When it comes to selling a hotel, many, if not most owners and investors see the buying process as being the riskiest. Obviously, the buying process is fraught with all kinds of tensions and perils with any number of variables that can go wrong and cause the deal to fall through. Once you have successfully purchased the property, however, there are still any number of risks and hurdles to jump through to ensure you actually made a sound and profitable investment. Thus, most buyers and investors put the majority of their energy into purchasing and managing properties but tend to feel that once they are ready to sell, their risk is far more limited.
This, however, is not true.
In reality, selling a hotel can be fraught with just as many risks and potential pitfalls as buying one can be.
In every buying/ selling situation, there is a “window of vulnerability” for both parties, which starts with the seller before eventually transferring to the buyer. When you are buying a hotel, you start off with minimal risk, which slowly increases the closer you get to purchasing a hotel and within the first few years of ownership. Selling a hotel or other property, however, starts off with a great deal of risk that slowly diminishes over time until the property is sold, although there is still some degree of risk for a short period even after the property has been sold.
This is why it is so important that before you enter into a legally binding contractual obligation with a potential buyer, you thoroughly and carefully vet, investigate and screen them. Here are three key things to look for when investigating a potential buyer.
Just because a potential buyer may seem to have the means to purchase a hotel, does not necessarily mean that they genuinely have the authority to do so. In many cases, the sums of money involved in purchasing a hotel or hospitality property are great enough to have binds on how funds of that amount can be used. Again, it is important to not get into a contractually binding situation with a person or group of people that don’t stand a very strong chance of being able to follow through with the sale all the way to purchase. If a buyer has a strong reputation of solid business deals and good follow through, then you can breathe a little easier when signing on the dotted line.
It’s important to do a very thorough investigation and research as to exactly where the buyer’s funding is coming from. Among other things, it’s important to ensure that the funds will be delivered and available through safe, secure, and legal means. Just remember that if your hotel is purchased with ill-gotten gains, your hotel or property can be seized before you are paid for it, or can have the funding frozen after the fact. As a seller, it is your responsibility to do your due diligence to ensure that the person or entity you are selling to is legitimately on the up and up.
Like the old saying goes: “if it’s too good to be true, it probably is.” If you place your property on the market at a fair market value and you are offered an amount substantially above what you are asking for – or the buyer offers overly generous terms and conditions – that should be an immediate red flag.
While the standard line is “Caveat Emptor” or “Let the Buyer Beware” when it comes to selling such a valuable property as a hotel, it is equally important to observe the idea of “Caveat Venditor” – or “Let the Seller Beware.”