupancy of 70%. I don\u2019t know about you but i wouldn\u2019t make the bet that I can sell 40 rooms a night every night all year long in Del Rio, Texas. No dining facilities / ancillary revenue so you need to make it all up on the nightly sales.", "replies": [{"id": "gddb1gr", "text": "Thanks for the insightful response. On a separate note: how would you suggest finding and contacting the lenders you mention looking to get hospitality loans off their books? A group of colleagues and I invest in NPL's  in the $1-10mm in UPB range, get them reperforming if at all possible, then exit. We've bought loans from auction but would like to make relationships with some lenders so we can \"see their books\" instead of relying on waiting until stuff goes to auction. Cold calling/emailing has only gotten us so far. Dealing with cap markets brokers (the ones running auctions) has not been fruitful. Thanks in advance. PS - this is my first post ever on reddit so don't be too hard on me!!!", "replies": [{"id": "gde25je", "text": "That small stuff is getting sold on the exchanges. Look to debt-x, auction.com (or whatever it\u2019s called now), tenx. That tends to be the last stop for small balance loans that the CLOs / hedge funds are liquidating. Crexi I think has that stuff (I\u2019ve heard) but candidly I don\u2019t know anything about their platform. \n\nAnything in that balance range is going to be servicer / receiver directed sales where they\u2019re just gunning to move it off the books, and it can be a crap shoot as to how it\u2019s sold. You Could also just cold call the debt sale groups at the big shops and ask them to be put on the mailing list. \n\nHonestly though outside of the exchanges it\u2019s tough, I just sold a bad loan in trust I\u2019m DCH on - small balance niche real estate. The receiver hired a national practice for the loan sale driven primarily due to relationship with my firm, and that was a \u201ctrue\u201d brokered sale.", "replies": [{"id": "gde26e2", "text": "**I found links in your comment that were not hyperlinked:**\n\n* [auction.com](https://auction.com)\n\n*I did the honors for you.*\n\n***\n\n^[delete](https://www.reddit.com/message/compose?to=%2Fu%2FLinkifyBot&amp;subject=delete%20gde25je&amp;message=Click%20the%20send%20button%20to%20delete%20the%20false%20positive.) ^| ^[information](https://np.reddit.com/u/LinkifyBot/comments/gkkf7p) ^| ^&lt;3", "replies": [], "depth": 4}, {"id": "gdes914", "text": "Awesome, thanks so much for the advice.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "ge3skul", "text": "Best western typically renew the franchise annually", "replies": [{"id": "ge3sqqj", "text": "They do annual franchise agreements? That sounds awful, get dropped like a rock if your brand audit sucks or a developer wants to put up a brand new shiny one next door....", "replies": [{"id": "ge3sy6q", "text": "It\u2019s typically a ten year agreement, but each side has the ability to terminate annually. From the lender point of view, we won\u2019t lend on a BW because of that", "replies": [{"id": "ge3uf53", "text": "Terminate no penalty? Marriot &amp; Hilton have outs too in the franchise agreement but with significant liquidated damages for owner and franchisor can get out only if like really really bad stuff happens and owner (or lender if it\u2019s a receiver deal) doesn\u2019t work to cure.... \n\nThat sounds like a terrible arrangement though for the owner to only get 10 years and have the brand elect to pull at anytime.", "replies": [], "depth": 5}], "depth": 4}, {"id": "geb9pbv", "text": "Best Western is not a FRANCHISE. They are a MEMBERSHIP. As a Member/Owner, you have a annual agreement, however it is entirely up to the member to renew or not....Not BW. The only case where BW can remove you is if you do not maintain your Quality Assurance/Brand Standards.", "replies": [{"id": "gebb58j", "text": "Thank you for the clarification- I appreciate it.", "replies": [], "depth": 5}, {"id": "gebcakw", "text": "Actually sorry for follow up but having never invested in that space, what\u2019s the BW pitch / what do brand economics look like? What\u2019s the advantage to branding BW against Motel 6 or one of the other economy flags? Are like BW, M6, econolodge all operating through this annual license arrangement structure? Can BW even PIP you so long as you meet the annual QA?", "replies": [{"id": "gebdvic", "text": "The difference comes down to what kind of ADR/Occupancy can you obtain with a BW vs Motel 6. 90% of the time your average BW will operate with a higher cash flow than a Motel 6/Knights Inn/ Days Inn...etc. \n\nBW is the only brand that is a Membership, the rest are standard Franchises with Franchise Agreements. \n\nWhile other brands will give you a \"Change of Ownership PIP\", BW does not do that. They have what's called a \"Design Review\" that takes place every couple years. The current owner could have completed his, or you could get it  a month after closing. \n\nThe Application Fees are also different. BW application for a transfer is about $30k (I think... the just changed it). Wyndham is $35,000. If you look at Hilton hotels (Hampton Inn, Hilton Garden, Doubletree) those Application fees are upwards of $175,000.\n\n&amp;#x200B;\n\nHappy to answer any more questions you might have.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gder5k4", "text": "Willing to help in anyway. If you didn't notice by my username , but my group owns limited service hotels. It's a great asset class and the returns are very attractive if run efficiently. Some of the comments above are correct. The biggest piece to buying hotels is to understand the franchise model. One minute your on top of the world and the next your hilton is a motel 6 doing half the business you used to do. PM me if you want more details, always willing to help those looking learn.", "replies": [], "depth": 1}, {"id": "geb9gst", "text": "Hotel Broker here... This property is listed with my firm (Marcus &amp; Millichap). I'm happy to answer specific questions via private message.", "replies": [], "depth": 1}]