Resort acquisition services

Buy a ready resort property
that’s already generating cash.

resort acquisition services

Buy a ready resort that’s already generating cash.

Resort Acquisitions

Resort acquisitions are lower risk compared to new resort construction because there’s a past performance history and you know what you’re getting: a turnkey resort business that’s already generating cash. You also avoid the time-intensive logistics of getting permits, designing the space, and building out the property. Not to mention a valuable database of past guests and a staff that’s already trained and familiar with the property.

However, resort acquisitions are different than other kinds of real estate investment, because resorts involve both special purpose real estate and an operating business. This makes buying a resort a complex process with a lot of moving parts.

Real assets are income-generating assets, whereas financial assets define the allocation of income or wealth among investors. Resorts have characteristics of both because the operation requires multiple parties to function, like an owner and an operator, and the investment is in tangible assets that generate revenue.

From the moment a you begin to evaluate the opportunity, to the day the deal is closed, hundreds of details must be assessed, negotiated and locked down.

Our resort acquisition services

Although there can be some variations, our resort acquisition services comprise of a series of steps in a logical process to acquire a resort. The steps of this process, include the following:

1. Determining the resort acquisition criteria

Resort Investment criteria are unique to each buyer. From the purely business standpoint, the ownership rationale for resort investment depends on several criteria:

Are you looking for an active involvement in the business or you prefer a passive involvement?
Are you looking for a short- term, or a long-term holding period?

Other criteria for deciding upon a resort property to purchase are:

Location
Property type
Size of property
Cost/Your budget
Current and potential cash flow yield
Potential appreciation in asset value
Upside potential from repositioning, including renovation and/or management changes
Risk and stability of earnings
Ability for new competition to enter market
Ability to replace management and/or franchise affiliation
Strengths of the buyer in resort management

Before starting the property identification process, we ensure that a clearly defined strategy and decision process is in place. Once this is done, we move on to the next step.

2. Identifying potential resort acquisition target properties

After the resort acquisition criteria have been decided upon, we start identifying potential properties which match your acquisition criteria through our network of brokers, asset managers, hotel industry professionals (for hints of properties about to go on the market before they are shopped around), and also the resort owners who contact us for selling their properties.

Our resort acquisition team of experienced due diligence consultants, then screens the preliminary list of properties, to eliminate the unsuitable ones and avoid unnecessary effort in the long run. The screening process is crucial, as it allows the elimination of irrelevant properties early on and sets the stage for substantial effort to be expended on high-potential properties.

3. Assembling the resort acquisition team

Given the resort’s dual nature as both an operating business and real estate, it is important that expert advice is sought from the reliable and competent hotel industry professionals. In this stage we assemble a team of professionals who assist us in the overall evaluation of a hotel property. Our team comprises of:

Property Appraisers who analyze the market to determine the value of the property using industry-standard methodologies. The appraisal report includes the following components:

Property inspection
Area, demographic, and neighborhood analysis
Market analysis
Subject property performance analysis
Highest and best use analysis
Financial analysis
Valuation analysis utilizing:
- Income Capitalization Approach
- Sales Comparison Approach
- Cost Approach
  Reconciliation of value

Financial Auditors who review the property’s books and record determine whether funds have been properly applied and whether financial controls and reporting systems are adequate.

Marketing consultants to ascertain how a property might perform and what it would take to achieve desired profit or investment goals. We also evaluate prevailing market conditions, prepare projections for both the market and the subject property.

Legal consultants and Resort Attorneys specializing in resort work to help formulate the acquisition strategy or game plan, assist in identifying “deal stopper” issues, advise on terms and structure of transactions, and due diligence in resort management and franchise agreements, labour and employment, land use, entitlement and zoning, real estate, tax, corporate, environmental, trademark and other regulatory matters.

Architects/Interior Designers. If the acquisition is to involve renovation or upgrading of the property, our team of architects will review the specifications set forth by the owner. In addition, they will coordinate the activities of other members of the team who will be responsible for the physical property, such as the engineer and interior designer. Our architects will review existing and potential compliance with all building codes as they apply to the existing property and as they will apply to any planned renovations.

Engineer. A qualified team of engineers will review all the physical components of the property, including mechanical, electrical, plumbing, and structural elements.

Other advisors like environmental consultants, and others as needed.

4. Evaluation and due diligence of potential resort properties

Many resort properties will be weeded out during the initial screening process, based primarily on review of resort acquisition criteria itself. For those properties that pass this initial screening, the next step is usually a site visit or a property inspection at which point another “go/no-go” decision will be made.

A preliminary property and market analysis of resort properties that reach the inspection stage is carried out by our acquisition team. The next decision, based on the analysis, will be to develop an initial offer price and business plan, or to eliminate the property from consideration.

Because your offer or purchase price is based upon a calculation of anticipated revenues and expenses, the due diligence process is critical to validate or gain comfort with your assumptions on these cash flow analyses, and to avoid unnecessary surprises.

5. Analyzing the potential of the target resort property and its market.

Our team will study property and market dynamics including the growth or decline in the supply of resort rooms, shifts in market segmentation, and the renovation or repositioning of competitive resorts and prepare a detailed plan for you to produce the expected return on investment over time.

This plan will be based upon an analysis of historical market performance, expectations for the growth in the supply of competitive resort rooms, and the growth in demand for resort rooms by market segment (commercial, leisure, group, etc.) by guest demand for resort rooms at the projected rates, and guest demand as to facilities, design concepts, amenities and services.

6. Calculating your offer price

The most significant element in the buyer’s calculation of a bid or purchase price is the analysis of the potential earnings to be derived from the resort.

In determining an offering price for the property, we first review the historical and projected market performance, along with the historical performance of the subject property relative to that market.

We also consider the foregoing discounted cash flow analysis, the historical earnings of the property, and the sales prices per room being achieved for comparable resort sales in the marketplace.

Then we develop a preliminary business plan – with realistic expectations as to the amount, scope and timing of renovations and their impact on short- and long-term operating results, and which reflects assumptions as to physical facilities and condition, management, affiliation, and other factors – in order to assess the potential acquisition realistically.

The result is a set of assumptions as to future market performance, a plan of action for the property, and a set of cash flow projections resulting from that plan.

The cash flow projections, including assumptions as to capital expenditures and reserves, financing costs, an exit strategy and disposition price, will then be discounted back to a present value at a discount rate that meets your return requirement.

In this way, we help you establish the price which you can offer to pay for the resort property.

With the analysis outlined above, we will help you determine how next to proceed: whether an appropriately priced purchase represents a turnaround opportunity with great upside potential, or whether the resort has already reached its maximum earnings level, thus posing a significant downside risk to the investment.

7. Presenting your offer to the seller

Once you make the initial offer, negotiations begin. The resulting process will either wind up with the you and the seller coming to a meeting of the minds on the purchase price and continuing into discussions about the definitive agreement, or the negotiations will be broken off.

Once an agreement to purchase has been reached – at least an agreement in principle as represented by a signed letter of intent or term sheet, we will summarize the analysis which led to the decision, for your internal approval or other purposes. Our investment memorandum will include:

Property description
Market summary, past and projected
Capital expenditures, with schedule and major categories
Financing
Projected profit and loss and cash flow statements for the property, with a business plan and key assumptions as to:
- Management style
- Affiliation
- Marketing
- Operating revenues and costs during the holding period
- Exit strategy, including timing and projected value
- Other elements of any proposed repositioning

This document will then be updated or revised throughout the due diligence process, with the final version being used during the operations transition and beyond.

In any event, as soon as there is an agreement in principle between buyer and seller, or even as a part of the offer and negotiation process, the parties often negotiate a letter of intent or term sheet as an interim step to negotiating the purchase and sale agreement. With or without a letter of intent or term sheet, the purchase and sale agreement process has begun.

8. Agreeing on key terms of the purchase and sale

The process of negotiating the major terms of the purchase and sale agreement begins after a tentative agreement to buy and sell has been reached.

The business nature of resorts dictates that a great many assets other than pure real estate would be included to make it a going concern. The purchase and sale of resort real estate involves the investment of a substantial sum of money and the transfer of valuable assets.

We help you negotiate the terms of the transaction with great care and precision. Our detailed discussions include the following crucial business elements of the deal:

The purchase price and any adjustments
Third-party financing, whether existing at the time of the transaction or to be arranged by the buyer
Condition of the premises
Limitations on title and possession
Default by either party
Indemnifications
Items included and excluded from the purchase price

The negotiation of the transaction and the items included and excluded have a substantial impact on the flow and cost of transition from old owner to new owner.

9. Negotiating the definitive resort purchase and sale contract

After the final purchase and sale contract negotiations are complete, we create a purchase and sale contract with all the terms and conditions of the transaction. The issues covered in the purchase and sale contract include all those in the letter of intent and many other details that are typically not included in a letter of intent, particularly representations and warranties, indemnifications, and closing conditions.

The provisions in a resort purchase and sale contract cover the following crucial elements:

Title commitment and survey/search. The specifications for the type and quality of title the purchaser is willing to accept.
Purchase price. The purchase price and its composition (relative to equity and debt), and when and how it will be paid (i.e. upon closing, in installments, etc.)
Earnest money or deposit. The amount of the deposit and circumstances under which it would be defaulted or returned. Sometimes there is an initial deposit on signing the PSA (or opening an escrow) and additional deposits as conditions are waived or approved (such as due diligence approval).
Real and personal property being sold. A description of what the buyer is getting – the real and personal property being transferred.
Business assets being sold. A listing of the various licenses, contracts, franchises, and other miscellaneous and intangible personal property that are being transferred with the real property.
Due diligence. The review of the property and other aspects of the transaction made by the purchaser and the conditions and limits imposed upon the transaction. The contract details the period of time during which this should occur and the rights and obligations of each party.

We then move on to the next step in resort acquisition process.

10. Conducting due diligence

The purpose of our due diligence is to understand and evaluate your potential investment in the resort. “Due diligence” or the investigation conducted of the resort that is the target of the acquisition, covers both the physical asset (i.e. the resort structures, parking, systems, equipment, inventories) as well as the operating business conducted at the resort facility, and the relevant markets and environment.

It is the analytic review of the real and personal property, the business operations and potential of the specific resort. This effort all seeks to validate your reasons for buying the resort and to avoid surprises after the purchase has closed.

The most significant element in the your calculation of a bid or purchase price is the analysis of the potential earnings to be derived from the resort.

Because, as a buyer, your bid or purchase price is based upon a calculation of anticipated revenues and expenses, the due diligence process is critical to validate or gain comfort with your assumptions on these cash flow analyses, and to avoid unnecessary surprises.

Unforeseen expenditures – like, to replace boilers or cooling towers, demolish a portion of the resort which encroaches on adjoining property, or meet a new property improvement program from the brand – these can all play havoc with the buyer’s expectations if they weren’t anticipated.

Our due diligence process includes the following tasks:

Title search. A review of the various factors that could affect the title to a property. The title search should be performed by either an attorney or title company. The results of the title search should be reviewed and evaluated by an attorney.

Validating or refining the assumptions used in the business plan with an in-depth market demand analysis.

Legal analysis. Our experienced hotel lawyers check all the property’s licenses, permits, contracts, and other documents to determine any potential adverse provisions and whether they can be transferred from the seller to the buyer.

In addition, our legal team also analyze issues such as environmental, land use, entitlement and zoning, labor and employment, employee benefits and liabilities, intellectual property and other such matters.

Financial audit. An independent audit performed by our experienced accountants with experience in the hospitality industry.

Engineering inspection. A detailed study of all physical components of the property, including mechanical, electrical, plumbing, structural elements, telephone systems, computer systems and items of decor.

Environmental inspection. A detailed inspection is made by a qualified environmental engineer to disclose any potential environmental hazards that may exist on or within the property site.

Property tax verification.
A property tax verification is performed by a knowledgeable property tax consultant from our team, who will provide an accurate estimate of future tax liabilities.

11. Closing the resort purchase

The closing stage of the resort transaction involves the actual transfer of title of the resort from the seller to the buyer.

The activities that take place at a closing include

(1) accounting to allocate and prorate the property’s revenues and expenses and
(2) a physical inventory of all the assets included in the purchase price.

Any items to be transferred that are not included in the purchase price are inventoried and valued in accordance with the terms of the purchase and sale contract.

After the necessary allocations and prorations are calculated, the mortgages and notes are signed and the requisite moneys are transferred among the parties.

Once this process is concluded, you, the buyer holds title to the resort.

Next Steps

We hope that we were able to give you a brief overview of our Resort Acquisition Services.

Markets by their nature are dynamic and keep changing and so does the resort industry in general. As a result, it is important to consider current and relevant advice from experts and industry professionals and researchers and not just rely on generic online information or published materials that may be out-of-date.

Ultimately, when making a resort acquisition, several important aspects of the investment process such as location, property characteristics, scale, transactions and capitalization rates, risk, franchising, owner, operator, lender, the resort investment cycle, resort impact, and construction trends are critical to analyze, as these decisions in the various stages of the investment will have a profound impact on the overall profitability of your resort investment.

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Selecting the right property which matches your risk profile and goals, requires expert guidance and unbiased advice.

Divine Assets is committed to provide you with the best resources and unbiased advice which is in your best your interests.

If you are considering purchasing a piece of real estate, currently own or are inheriting a piece of real estate, or would like to develop a piece of real estate, schedule a call with us, to understand how we can help you reap the rewards of profitable and consistently high returns on your real estate investments.