Hotel Deal. Thank you Ray. - Posted by Eric Evans

import · January 30, 2006, 8:05pm

Posted by edwardburn on April 03, 2006 at 17:53:26:

I am by no means an expert in the hotel field but here is an Idea from my experince in unrelated fields.

If you find a hotel you like, talk to the Managment and find out if the Gm is performing to their expectations. If not or if the position is vacant pursue the following:

Foremost you must sell yourself well for this to work.
Negotiate a wage based on the salary of the last persons salary plus a Quarterly bonus based on the profitablilty and net profit of the hotel you are managing.

They must trust you and you must trust them for this to work to both of your advantages. Make a written contract outline how profitability is determined. Get a %age of this, as much as you can negotiate. This must be agreed upon beore you start.

Manage the hotel for them at a level seldom seen. Dedicate your daytime life to making the hotel more profitable. Then as time passes you must save, pay down as much bad dept as possible. Document all the ideas you implemanted. Then when you are more financially ready you can pursue the acquisition with more experience, a proven track record for the property under your management and most of all money in the bank.

Maybe you can even negotiate minority ownership?

Hope these ideas help. Just make sure they understand it would be better to have you that their competition across the street have a dedicated Driven person as yourself.

import · January 30, 2006, 8:05pm

Hotel Deal. Thank you Ray. - Posted by Eric Evans

Posted by Eric Evans on January 30, 2006 at 21:05:36:

Well I am here posting this to see if any of the Guru’s have some words of wisdom for me. I love this site and have been reading it for a little over 2 years. Ray posted a response to my posting 2 years ago on the possiblility of owning my own hotel that was just awesome and very motivating to say the least. Well I still have not purchased my own hotel, came very close, but none yet. I will try to keep this as short as possible. I am looking for more advice and will tell briefly what happened with my first push to buy a hotel.

I had the deal lined up, had a consultant helping me, had a broker helping and a great seller working to help a first time buyer. Hotel price was 2.1M and I was putting up 50K and a silent investor putting up 450K. I would get 15% ownership and Manage the property for a salary essentially. Also got to live in a nice home on the property, very nice home with indoor pool and very private from the hotel. It was on 15 acres of land. Had a car wash, restaurant and some sotrage units on the property also included in the deal. Cash flow was great. I had managed hotels for 7 years at this point and had a lot of encouragement form all the above listed parties and advice from the owners of the hotel I was currently managing. I was selling my home for my equity and the 50K of mine. Well we had a signed LOI and I had done my due dilligence and we were in the process of preparing the contract with the attornies. Consultant was preparing the loan package for the SBA lenders and I guess he decided this was the time to pull my credit. Mind you I pointed out that from the start I felt it could be an issue and he assured me it was not with such a strong investor backing me. My investor was worth hundreds of millions and could have wrote a personal check for the property. Well you guessed it, all of a sudden my credit was an issue. No way he said the deal would work. Said investor would buy property with me as a manager possibly, but not certain. Needless to say this was a hugh blow to my life, ego and my family. I had already quit my current job, sold my home and was devistated to say the least.

Now current day, I am divorced, left the hotel business, for about a year now and have no cash to work with. I have been trying to get my life back on track and want to try and make this work again somehow. I am looking at a few hotels I like alot. I want to have the broker talk to the owners for me. I know a purchase is very unlikely. I even thought of a Lease with an Option to buy. Maybe in 5 years, but can not think of how I can make the numbers work for this, especially to make it in the beginning with having to have everything switched to me for the operational aspects and the costs associated with this. These hotels are branded name hotels and licensing will be costly also. Any suggestions here? The next idea I was thinking of is to just ask them if they will let me take over as a manager and as part of my compensation, I earn ownership of a certain period and then hopefully refi out or sell later as a partner with a little equity to cash out and try a purchase elsewhere. Any suggestions here?

Then I thought about hard money, I have been looking at and actually approved for some hard money programs do SFH home rehabs and flips. Just still looking for a property that the numbers will work on. Just not sure I could do one of these hotels for 65-75% LTV. Dont think I could get them that cheap. Might be able to get the owners to carry a second to help make up the difference, but the debt service would be tough if it would work at all. Hotel appraisals are more a matter of opinion then property value with comps. Average cost of property is usually based on anywhere from 2.5-3.3 times the annual gross room revenues. Where exactly is based on a lot of factors like age, market, occupancy, ADR and a bunch of other stuff.

So along with the questions I have already posed, what does someone think would be my best option at this point? I want to approach these owners with the attitude of wanting ownership and not have a traditional GM position with them, but more of a partner stance in the operations. I know I may have to build a repuatation with them, but what would be the best way to approach the owners with a proposal. Sorry for the length. I appreciate any and all advice on any aspect of my post. Thanks very much.

Eric Evans