Maintaining confidentiality for a family business:
Best Western Harborside –
Port Washington, WI
Property: Best Western Harborside
Market: Port Washington, Wisconsin
Property Attributes
Best Western Harborside was developed by a local family that owned and operated a successful restaurant and bar for many years. The family constructed a 60-unit hotel adjacent to their restaurant in 1974, which they later expanded to 96 rooms in 1993. The new wing contained guestrooms which were far more spacious than the original rooms and offered upgraded amenities. Although the guestroom attributes were much different, the new and original wings were connected seamlessly.
Located in Port Washington, Wisconsin, just 20 miles north of Milwaukee and three miles off Interstate 43, this five-story hotel overlooked Lake Michigan, the downtown marina, and the shopping district. It featured a breakfast room, bar, indoor swimming pool, 1,200 square-foot meeting space, and game room.
After the hotel's new wing opened in 1993, the owner, who had managed the property, went into semi-retirement for health reasons and relinquished the day-to-day operations to his son. Under new management, the hotel's bottom line improved substantially by reducing expenses, but the new operator did little to market the property to the business community who could provide corporate demand. Instead, management relied primarily on print advertising to lure leisure traffic.
| Year 1 | |
| A.D.R. | $77.60 |
| Occupancy | 54.1% |
| RevPar | $46.18 |
| Room Revenue | $1,473,047 |
| Total Revenue | $1,618,109 |
| NOI | $756,487 |
*NOI expressed after deductions for FF&E Reserve and Management Fees.
Owner Objective
When the owner initially contacted Hotel Source, Inc., they had been presented with an offer of $4,800,000 by a local real estate broker on behalf of a buyer. Not sure if the price was a true indication of value or if the buyer had the ability to consummate the sale, the owner desired an objective opinion of value for their hotel. Based on this opinion and their own expectations, they would decide whether to hold onto the property or sell.
Hotel Source was among three real estate brokerage firms to present an Opinion of Value and marketing proposal. Hotel Source reviewed the hotel's physical attributes, condition, operations, nearby hotels, and the owner's perception of market demand. After analyzing this information, Hotel Source viewed the Best Western Harborside as an opportune acquisition for a savvy hotel company with strong marketing resources. The hotel had great untapped potential, being in a prized location with high barriers to entry.
The property did, however, present many challenges. It was unattractive to many buyers because it was not near an interstate, could not be reflagged into a more upscale brand, was in tired condition, had evidence of obsolescence, and did not contain enough guest rooms or meeting space to interest most buyers. In addition, the market demand generators could not be easily quantified.
The Opinion of Value to ownership called for a marketing price of $5,500,000. The marketing plan was to offer the asset to a targeted audience who possessed the desire and wherewithal to acquire this type of lodging property, and who would be able to see and understand the underlying potential. This analysis caught the interest of the owner and Hotel Source was engaged for the assignment.
Sales/Marketing Process
Shortly after finalizing collateral and speaking with a select group of the most likely buyers, Hotel Source scheduled inspections. The heightened interest of these buyers led to offers within two weeks of taking the property to market. Each group was then analyzed and diligence of the candidates was performed to ascertain their ability to acquire the property. Based upon these findings, a Wisconsin-based regional hotel company was selected as the front runner. They best understood the upside and were able to articulate a plan on how to exploit this opportunity. This group was believed to be the most qualified for the property, with the greatest likelihood of closing. The hotel was sold to this group for $5,400,000, more than 98% of the listing price. This was accomplished within a five-month time frame.
Negotiations
As is the case with many family-owned businesses, the decision to sell was not only financial but emotional as well. Hotel Source was sensitive to these issues and the owner was pleased with the care and attention their prized asset received. During the due diligence process, many issues were raised, including environmental problems and unexpected delays from the lender. Throughout the entire process both the buyer and seller were kept abreast of the latest changes, and they were assisted in resolving their differences.
Conclusion
The seller of the Best Western Harborside was delighted by the price received because it was higher than any other firm could have predicted. The buyer was thrilled to add this lakefront property to their portfolio.