Should You Sell, Buy or Hold

Sell Now?

In the current changing economy, the decision to sell, buy or hold is based on a number of different conditions specific to each property. There currently is about a 75 to 100 basis point difference between the buyer and seller, which is normal when the economy slows. HBI brokers expect that gap to narrow at the expense of the seller if the economy continues to soften.

Transactions are taking longer to complete, due to a more difficult financing climate. Sellers can expect a transaction to take 30 to 90 days longer than the norm of approximately six months to sell a hotel from listing to closing. If an owner has a compelling reason, such as a major product improvement plan coming up, refinancing issues or the threat of major new competition, this is likely the best time to sell, in the next 12 to 18 months.

Buy Now?

The credit crunch meltdown has impacted the financing market. Higher equity requirements, now in the 25 to 30 percent range, are common. However, experienced owners with a proven operating track record still have little difficulty obtaining mortgages. Local banks, especially if they have an established relationship with the owner, currently are the best source. SBA loans also are available for deals under $10 million to $12 million. Interest rates remain at very attractive rates from a historical perspective. However, lenders are seeking more documentation. Personal guarantees are becoming more common.

The financing markets have driven a lot of buyers to the sidelines. As a result, there is less competition for properties. Buyers with cash or good lines of credit should seize the opportunity to buy during this window of opportunity. If the deal you are considering makes sense in today’s market, then you should think about buying one or more hotels per year. Five years from now, you will own an additional five to 10 hotels with much higher values and be in a position to never look back.

Hold Now?

Owners who do not have a compelling reason to sell should consider all the factors involved. Interest rates are at near historic lows, making transactions easier to pencil out and create lower cap rates. In a sluggish economy, buyers should determine if there are other higher return investment opportunities. If you’re on the fence, contact a broker who specializes in hotels and get an opinion of value, as well as insights into your local market conditions. It will help you make a more informed decision and probably help you sleep more soundly.