Hotels Acquisition
I have a call with HR about a hotel acquisitions job. Company deals in smaller, boutique properties. I have limited experience with hotels (mostly deal with your standard Core investments) but know that occupancy, daily rate, RevPar, and total price per key are important. If anyone has other important metrics or sites to research, that would be great. This forum usually has someone with good experience and has always been helpful.
Rooms revenue multiplier. A way to comp value for non-instututional limited service product when you may or may not be able to trust expenses. Ie a random tertiary HIE maybe should trade at a 3.5x rooms revenue multiple rather than a cap rate since expenses may be suspect depending on who's running what thru where. A hotel expert here could help explain this more than I can from my dumb lender box.
Edit: just realized probably not too relevant for boutiquey stuff. But hey why not throw out the ol rrm during the interview anyways.
Very cool idea. thanks!
Adventures in CRE has a great hotel model on their website with accompanying videos. Hope this helps. https://www.adventuresincre.com/hotel-valuation-model/
Perfect, this will be helpful to look through. Thank you.
Before you can buy a hotel, you obviously have to acquire the land for the hotel. Keep in mind that to get a building permit you must buy all lots in the same group.
Where people get confused is when you need 4 houses first, before you can initiate construction of the hotel property. Each property in the same lot must also have 4 houses before you can legally initiate construction of a hotel. The stupid thing is that hotels and houses usually cost the same price. With costs ranging from $50 to $200. Meaning that all in, you will spend $700 to $2600 simply to construct one hotel.
Depending on location, a hotel could yield anywhere from $250 to $2000 per rent, so your upfront cost are deep, but the IRR is generally high enough to make it worth it.
Thanks. I am not sure if these guys are developing or remodeling existing properties yet. But I will incorporate into my research.
It's a Monopoly reference, like the board game. I'm not sure if you were just being a good sport but definitely do not look further into this concept unless it's family game night or something
HVS is a great resource for hotel specific information.
You probably know this but just to err on the safe side:
Your flag (brand) are just like a property management company. They take a % fee for running the place.
The flags may also pay you as an incentive to run your asset. These fees can be substantial.
Brands have so many standards it's really dumb. Not sure if it'll affect you much, but might be worth knowing.
If you have questions on construction price feel free to PM me. The company I work for builds hotels and apartments.
You should become well versed with industry metrics. ADR x Occ= RevPAR is a must.
Since you will be in acquisitions, become familiar with the Smith and Travel Research Reports aka STR reports. You.may be able to find an actual report on a brokerage site that sells hotels. They have annual, weekly, and daily. They provide with with the essential metrics, listed above and the year over year and month over month changes. As a percentage change. Also become familiar with how comp sets work. And the index of the KPI. STR also provides you with the supply and demand reports for you area and segments.
You should also research Net Promoter Score also referred to NPS. It is a essentially the standard for quantifying guest reviews.
Learn about distribution channels. How dependent is hotels on internet vs direct bookings. Such as Online Travel Agents(OTAs) vs traditional agents. Opaque rates.
There are many more KPI that you should become familiar with, but can not remember all of them. But look at GOP PAR, TrevPAR. It's a pretty deep segment. Googling the provided info should be able to provide you with enough info to keep you busy.
Find as many STR reports as you can and understand everything in it.
I specialized in hotel valuation during my appraisal days, this breakdown I wrote to another user going into hotel acquisitions would probably be helpful for you:
https://www.wallstreetoasis.com/forums/transitioning-from-buyside-am-to…</a">https://www.wallstreetoasis.com/forums/transitioning-from-buyside-am-to…
Very cool, lot's of good detail. Thanks!
RevPAR x 1,000 for hotel value per key on limited service hotels.
Many will disagree with me, but that's ok.
$150 RevPAR 85% occ. x 365 = $46,500 25% margin = $11,500 8% cap rate = $145,000
Boom. Just taught you how to value a limited service hotel.
Agree on the overall approach, hospitality is a 30% of my business. I would use a 30-40% NCF margin though for limited service hotlels. 20-30% for full service My rough guidelines for expenses are 20% min for room expenses, management, marketing, franchise (MMF) is 10-15%, G&A is 7-8%.
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