Commercial Real Estate Investing From A-Z Top 3 Things to Know Before Investing in Hotels
Today we’re learning what are the top things to watch out for when investing in hotels. We’re interviewing Jerome Yuan, CIO of ASAP Holdings. He has assisted with acquisitions and dispositions of over 33 hotels in the past 9 years.
You can read this entire interview here: https://montecarlorei.com/top-3-things-to-know-about-investing-in-hotels/
Why should investors invest in hotels, especially nowadays? I heard that where the economy might end up going, it might be a bit risky. But let's let's see what you have to say on that.
They say the hotels are probably the most sensitive to economic cycles. They're probably the first to get any type of effect, but they're also the first to rebound out of any type of recession as well. For us, investing in hotels is both a real estate play and also an operational play. We believe that hotels are like 50% real estate and 50% operations. Location matters a lot too, just like any other commercial real estate deal. But then you also have, depending on the hotel, 50 to 100 employees there that you have to take care of. You have guests checking in and out on a daily basis. The operational side is really where you can make a difference and improve the cash flow of the property. And we believe that improving hotels are are the fastest and easiest way to improve cash flows in commercial real estate just because of the daily transactions that you have with customers and hotel guests.
What is a typical management fee?
The property manager usually takes a 2.5-3% percent fee off of the of the gross income. It's pretty reasonable.
What are some of the top things that investors should keep in mind and watch out for when investing in hotels?
1. Investors should really look at the brand of the hotel, or if there is a brand, and if you're buying a boutique hotel or independent, those hotels rely on the location. If it's a beachfront property, you won't have any problems. But if you have an unbranded hotel in a suburban area where it's mainly business travelers, you're going to need to be careful and make sure that the brand is the right brand for the hotel.
2. The other thing is really the renovation costs after purchasing the hotel. Every brand requires the new owner to renovate it. They call it a property improvement plan that's issued by the brand. You've to make sure that you cost out every item and avoid any cost overruns because that just eats into your return on your investment. I think those two main things are the bread and butter of what to invest in for hotels.
3. Location. As long as you're in a good location, you might not need a brand. But some brands are stronger than others, so a Marriott would be stronger than a Four Points or something like that. So that's very important.
Do you look at Airbnb laws in that particular city?
We don't focus on that too much. The way we invest in hotels, they're mainly business travel hotels. We'll have hotels in the suburbs, or near office parks, and things like that. We don't really compete with Airbnb, at least we don't think we do as much. They definitely do affect hotels stay, I do believe that, but the business traveler is there for one night, two nights, and then they're out of the hotel most of the day at business meetings. If we were to start transitioning our investment to resort, luxury, or tourist type of hotels, then we would definitely be looking more at how the local Airbnb laws are changing.
Jerome Yuan
www.asapholdings.com
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