Holiday Inn Express – Coldwater, Michigan
Built in 1999, this hotel was owned and operated by its original developer prior to its sale, and was located 60 miles north of Fort Wayne, Indiana and 70 miles south of Lansing, Michigan. The hotel benefited from excellent interstate visibility along I-69, between I-80/90 and I-94. As an added advantage, Coldwater was home to a Wal-Mart distribution center.
Hotel Owner Objective
The hotel owner was seeking to sell the hotel at a maximized value in order to pursue additional development opportunities. Because the hotel was producing a significant return (as it had since its opening), the owner was not under any pressure to sell at a reduced value.
From a hotel buyer’s perspective, the property had many desirable features, but it also had its challenges. The hotel’s excellent location within the market was offset by the fact that the market was not considered to have high barriers to entry, with several other franchise opportunities available. The property’s NOI was also significant, but was considered to be maximized. Paying a premium could therefore result in a diminished cash-on-cash return if the NOI were to decrease. The hotel also came with the possibility of a Holiday Inn Express Product Improvement Plan (PIP) that could have a significant effect on the buyer’s total project cost.
Through a hotel marketing approach that targeted Midwestern limited-service hotel owners and regional hotel management/ownership companies, Hotel Source, was able to attract moderate buyer interest through the initial marketing materials. However, this initial interest was less than expected.
Hotel Source responded by initiating a targeted, hands-on search for hotel buyers that included calls to ownership of every Holiday Inn Express owner in the Midwest. Hotel Source also contacted more than half of the Holiday Inn Express owners on the West Coast in an effort to attract a current hotel owner looking to expand. Another key part of Hotel Source’s strategy was using email communication to periodically reintroduce the property to the hotel buying market.
As a result of these efforts, Hotel Source was able to create a bidding contest between numerous qualified hotel buyer groups who felt there was upside to the property through revenue growth and expense minimization.
Hotel Source advised the hotel owner of buyer concerns about a forthcoming Holiday Inn Express PIP. In order to maximize price, the owner agreed to place a limit on the buyer’s financial exposure to the PIP cost as part of the purchase and sale agreement. With this objection removed, the buyer was able to move forward.
Once the contract was executed, the owner and Hotel Source assisted the hotel buyer with due diligence items, including the franchise license. The total PIP cost was minimized, and the buyer was able to keep the total project cost within budget, while the seller did not have any financial obligations regarding the PIP.
The property sold at 93% of the list price, at a 12.2% cap rate, a 3.44 room revenue multiplier, and $66,250 per room. The hotel owner received a price they were satisfied with that will be used as equity for further hotel development, and the buyer received a well-located property in excellent condition that was generating a significant income and return. To the buyer’s delight, the hotel was at full capacity on the night of closing.
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