How to Buy a Bank Owned Hotel or Note

Today a buyer can often buy a hotel at a substantial discount. In 2010 brokers will have
more bank owned hotels and bank notes for sale. The process can be complicated, but a
good hotel broker can help buyers though the process. Many brokers have been down
this road in previous cycles. There are things a buyer can do to “stand out” as a serious
buyer. A buyer who is prepared in advance (with the information banks are looking for)
has a huge advantage over other buyers.

The most important things to remember if a buyer wants to take advantage of these bank
deals is he must be (1) able to close fast; (2) have cash; and (3) willing to pay the
premium broker fee, resulting in a net offer to the bank.

A buyer may wonder how he proves to a bank or seller that he is the buyer they should
choose. Buyers should make sure their partners’ and their own personal financial
statements are ready and available, showing net worth and how much liquid cash (cash
that is ready and waiting to be wired) is available to purchase the asset.

They should be prepared to sign a buyer’s premium (broker’s) fee agreement much like
the ones used in an auction. Some buyers wonder why brokers cannot tell them
anything about the bank hotel without having to sign a confidentiality agreement. The
banks require it. Banks have potential liability and in some cases, can be sued if
information gets out to the general public. They make the broker sign a confidentiality
agreement and then require the brokers to have all their clients do the same. If the buyer
wants in the game, this is a must!

A buyer may ask: “Why should I provide my financial information now? Can’t I wait
until I find a deal I like, make an offer and then provide the information?” Tony
DeGeorge, president of HBI and president of Greene, Canfield, DeGeorge, Ltd. of
Clearwater, Florida, says, “The banks are overwhelmed. The REO/Special Asset
Officers’ phones are ringing off the hook. They cannot possibly talk to everyone, so
through the brokers they only want to talk to people who they know will get the job
done. If a buyer impedes the process by not having the information up front, another
buyer, who did, will get the deal. Banks have passed up higher offers, if they know they
have a qualified buyer who can close fast.” The successful experienced hotel operator
with ready cash and proof that it is ready cash is the buyer that gets the bank’s attention.

Banks will sometimes finance the properties that they are selling. “It depends on the
bank’s situation. If the bank is in good shape and doesn’t need the cash, they may
consider carrying some of the financing. They still want a substantial down payment.
They also want to know they are lending to a person who has extensive successful
experience operating a hotel. They also want to know the borrower has extra working
capital to operate the hotel through the turnaround period until the economy improves,”
says Brandt Niehaus, president of Huff, Niehaus & Associates, Inc.

If a buyer is forming a partnership to acquire one these hotel assets, then form the
partnership now. Get all the financial information from all the partners and get their
commitment now. Buyers will not have time to do it when presented with a deal. Time
is of the essence. Those who are prepared will have the highest probability of being the
successful buyer. Buyers should talk with their hotel broker should they have any
questions.

About the author: Kenneth Olipra, is vice president of Greene, Canfield, DeGeorge,
Ltd., a Clearwater, Florida-based hotel brokerage firm, and also a member of Hotel
Brokers International.