What are your hotel acquisition criteria ?

Hotel room revenue multipliers are in the 4.5 to 6.0 times gross range in the Pacific Northwest versus 3.5 to 4.0 times gross until 2005. Also, there are many investors with cash waiting to jump on any opportunities that arise near any metropolitan area. How do you evaluate what is a deal worth pursuing? Below you will find some items that I assess when considering a potential acquisition:

• What is the average 3 year income trend? You can use this in conjunction with what you feel the market multiplier is to determine the purchase price.
• What is the age of the property? Generally we do not pursue properties built before 1985 in most cases.
• Is the property mismanaged and is there an upside? Efficiently run properties are currently performing at or above past historical highs making the acquisition risky.
• What upgrades are necessary to achieve a 2 to 3 diamond AAA rating.
• What are the major business draws and are they consistent? One thing to look out for would be major construction projects in the area that could have brought workers in over the past few years. This is non reoccurring business and you can not bank on these in the coming years.
• What operating expense can be reduced?
• What marketing opportunities have not been implemented? Look for online reservations systems, strong website presence with online advertising campaigns, what advertising is currently under agreement and where can you focus.
• What is the price per unit? If you are within 30% of the new construction cost per unit then you might as well build new.
• What are the occupancy and ADR levels? Is the hotels occupancy and ADR below the market?
• Hotel collocation - It is actually a positive to be located nears other franchised hotel that sell at a higher rate because you can draw from their customer base and their brands ability to draw walk in business.
• Lastly and most important is location, location and location. Does the hotel have easy access while driving on the main road, what is the visibility like and what is the access to the highway/airport/downtown like?

Overall we have been most successful in purchasing and repositioning distressed properties.