Broker, Consultant & Expert Witness California Boutique Hospitality
Inn Sellers|California's Many Faces|Inn Buyers|Inn Listings
Johanna Welty<br />Boutique Hospitality Broker, Consultant & Expert WitnessJohanna Welty
Boutique Hospitality Broker, Consultant & Expert Witness

(925) 708-4505 (Mobile)

California Boutique Hospitality Sales
PO Box 902
Alamo, CA 94507
925.708.4505

When it becomes time to sell a historic hotel or boutique inn, sellers must consider the following in advance.

 Inn Sales Specialist/Boutique Hospitality Commercial Broker versus Residential Agent

The first is the selection of an inn specialist who is professionally experienced in hospitality sales.  The sale of a commercial business is quite different from the transfer of a private residence.  Commercial tools needed for the successful marketing of hospitality businesses are entirely different from those used by residential agents – their difference is vital to attracting qualified, aspiring innkeepers. 

Time Required to Transfer an Inn

Again, in contrast to residential real estate, commercial properties usually take much longer to sell – and, in fact, always have.  A residential listing, for example, can be taken for a period of three to six months. 

Commercial listing agreements, however, have always been written to cover longer listing periods.  Boutique inns can be on the market anywhere from two to three years -- and often longer -- before a new owner is found.  Consequently, commercial listing agreements necessitate longer time frames in order to adequately expose a "business opportunity" property to the market and to attract qualified "business" buyers and investors.

In California, an inn or small boutique hotel is considered a “business opportunity.”  Because the sale of hospitality business opportunities necessarily involves real estate that preferably is zoned “commercial,” two separate listing agreements are required.  The first is the business listing agreement to cover the sale of the business opportunity; the second, always dovetailed into the first, is the commercial listing agreement to cover the simultaneous transfer of all associated buildings and land – the commercial “real estate” of the proposed offering.

Escrows also add time to selling an inn, and business commercial escrows normally take longer to close than do residential escrows.  An escrow is “opened” with a title company after a seller accepts a buyer’s offer.  The ensuing, neutral escrow process must represent both sides of the transaction in the required collection and verification of disclosures, loan documents, deeds, funds and signatures.  A sale is never final until an escrow “closes” with formal county recording having taken place. 

Seller Disclosures

Any transfer of real property located in the state of California legally requires extensive seller disclosures.  For commercial properties sold with business opportunities, added seller disclosures normally include copies of the last three years of financial records as well as the last three years of sellers’ tax returns.  (Before such are shared with prospective inn buyers, Confidentiality Agreements designed to protect seller financial information must be signed by all interested buyers.)  Buyers always also normally request the last three years of inn occupancy figures.

The disclosure process legally requires that both seller and broker share with the buyer all known material facts about both the real property (real estate including buildings and land) and the business operations.  Preparing required disclosures can be time consuming for sellers. 

Establishing List Price & Financing

LIST price is always established by sellers, never by their brokers.  Important factors, however, will affect final SELLING price and include the physical condition and maintenance of inn buildings and grounds along with the proven financial performance of business operations.

For example, sellers' P&L statements are not only reviewed by buyers as disclosures but also by buyers’ LENDERS and LENDERS’ APPRAISERS.  If a buyer requires lender financing, P&L statements often determine if a loan application will be funded by a lender.  And appraisers, who work in tandem with lenders, use P&Ls as one way to establish market value.  If an inn is priced over its appraised market value, lenders, including SBA, will neither process a loan application submitted nor fund new financing needed by a buyer.  

To make sales happen today, sellers often must be willing to negotiate terms with qualified buyers who submit serious offers.  Reducing price and/or offering some seller financing can make the difference between closing an escrow and closing the door to a willing and financially able buyer. 

Final Thoughts

CARE should be taken in the selection of the listing broker; this professional will provide all necessary marketing and will serve as “professional interface” and ambassador between sellers and buyers.  An inn specialist should be both an outstanding marketer and a talented negotiator.

PATIENCE with and UNDERSTANDING of current market forces is essential.  Sellers who expect overnight results soon will become frustrated and overly-stressed.  In certain economic climates, marketplace forces simply dominate and override sellers' hopes, expectations, dreams ... and negate broker's  otherwise professional performance.

TEAM MENTALITY is essential to success.  A boutique hospitality broker legally is required to serve as a seller’s fiduciary, always placing the seller’s needs before those of the broker.  The broker is hired to serve on the seller’s team as a trusted advisor; the seller should commit equally to becoming a positive partner on the same team, striving to create an alliance to achieve the mutual goal of a sale.

REALISM in establishing LIST PRICE is essential to paving the way for buyers to obtain necessary financing.

HONESTY in openly disclosing all known material facts to prospective buyers is key to avoiding future law suits.  California real estate law is very clear on sellers’ legal duty to fully disclose.

 

REALTOREqual Housing Opportunity
CalBRE Lic. # 01307696

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