The hotel market poses some distinct challenges to commercial real estate advisors. Natvar Nana, a senior advisor for SVN Florida in Orlando, has been addressing those challenges for the past 15 years.
One of the issues he often faces is that hotel owners are reluctant to let the public know they’re changing hands. “Due diligence is different within the hotel market because you’re not only selling real estate, you’re selling a business that is associated with the property and the hotel employees,” said the longtime hotel and land specialist.
Nana’s services involve advising on all aspects of the commercial hotel market: contracting, funding, hotel franchise transfers or assumptions, inspections and more. In other words, he will guide the buyer through the entire due diligence process.
More than just property
Having a high level of expertise is important when dealing with this class of commercial real estate, which can entail a lot of complexity.
“The whole structure and pricing of the purchase is done not only on the value of the real estate, but it’s also done on the performance and the profitability of the business,” said Nana, who has also served as the nationwide SVN hotel advisor and hotel counsel. “The result of this is that due diligence in the hospitality market is a whole lot more extensive than it is in others.”
Such factors as building type, PIP, revenue, occupancy rate, location and overall standing of the business play a major part in closing a deal in the hospitality sector.
“Also adding to the challenges is that you’re dealing with franchised properties, because most hotels happen to be franchised products,” he said. “These properties have to go through the franchise applications in order for the business to be acquired. If the franchise is not approved, that can handicap the acquisition of the property.”
Brands dictate the pace and process of transactions
The hotel franchise application is a process that can be time-consuming because of several key steps. First, the property has to go through a new inspection on the brand’s behalf. Reports are then written up with detailed listings of proposed maintenance or repair (including an estimated cost associated with repairs) before being submitted to the buyer for review.
While these steps may seem relatively normal within the real estate industry, it gets tricky when you’re dealing specifically within the hotel market, Nana said.
“Each brand has a very detailed system involved in inspecting properties and their respective businesses,” he said.
This process can be very delicate and often a deal breaker. But it is essential to prepare and pay meticulous attention to these brand standards to ensure the correct pricing for a smooth closing. “While there are no specific pitfalls that relate to the Florida market, it’s still a taxing process because of the arduous nature of these inspections,” Nana added.
National and global franchises hold high standards that ensure the cohesive vision of the brand. The franchise agreement holds the franchisee responsible to uphold the standards to better serve the growing expectations of the consumer.
No nonsense means less stress … for all parties involved
Transparency, honesty and a commitment to integrity have been the core of Nana’s success. His “no-nonsense” approach to the industry has set him apart as a trusted advisor.
“Over the years, I have learned that one has to be extremely honest and upfront about the exact status of the property with a buyer or seller,” Nana said. “I expect that my clients are going to be straightforward with me and I show them the same courtesy.”
While hotel styles may be changing and consumer trends fluctuating, attention to detail while negotiating a deal has not. Nana can certainly attest to the importance of dedication, education and a commitment to integrity.
“There are so many moving components that exist in any transaction,” he said. “And with the due diligence being so intricate within this market, both parties need to level with each other to consummate a transaction.”