by Andrew Morgan - QTHB
06th June, 2019
Tips for Selling Motels
It all comes down to presentation. Presentation of the physical asset, presentation of the financial data, and presentation of how the motel business is offered to the market.
In 24 years of selling motels I have never seen potential buyers lining the door of a dilapidated and run-down motel property, trying to outbid other buyers. I have also never seen potential buyers saying that they want to buy a motel that is a “renovator’s delight”. The motel market is not the residential market, where investors can buy a rundown house for the value of the land, on a five percent deposit and once in there, they can do a sub-standard, home-made approach at renovation and then sell it on for a significant capital gain, just like the television shows would have us believe.
As we know, there is a price point for everything but for a poorly presented motel property, it will always be low. Not that dissimilar from a run-down house selling for its land value only.
So, let’s start with the presentation of your financial data and documentation. Ensuring that you have all the necessary documentation/information available in an accurate, and well-presented format that a buyer should reasonably expect, is paramount. Prior to offering a motel to the market many items can be attended to and certain information pre-prepared.
Some of these things include but are not limited to:
- Accountant’s profit and loss statements – three years figures if available is generally requested by a buyer. All other items aside, a motel’s value is a direct reflection of its profitability. This cannot be understated.
- Plant and equipment list – a comprehensive list of all the chattels that will be sold with the business e.g. beds, televisions, fridges, kitchen equipment, etc. Exclude any items on lease or rental agreements.
- Copies of lease or rental agreements – chattels under lease or road signage agreements, garbage removal, etc
- Lease document - if the business is a leasehold offering, not inclusive of the land and buildings. Include all Form 13 amendments over the years for said lease.
- Occupancy rates – A comprehensive record per month for the last three years if available.
- Monthly income split by department – per month for the last three years if available e.g. Accommodation, restaurant, bar, etc.
- Current tariff schedule - and the last time they were increased and by how much.
- Property rates notice – Copies of the last two or three received.
- A list of recent property improvements – Details of any refurbishment items or large repair and maintenance items.
- Agreements - Copies of any agreements with external parties such as chain affiliations, service providers, booking agencies, etc.
- General information – A breakdown of the day-to-day operation of the business such as the booking system, social media, office hours, employee details, etc.
- Please be aware that it’s not about making this information available. There is a very big difference between presenting it appropriately and not. The handwritten figures on a bar coaster is an extreme example, but making sure that the information is clear and appeals to the reader is important, as opposed to handing over vague records and hoping the reader will be able to interpret the data.
Secondly, and surely the most obvious, one needs to address the actual, physical presentation of the assets including the chattels, land and buildings.
- Motels with a high-quality presentation always achieves a higher sale value. To ensure that you maximise the sale price of a motel it is imperative that it presents as well as it can upon inspection by an interested buyer. Small items often make all the difference such as small repairs and maintenance issues being completed, and gardens and trees being trimmed back. Obviously, cleanliness is important in the day-to-day running of a motel, but it is also of the utmost importance for each and every inspection. Cleanliness and tidiness go a long way Irrespective of whether the motel is five or 50 years old, a clean and tidy motel inside and out will impress.
- Buyers will discount the price that they are prepared to pay for a motel if they can see repair and maintenance issues throughout the property. A small cost upfront to fix and tidy up these items (touch up painting, mouldy or loose tile grout or silicon, worn floor coverings, etc) can make for a higher price that the buyer is prepared to pay. Small items add up to big costs from a prudent buyer’s point of view.
- Other major items that are often raised as concerns by buyers which may deter them from paying the asking price or making an offer at all, includes the absence of split system air conditioners installed, poorly painted surfaces, damaged or dated bench tops, sagging beds, and bathrooms in need of full renovation (showers, tiles, vanities). These items can be expensive and may require capital outlay, however reinvestment back into the property can pay dividends. The alternative can be a much lower price than expected. Very few buyers will accept a seller’s generosity in passing on their problems to the next owner.
The third area of presentation to consider is how to take the motel to the market.
- The format of the offering must present well. This is a ‘first impressions count’, all-encompassing measure of advertising and documentation that will grab a buyer’s interest and attention and make them want to look further at the motel on offer.
- The decision to advertise externally that a motel is for sale is an important one. The fact that there are more potential buyers that know the property is for sale creates a more competitive market. It gives the seller the opportunity to obtain the highest price possible through potential market bidding. Some sellers prefer not to advertise the name of the business or that it is for sale and this is ultimately an individual decision.
- Remember, “you cannot sell a secret”. The market is an ever-changing dynamic and what worked a year ago may not necessarily work now. In a quieter market a seller and their broker will need to be more proactive with their marketing initiatives to promote the property when potential buyers are not physically presenting themselves.
- Target Market – When determining the target market for a product one needs to consider the value of the business/property, the locality, the size (number of units in the complex), the sales income, the size of the residence and the various products offered by the motel (food and beverage, unit types, conferencing facilities, etc). Accessing the target market via the right marketing initiatives will gain this market’s attention.
- Internet – A successful marketing campaign will include a number of online marketing options. The first place a potential buyer will look for a motel to buy is on the internet. This is a cost-effective source of marketing that remains in place long after the newspaper has been thrown in the bin, and it provides an opportunity to include information about the business but also a number of well-shot photographs of the property that can attract a potential buyer’s attention. A picture tells a thousand words.
A valuable exercise for the seller is to put themselves ‘figuratively’, in the shoes of a potential buyer for their motel business (or anything for sale really) and ensure that you have addressed every aspect that you, yourself would want. This is a great place to start when preparing a business for the market. Prior to offering a motel to the market, consider the sale process from another point of view, rather than being fixed only on the result. Identify the important items that any prudent buyer will require and present these in a professional manner.
The sale process is one that can take many twists and turns, and good management of the process from the start (inclusive of presentation) will be beneficial. When deciding to sell a motel one should then focus on the most important matters that will influence the buying decision of the market. There really is no benefit in spending time or money in areas that are not going to draw the interest of a potential buyer or satisfy their buying motives. Bear in mind at all times; what information will influence a buyer to take action that you, as a seller, has a level of control over?
It may seem obvious, but paying attention to how your chosen broker or agent presents their information, other properties and themselves is also very important. There have been many cases over the years of professionals not providing information in a format that will assist their client. This is where the importance of choosing motel industry specialists to represent you cannot be understated.
Accountant, motel broker, financier and solicitor all play a role in how they present and process the seller’s documentation. Do your research, speak to a number of industry professionals and then decide who has the most suitable credentials to get the job done best for you. Who has the relevant experience, and who will present the motel in the best possible way to ensure access to the market in order to achieve the best result for you, the client?
Having the wrong representative for the task can unfortunately end up costing the seller hundreds of thousands of dollars as well as a lot of grief and frustration. I have personally witnessed a situation where a ‘professional’ who had said they could handle the sale for their client inevitably cost them the sale and left them thousands of dollars out of pocket. Their fee was still payable but the motel owner lost thousands of dollars, and the sale of their motel. A very costly error in not using a motel industry specialist.
Remember that anyone can claim “we can sell your motel”, “we have a genuine buyer for your motel”. These are common terms that are said by agents, and while it may be true, you need to be sure that you are in a position to achieve the highest price at the least cost? Ensure that you work with specialists that are fully qualified, fully accredited (certified practicing business brokers with the REIQ), have many years direct motel accounting, motel sales and motel legal experience within the industry, and who have a proven track record of successful motel sales. They will know how to present and conduct their part of the process in the most professional manner, and will provide some guarantee that you are getting the best service possible from each specialist field.
Whilst considering a professional accountant, motel broker or solicitor for the sale of your motel, ask questions.
- What motel sales have you personally handled?
- How many years have you specialised in the sale of motels?
- Do you work full time selling motels or only part time, due to other business interests/involvement?
- What are your formal qualifications? E.g. Tertiary qualification.
- Are you fully accredited with the relevant industry authority? E.g. an REIQ Certified Practising Business Broker.
The ability to qualify potential buyers is a necessary but difficult and uncomfortable matter when offering a property to the market. Providing sensitive business documentation to a buyer that has not been fully qualified is a mistake.
Only fully qualified buyers can complete the purchase of a motel and if a buyer does not have the funds to buy, does not have the desire to buy, or does not have the ability to buy, then there is no point providing confidential information about the business to them. The last thing anyone wants is their personal information and business’ goodwill such as major client lists, suppliers, contracts, agreements and other data being made available to competitors or those who may use the information for their own personal gain. Sellers need to carefully protect this information as ultimately it forms part of the value of the business. Your broker or agent is responsible for ensuring that potential buyers have been fully qualified and that your business data is not at risk.
Ultimately, by taking a proactive and informed approach in addressing all aspects of presenting all areas of the business and property before going to market will make for a happy settlement day for all concerned.