More hoteliers choosing online auctions to trade

Even before the recent rise in interest rates that have caused a slowdown in transactions, trading of hotels was not always an easy process.

Now, according to v, an online real estate auction platform, more hospitality buyers and sellers are turning to online auction sites to conduct their transactions. In fact, there has been a nearly 250% increase in the value of hospitality properties trade on the platform since 2020.

For Steve Jacobs, president, Ten-X, sellers use his platform because it makes the process easier and faster. “What we do different at Ten-X is all of the due diligence items are available from day one,” he said.

In a typical offline transaction, due diligence is done by the buyer in several stages through the process. After the initial due diligence is done and a bid is accepted, another round is conducted by the seller that will likely change the offered amount or even cancel the deal.

“With Ten-X, they have to get all of their due diligence to us, and we are going to put them in a data room,” said Jacobs. “So, anyone that looks at a property is going to get whole due-diligence materials before they even make a bid.”

The materials are available on the first day that the property is listed, 45 days before the actual bidding begins. “It is six weeks rather than four or five months to do the transaction,” he said.
Ten-X also does its own valuation check to make sure that the property is truly valued at what the seller and their broker are hoping to get.

“Before we onboard it, we just make sure we can get in that zone,” said Jacobs. “We turned away $8 billion of deals last year because the expectation of price was so far below what we thought the real value was.”

All of the bidders are vetted by Ten-X. “We have pre-qualified all of them,” he said. “We don’t let them bid if they don’t have proof of funds. The deposit is not a loan. It is cash.”

When it comes to the actual bidding day, the registered buyers bid on the property. “Why we do well is because each bidder can see what the bids are,” Jacobs said. “The high bid is the market, and they can see where they stand.”

Once the winning bid is placed, the process is close to completion.

“We get it signed that day,” he said. “There is no negotiation on the contract. There’s no more due diligence, and the owner knows they are closing their deal at whatever the number is in 30 days. The whole process is 90 to 100 days versus six or seven months.”

Jacobs believes this is better for the seller because they mitigate their risk. “The seller knows that whatever the best price is that is it, there is no re-trade,” he said. “There’s no falling out. They know their deal is done. Even if they get $14.5 million instead of the $15 million they were looking for, it is done twice as fast. The seller and broker get paid faster, and it is a done deal.”

The platform does well with hotels, according to Jacobs, because, with the midmarket properties that are generally sold on Ten-X, the buyer pool doesn’t consist of typical institutional buyers.

“It is what we call the ‘unknown buyer,’” he said. “For a lot of those offline transactions, they are trying to push it to those buyers who have bigger portfolios and can promise more business. We have a lot of buyers who buy these midservice hotels, and they operate them under a non-branded flag. They have their families living in the hotel, and it becomes a family business for them. We have these buyers because we market globally.”

Luis Garino, partner at hotel broker Kabani Hotel Group, said his company has done 15 to 20 sales with Ten-X. “We know this system pretty well,” he said. “For the listings we have had in the last few months, up to 20% have been put through an auction. We’ve had an increase this year.”

He continued, “What an auction gives you is that you know once the auction ends and you sell the property, it is a certain closing.”

Garino said that the speed of the process—which he said can be as much as 50% less time—can lead to a compromise on the pricing, adding, “In an auction, most of the time we compromise a little bit on the pricing in exchange for those good terms and that certainty of closing.”

With all of the due diligence done beforehand, Garino said that sellers feel confident in moving forward with the process. “All of the work is done before the auction so that the buyers can feel comfortable,” he said. “They have their PCAs and phase-one environmental report and their financials beforehand. They can talk to their lenders beforehand. That way they can feel confident with their nonrefundable deposit at the auction. They can feel comfortable bidding.”

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