Overpriced…rule of thumb…never pay more than 3 times gross for a hotel/motel. Also, use REVPAR to analyze any deal. Also, keep in mind that ALL hotels/motels have seen revenues drop by a 30% minimum in 2009. Get their YTD revenues and then call B.S. How do I know? 1. By reading the hotel industry trade rags. 2. We offer commercial loan workout and restructuring services and bank negotiated transactions, we are seeing these request for both a lot! 3. Family is a minority owner in a motel.
The other thing to be aware of is financing for hotels right now in this environment is non-existent. Even for flagged, interior corridor, and experienced operator. The traditional banks are not touching these deals, many of them are calling the notes due on borrowers to limit their exposure. How do I know this? As a private direct commercial lender, we see these deals all the time. Some we’ll finance, some we won’t.
I think this is crazy high as well. However, it depends on what cap rate you are really looking for. Clearly, based on a 10% cap rate this isn’t so hot. But if you’re willing to go with 6, maybe it’s ok. The other thing is do you have absolutely all the costs, every nickel and dime in expenses? I think you certaily need that to come up with a really solid idea of value here. If you have all the costs I’d be glad to plug them into a really nice software that I have and send you the results. It’s an excel spreadsheet that it excellent at evaluating.
But if you’re willing to go with 6, maybe it’s ok.