A continuation of the hotel sales and acquisition process.

Last month, we provided you with an in depth explanation of the first half of the acquisition process. Today we’re going to fill in those remaining steps to give you a full, overarching picture of the hotel sales process and how it works.

If you haven’t already, head over to read part one in our blog series on the acquisition process and then continue on with the final steps below.

Step 4 – In Depth Due Diligence for Hotel Sales

Extensive due diligence occurs after the purchase agreement is in place, and much of it will be directed by your lender. This process includes analyzing financial statements and future forecasts, reviewing all contracts and legal protections and a thorough staff review.

Many motels and hotels are pre-established businesses with loyal guests and a full staff in house. Following the acquisition, it will be your decision as to whether you clean house or keep the staff on hand. You may also need to make some renovations, or perhaps you have an entirely new and unique design planned for the building. Just keep in mind that serious construction projects may require a short-term closing of certain areas or the entire hotel property.

If you are purchasing a hotel franchise location, you will need to contact the franchisor early in the due diligence process to request a Franchise Disclosure Document (FDD). Doing so will ensure you meet any required timelines prior to the closing of the sale.

Step 5 – Securing Financing

When it comes to hotel sales, securing financing is a very important step. This process incorporates many different facets, and will require you to make a number of financial decisions. You will need to determine the type of loan you need, the lender you will work with, choose an appropriate and realistic financing option, and then actually apply and get approved for the loan.

Your down payment should be 20-25% of the property’s purchase price. A higher loan amount means higher interest, so most buyers want to finance the least amount possible. Additionally, there are several different kinds of loans available for hotel sales, including conventional loans and SBA (Small Business Administration) Loan Programs, among others.

Hotel buyers also have the option of choosing a bank lender or other alternative lender. Many choose to apply with more than one lender, which we recommend. If this is your first experience with hotel sales, you may not have a preferred lender in mind. In that case, our hotel brokers at Southeast International are happy to recommend a lender that will offer quick approval or denial.

Once you choose a lender, we will also assist you in collecting the required documentation from the seller, but you will be responsible for meeting any requirements specified by your lender. You will also need to review the title commitment or abstract update (depending on the state). Additionally, after all franchise fees have been paid and you have received a letter of commitment from your lender, they will order the appraisal and environmental inspections.

While your interest rates and financing options will vary based on the lender you choose and your credit history, your hotel broker will help you navigate the financing process and communicate with your lender to streamline the process.

Step 6 – Finalizing the Purchase

To finalize the purchase of your hotel, you will need to establish ownership entity. If you are not a franchise, and instead are establishing a corporation or LLC, we highly recommend seeking the assistance of a reputable business attorney.

As an (almost) hotel owner, you will also need to apply for any and all applicable operating licenses and permits and set up accounts with sales and occupancy taxing entities, as well as banking and merchant service accounts for credit card processing.

During the pre-closing process, the seller will be contacting all utility service providers to cancel any ongoing services. It is then your job to contact those providers to transfer utility services from the seller to you.

Once you secure your insurance binder, contact all utility service providers to transfer services, and sign all closing documents, you will finally be able to take possession of your new hotel.

While the acquisition process for hotel sales can sometimes be a lengthy one, here at Southeast International, we pledge to assist you from start to finish and answer any questions you have along the way.

DISCLAIMER:  This list is intended as a guideline and should not be construed as all-inclusive of the steps needed prior to closing of your purchase.