Top tips for success in brokerage

HREC brokered the sale of the 225-room Embassy Suites Raleigh, N.C., in February
HREC brokered the sale of the 225-room Embassy Suites Raleigh, N.C., in February. FelCor Lodging Trust sold the property to JHM Hotels. The hotel is five miles from N.C. State University and next door to the Crabtree Valley Mall.

HREC brokered the sale of the 225-room Embassy Suites Raleigh, N.C., in February. FelCor Lodging Trust sold the property to JHM Hotels. The hotel is five miles from N.C. State University and next door to the Crabtree Valley Mall.

Being a successful hotel broker takes more than getting a license and throwing some property photos up on a website. According to those who have made a career out of buying and selling hotels on behalf of clients, there’s no substitute for knowledge and experience.

The definition of success varies, but according to Julian Mazili, president of Tampa, Fla.-based Mazili Hotel Group, it’s happy clients. “A successful hotel broker is someone who has achieved success through satisfaction of clients,” he said. “When you sell a property to a client and they are happy with it over the long term [in terms of] the operations and the appreciation of the asset, it shows that you have knowledge and expertise in finding the right asset for the client.”

Ed James, principal with Mumford Co. in Atlanta, agreed that success depends on the outcome for the seller, if that is the entity he is representing.

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“A hotel broker is successful when he creates value for an owner by taking a property to market and producing a transaction that meets or hopefully exceeds the seller’s objectives,” he said. “Successful hotel brokerage efforts can take many forms and it may not always be as simple as finding the highest price for the asset. Broker and seller should both be very clear on what is the most desired outcome and what is the needed time frame for that outcome.”

KNOWLEDGE

The 210-room Hampton Inn & Suites Downtown/French Quarter Area was part of a three-hotel deal HREC brokered in January. The selling investment group was represented by Highpointe Hotel Corp.

The 210-room Hampton Inn & Suites Downtown/French Quarter Area was part of a three-hotel deal HREC brokered in January. The selling investment group was represented by Highpointe Hotel Corp.

A hotel broker’s number-one weapon is knowledge, according to Robert Eaton, founder of Eaton Hotel Investments, which is based in San Francisco. That requirement goes beyond understanding real estate to understanding how a hotel operates.

“To be successful, you have to not only understand what real estate is, how real estate changes hands and what real estate investment is all about, you need to understand the business that goes on in that real estate that’s known as a hotel,” he said. “Unlike most other forms of real estate, the amount of net operating income, which is really driving the value of the investment, can vary greatly depending on how well or who is operating the business or who is branding it or selling it.”

Hotel brokers require a complicated skill set compared with many other careers, said Mike Cahill, CEO and founder of Hospitality Real Estate Counselors, which is based in Greenwood Village, Colo.

“The best brokers typically have a college education in hotel management and actual hotel operating experience,” he said. “That enables them to fundamentally understand the business and they can portray that to buyers effectively on behalf of a seller.”

James said that as in most professions, the more education a broker can bring to the table, the better. “In addition to various undergraduate and graduate degrees, the most successful brokers complete ongoing continuing educational requirements for state real-estate licenses and attend industry conferences to continually improve knowledge of current events, trends and requirements in our field,” he said.

This inside knowledge is even more vital when dealing with buyers who are entering the hospitality segment for the first time.

“You have to know the ins and outs of the financials, you have to know the ins and outs of the operation of the property, the income, the expenses, what it takes to make a property successful in terms of performance, knowledge about marketing, etc.,” Mazili said. “A lot of times we have clients who don’t know much about hotels but they want to invest in them. You have to teach the client all these things before they can make the decision to buy a property.”

According to James, one reason the specialty exists is due to the unique management component and business brokerage aspect of this type of real-estate transaction.

“There is potential for real disruption if the marketing and closing facets are not handled correctly,” he said.

Cahill said that you can’t write a good plan for a buyer if you’re not fundamentally a career hotel person. “It takes a hotel person to effectively sell to a hotel person,” he said.

PLAYS WELL WITH OTHERS

Relationships are another key signal of a successful broker—relationships with the industry at large, as well as with clients.

Mazili Hotel Group brokered the sale of the Comfort Inn in Clearwater, Fla., (right) for $5.5 million to a Canadian buyer that was looking to invest in the United States. Mazili also secured financing for the purchase from a local bank.

Mazili Hotel Group brokered the sale of the Comfort Inn in Clearwater, Fla., (right) for $5.5 million to a Canadian buyer that was looking to invest in the United States. Mazili also secured financing for the purchase from a local bank.

“Ours is a relationship business and maintaining those relationships on both the purchasing and selling sides of the transaction is critical to success,” James said. “Additional relationships in the franchise, lending and legal communities separate the best brokers from the rest of the pack. So many things can derail a transaction, and being able to rely on your contacts to anticipate and hopefully avoid problems is a tremendous advantage.”

Because buying or selling a hotel is a time-consuming process, it’s important that hoteliers pick a broker with whom they can get along for a number of months, and who has all the professional attributes, according to Cahill. “It’s almost like an engagement with a broker because the person you engage, you’re talking to them every day and having weekly meetings,” he said. “In the big picture, it needs to be someone you like, but someone you like who you know can do a good job for you.”

Mazili said he likes to create friendships before partnering to buy or sell a hotel. “I put the friendship with the client ahead of the business relations,” he said. “I like to have a client become a friend of mine first through personal connections. That helps me create the relationship over the long term. We become more than just business partners.”

Eaton said that the best brokers can strike a balance between the personal and the professional.

“You might have a very friendly relationship with somebody and they think you’re a nice person, but professionally, those relationships need to be built on intelligence, insight, thinking, understanding and empathizing with whoever you’re dealing with,” he said. “I’ve had a number of experiences where it would have been easy to kind of cast away a person, decide that I’ll never deal with a guy again or tell him what I think of him.

“But by not ever doing that, over time you’d be surprised the opportunities that come back to you because you haven’t burned that bridge.”

WARNING SIGNS

As with any business or provider, bad brokers exist. But there are red flags that hoteliers can be on the lookout for when preparing to buy or sell a hotel.

Eaton Hotel Investments brokered the sale of the Hilton Garden Inn in Napa, Calif., in 2006. Presidio Hotels sold the 80-room hotel to Reneson Group.

Eaton Hotel Investments brokered the sale of the Hilton Garden Inn in Napa, Calif., in 2006. Presidio Hotels sold the 80-room hotel to Reneson Group.

“If your broker stops communicating regularly or is hard to reach, it may mean that they are no longer actively engaged in trying to sell your listing,” James said. “Some brokers will take a listing just to sit on it in hopes that someone will come along and buy it. Those ‘efforts’ are rarely successful, as most transactions today come about through hard work and dedication to the project.”

Another red flag is a broker whose only concern is making the sale, according to Mazili.

“Instead of trying to explain the facts to you and help you underwrite the financials and make the right decision about the property, they’re just trying to make the sale for the commission,” he said. “You don’t want to go with someone who is just a salesperson.”

A lack of discretion is another problem often seen with bottom-tier brokers, Eaton said. “The classic sign you’ve made a mistake is you sign an agreement with a broker and next thing you know your financials are being sent out all over the place and everybody in the market’s got a copy of your year-end financial statement,” he said. “You want somebody to be very selective with who gets the information and make sure they sign and execute a confidentiality agreement that has meaning to it.”

This issue is important because of several reasons. One is that you don’t want your employees to leave for another position because they are afraid they will lose their job if the hotel is sold. Another reason is that competitors will use the fact that the hotel is on the market against you when it comes time to set rates with long-term business clients, weddings and other events, as well as potentially try to hire away your best employees.

“If your broker doesn’t do hotels full-time, run,” Cahill said. “If your broker is not experienced or isn’t a true hotel person, you should run away from that broker.”

And if a broker heads toward illegal territory, that’s a sure sign that an hotelier needs to find another broker. “Any suggestions or recommendations from your broker that imply a hint of dishonesty or improper dealings should be a huge red flag,” James said.