Why some hotels are better investments than others. Location is always a top characteristic but isn’t the only consideration that’s important. Good locations eventually get over-built. Here are a few aspects to consider during your due diligence.
Positioning. Was the hotel you are considering actually designed and flagged to capture maximum share?
Condition of the asset. Is it up to current brand standards? How long since last upgrade? The cost of any improvements will have to be added to purchase price for “all in” true cost of investment.
Time remaining on the license agreement. Will the license be renewed? Perhaps the franchisor has someone interested in a location that is close to your potential purchase.
Economic health of the market. How dependent is your investment target on the economic health of the community in which the hotel operates?
Proximity to guest room demand generators. An Interstate location is no guarantee of demand. Will any new hotel development be closer or more convenient to current generators of room demand in the area?
Quantification of guest room demand by segment – Is a large percentage of guest room demand dependent on a few demand generators? Companies downsize or move.
Barriers to entry. What is the difficulty level for new hotel development to obtain zoning and permits?
Competition. Assuming your investment target has the correct competitive set, is it out performing those hotels market share and rate? If not, what will it take to gain market share?
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