The Rodeway Inn, a 48-room hotel in Loveland, has sold for $2,875,000. The sale took place during the COVID-19 pandemic, which made the financing “extremely difficult,” according to Neville Rustomjee, first vice president investments at Marcus & Millichap’s Denver office.
“Many SBA lenders will not finance new hotel acquisitions, and those that do are asking for a 30 percent down payment. Conventional commercial banks are also shying away from hotel acquisitions, and if they finance a hotel deal, they expect a 35 percent to 50 percent down payment,” said Rustomjee, who represented the seller, a private investor.
The buyer, also a private investor and referral client from a multifamily investment specialist at Marcus & Millichap, was also represented by Rustomjee.
Rustomjee spoke further on the recent sale, “Cap Rates are typically higher for hotels than for apartment transactions. This means that hotels, although more management intensive, can provide a high rate of return on capital,” adding that, “We were able to procure a 1031 exchange buyer who paid ‘all cash,’ and did a quick 30-day close with the only contingency being obtaining the brand from the hotel franchise company.”
Marcus & Millichap’s national presence and focus on commercial real estate of all product types creates a large pool of 1031 exchange buyers who are motivated and some, even open to all-cash transactions, which eliminates the need for a loan and appraisal, both of which are difficult for hotel transactions in this post-COVID environment. It also creates an opportunity for cross product type sales, and in this case an apartment owner bought a hotel.”
Per CoStar data, second quarter investment sales dropped by roughly 70 percent, a total on $35B in closed transactions.
“Globally, hotels have been the asset class most impacted by the pandemic. Sales of hotels were down 50 percent in the first five months of 2020 compared with 2019. Just 113 hotels sold worldwide from April to the end of June. By Comparison, more than 850 sold in the second quarter of 2019. Hence, Q2 2020 hotel sales declined by 87 percent compared to Q2 2019,” said Rustomjee.
Photo courtesy of Marcus & Millichap
