10 Tips for Sellinga Hotel in Today’s Market

Mark LukensSenior Vice PresidentAugust 18, 2008

Welcome!

• Current hotel transaction market is very challengingL h t l t ti l d 75 80% f 2007 • Large hotel transaction volume down 75-80% from 2007 levels

• Gap between buyer and seller expectations• 10 Tips to streamline transaction and maximize sales

proceeds in today’s market

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Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA

1. Maximize Cash Flow• Investors are looking primarily at trailing 12-month

history

• Make sure you are treating expenses properly –capitalizing vs. expensing renovation work

• "Timing" - at what point in the life cycle the hotel is being taken to market is critical to maximizing proceeds. An asset with strong in-place cash flow and with significant upside potential is the ideal candidate for sale.

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for sale.

• However, if an asset is still ramping up, it may not be the ideal time to sell, since ownership might be leaving money on the table

2. Spend Renovation Dollars Wisely –Or Not At All

• Just prior to sale is not the time to make daring design choices g g

• Any improvements should be made with the intent of having an immediate effect on the bottom line

• Some buyers want to create

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their own design/plan

Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA

3. Provide a Comprehensive and Accurate CAPEX Plan

• One of the biggest opportunities for a re-trade, CAPEX must be locked down before the asset is taken to market to maximize certainty of price

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4. Build Flexibility Into Management and Franchise Agreements, if Possible• Try to avoid long-term contracts

- especially with mediocre p ybrands

• Have “outs” in agreements, to the extent possible

• Agreements should be "owner and buyer-friendly" and have

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little to no impact upon sale of the asset

Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA

5. Build Flexibility Into Financing

• Avoid entering into financial arrangements that are onerous i.e. huge g gpre-payment penalties

• Assumable debt is very attractive in the current environment

• If debt is assumable, allow for a longer due diligence time for the buyer to

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obtain approval

6. Buy the Land, if Possible

• If the hotel is on a ground lease, buy the land, if possibleOf t t t d • Of course, you may not want to do this if you have a long term ground lease at very favorable terms

• Explore different avenues to create value in case of a ground lease: extension, buyer's right to purchase land buyer's right to negotiate terms

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land, buyer s right to negotiate terms etc.

Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA

7. Clear up any Partnership Disputes or Issues

• Make sure all partners are on board with the plan and pdecision to sell

• If possible, appoint one main decision-maker

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8. Update Property Reports• Provide Due Diligence materials up front, to

increase certainty of close and limit potential for re-trades Have reports completed by reputable national • Have reports completed by reputable, national firms

• Update Title and ALTA surveys. Get legal opinions on any thorny land use issues up front. More certainty = higher price. Focus on delivering clean title.

• Update STR report to make sure hotel

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p pinformation and hotel’s competitive set are accurate. These can raise red flags and “opportunities” during due diligence.

Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA

9. Be Realistic with Pricing• Price realistically from the start. In

today’s market you may only get once chance to convince an investor to take a close look to take a close look

• Get at least two broker's opinions of value

• Have relevant, recent comparable sales to gauge pricing

• Provide pricing guidance, but let the

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Provide pricing guidance, but let the market speak to their perception of the asset value

10. Hire a Great Broker

• Hire an advisor experienced with your property typey p p y yp

• Make sure they are up-to-date and can navigate you through the rough waters of a transaction in today’s market

• Consider a competitive bid

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process to maximize value

Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA

Case Study – Hyatt Regency Phoenix

Recently sold by JLLH• Strong historical cash flow • CAPEX plan in place CAPEX plan in place • Long-term management and franchise agreement w/Hyatt in place• JLLH sourced financing• Closed July 2008

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10 Tips for Sellinga Hotel in Today’s Market

Mark LukensSenior Vice PresidentAugust 18, 2008

Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA