Rates are great, don’t let your business plan falter based upon waiting for lower rates - by Earle Wason

Before starting this article, I reread the 2024 NEREJ Fall Preview article I had written last year. Not much has changed and I had the general market well defined.

In a brief review, the key points included: More buyers than sellers and small inventory of hotels for sale. The new trend to renovate and retro fit older and smaller motels. Lower numbers of hotels are going in the ground for new construction because of the costs which have increased demand for older hotels, mostly three stories and up, that can be purchased in the $100,000 +/- per room range. Continued pressure on Average Daily Rates. Also, the consolidation of ownership of hotels and again, why we have not seen many foreclosures or REO hotels for sale.

Another topic centered around interest rates. Current rates are slightly lower than last year and for commercial loans seem to have settled between 6.2% and 7%. These are great rates, and my advice is not to expect much lower and do not let your business plan falter based upon waiting for lower rates. Throughout my career the interest rates have averaged a much higher level. This leads to what expectations can be in the current market for capitalization rates. As always there is a variation based upon the quality and location of the property but in general the market is still indicating a range from 8% to 10% but with some higher. These rates are indicative of a deduction of any franchise-required PIP or a reduction for immediate capital needs in an independent hotel.

As to sales activity, there are sales taking place. Certainly not at the level of 2023 when the business volume was so high in 2022. As I have stated before, the year 2022 was not a benchmark year and when we analyze values today, we are reviewing only 2023, 2024 and 2025 to date financials. Many of the sales are properties that have been offered only on a confidential basis, this has been the result of staff shortages and owner’s concern about losing staff. Most buyers maintain existing staff and might even offer higher wages or better benefits. An owner offering a property on a confidential basis may not get the best price. An example of that is an offering I promoted for two hotels in a New England market. All our buyers were contacted on a Thursday and by Tuesday we had a buyer for each and multiple offers for the seller to review. This is an indication of the buyer demand but also a better means to get the best pricing. Explaining to top staff that a hotel is for sale and that it may mean better wages or benefits for them is highly effective.

During the past three months I have had two hotels that had fires while under contract for sale. This is a first for me in 54 years. The insurance clause in the purchase and sales agreement can be one of the more discussed in negotiating an agreement. Usually there is a number for any fire damages that provides for a buyer to purchase or void the agreement. I have seen times when this number is discussed at length and most often, I have said “shouldn’t worry about it as I have never had it happen.” Now it has and each has a different plan, but the buyer is staying in place on both. One the buyer will do the repairs and in the other the seller will do the repairs but with some modification to meet some new franchise requirements. A live and learn moment for me.

We will finish the year with some particularly good closings after only having a few to date. The last closing was for the Garrison Hotel in the Ascend collection in Dover N.H. The 60-room property sold for $8.4 million and the new owner has told me that he has been eclipsing last year’s sales every week since he took title. I love to hear that.

A quick run down on sales to close: A Holiday Inn Express, an 84-room independent hotel with some exterior access rooms, a waterfront inn and cottages, a full-service inn with significant revenues, 17-room retro fit motel in North Conway, N.H. Two more properties are under agreement and another full-service inn that is in negotiation, and I believe will transfer title.

 We do have some other new opportunities: One of those is the former Hawk Inn and Mountain Resort in Plymouth, VT. This will be a significant repositioning opportunity. A full-service hotel that has been closed. A rare opportunity to revitalize or reposition this iconic resort. Bring it back to its original glory days or other purposes, such as residential, rehab center, 55 and older community.

Located on the valley floor, surrounded by mountain vistas, the 99 bucolic acres includes a diverse and unspoiled natural landscape of meadows, rivers, lakes, ponds, and woodland, lending itself to abundant outdoor recreation. The property itself is centrally located to the best of Vermont attractions. It sits between Killington and Okemo Mountain Resort, adjacent to what is known as Skiers Highway, and near the beloved, quaint town of Woodstock.

That is all for now, wishing all to have a great holiday season.

Earle Wason, CCIM, is president and owner of Wason Associates Hospitality Real Estate Brokerage Group, Portsmouth, N.H.