Hotel Assessment: Example

On Friday, I had a call from a prospective buyer looking to receive some help on whether to move forward with the purchase of a property or not. Looking at the financial information available can be a great starting point when judging a property, but it can be difficult to get a sense of how well the property could be doing without some additional homework. Below is a snapshot assessment of the property that I put together in a few hours. It has some information about how the guests feel about the property, how it compares to the market, potential changes and the growth that may exist. It is not meant to be a detailed business plan on how to make things happen, but to give ideas on what could be done. In the case of this Inn, there are definite areas of weakness that can be fixed. This won't happen with all properties, of course, since some are excelling in all areas.

If you are interested, I put together these reports for free. Contact Me and be ready to provide a little information (the property name, location, asking price, your background, and so forth.)

Inn - Initial Assessment

At first glance, this property is full of potential. The revenues are slowly climbing up, the rates are in line with the competition in the immediate area, and the website is an untapped market for increased growth. Looking through the TripAdvisor reviews, there are a few negatives that need to be addressed in order to sustain this growth, however.

TripAdvisor

3.5 Stars 82 Reviews

The reviews are fairly balanced in nature. 11 of them were Excellent. 39 Very Good. 16 Average. 8 Poor, 8 Terrible.

I only read through the past two years so some of the problems may have been fixed, but here are some of the negatives:

  • Breakfast was poor quality or very limited in number
  • Shady business practices (getting charged for a broken window or other miscellaneous charges showing up on the receipt)
  • Door locks weren't locking properly (late November 2011)
  • Handicap accessible rooms are not very accessible (can't get past the doorway in the bathroom)
  • Sound proofing in the rooms can be terrible on weekends
  • No rapport with the owner/manager

Since the inn is rather limited in its services, the positives are equally limited in quantity:

  • Location is one of the first things people mention.
  • Value given by the lower cost compared to larger hotels
  • Some people loved the beds (Tempur-pedic)

No one loved the continental breakfast, didn't read anything about the pool or wireless internet. Wireless internet is usually the biggest complaint about a property of any size so this is a positive. I was a bit surprised about the pool area not being mentioned. The general impression I get from the people posting reviews is they only stayed 1 night, arrived late, and were more leisure travellers than business.

Website and Online Bookings

The website was developed by the same company that did a lot of the other motel/hotels in the area that are independent. The design is rather basic and could use improvement. It also hasn't been updated. There are links for virtual tours that lead to pages saying, "Coming soon" or a calendar that is blank. Lots of room for improvement here. There are hardly any pictures of the rooms even which is one of the main reasons why people go to the website in the first place. The cost involved can range from $3,000–5,000 depending on the design firm.

I did a quick look around online and found that the Inn is not very active with bookings. The main site to book online (apart from the website) is Booking.com. Expedia is one of the biggest sites for revenue so I was surprised that they weren't even listed. Not being on Expedia is a sign that they may not be active in a GDS (global distribution system) which is how travel agents find their hotels, plus Expedia, Travelocity, Hotwire, etc.

To get onto a GDS would require upgrading the booking engine on the site and hotel (most likely). My preferred vendor is usually around $250 a month or less, plus commissions. With my main client, upgrading their GDS brought in an extra $100,000 a year without doing anything else, so it's something to look into if the purchase goes through.

Competitive Market

I did a quick scan of the other motels/inns that are similar in nature to the Inn (e.g., limited service, under 90 rooms) and it matches up well from a price point. A lot of the competition has airport shuttle service, fitness centre, free breakfast, and updated rooms.

The impression I get from looking at the hotels' websites and pictures is that the competitive market has a sense of identity, whereas the Inn doesn't. This is probably because of the owner who doesn't care much about building a business. There are quite a few options here in terms of creating a brand for the Inn, which will help build some loyalty with returning guests and have a reputation within Salt Lake City. It can be as simple as changing the artwork in the rooms to be the same style to more expensive as replacing a lot of furniture in the hotel. Lots of ideas floating around in my head after just seeing the front of the building.

In terms of rates, the Inn's rates are in line with the competition. There is a lot of fluctuation happening depending on the day, probably because of different conventions and such. Rates are generally $10 below the competition, which makes sense if the services remain limited. By increasing the quality of services available, the rates can easily go up. Some ideas would be microwaves and mini-fridges in all the rooms, increased speed and quality of wireless internet, putting in a fitness room in a less desirable room (one by the elevator.)

The Business

I did a search to look at the price of hotels sold in previous years in Salt Lake City and discovered that the Inn was purchased in March 2007 for a price in the 3–3.5 million range. This helps explain the dip in revenues for 2010. A lot of the business for 2008–09 was most likely built upon previous arrangements with the previous owner/manager. If they had contracts with companies that lapsed or couldn't match certain services that the property had in the past, this could easily add up to $300,000+ drop. I am not sure if there are other reasons for the drop, like whether the entire market dropped.

One option is to purchase the Hotel Horizons report for Salt Lake City. It costs $500, but contains 5 years worth of information about the market in Salt Lake City. Occupancy, ADR and RevPAR (Revenue per available room).

For the numbers you do have, I can project some basic growth:

2012: 23 rooms (per day) @ $85.00 ADR = $700,000

2013: 25 rooms (per day) @ $87.00 ADR = $800,000

2014: 26 rooms (per day) @ $90.00 ADR = $854,000

2015: 30 rooms (per day) @ $92.00 ADR = $1,000,000

The combined effort of upgrading the website, installing a new booking engine, and getting connected to a GDS will be a huge, immediate impact to the operation. The remainder of the year can be spent building relationships for future years, putting rate structures in place, and learning more about the quirks at the hotel that need repaired.

In 2014, there should be a few more contracts or loyalty in place to help build some growth. Any renovation plans should occur to improve the facility (furniture, decoration, exterior). Word will spread around and in 2015, the fruits of those labours should really shine through.

If the inn was producing revenues of $700,000+ already with little care to detail, revenues should easily increase if you have people in place that deeply care about the guests entering the hotel. The costs to reach that amount can be minor or major depending on the direction you would like to take the property (focused more on business, leisure, or a combination of the two).

The asking price seems slightly higher than some other properties I found that sold last year. In August, a slightly newer property of 60 rooms sold for 30–35,000 per room. The hotels were being sold around 55,000 per room. Depending on fast the owner wants to sell, you may be able to offer 45,000 per room (2.7 million) and finalize a deal around 49,000 per room (2.94 million).

One thing I forgot to ask on the phone is whether the owner has been putting down a management fee of some kind, paying himself, on the profit/loss statement. The absence of laundry wages may be accounted for there. If not, it's another reason to project a slightly lower asking price to account for those additional services. I'm not sure what the minimum wage is like there, but I would estimate laundry wage to be at least $20,000. A Front Desk Supervisor would be $25–30,000, at least.

I hope all of this has been useful to you. Please get in touch if you believe you will carry forward with this property or if you'd like to look for some alternatives in the region. I would be more than happy to assist you in finding something reasonable for longterm growth.