By Rick Newman, Managing Partner of Commercial Capital Network, LLC

The BIG Picture:  All Bed & Breakfasts/Inns are unique by design; in fact, it is that unique quality that separates one Bed & Breakfast/Inn from the next.  Innkeepers invest their energy and capital over time to create a welcoming and hospitable environment that is unique to their community and valued guests. While the charm and ambiance of an inn add to a patron’s experience, such intangibles have only an indirect effect on the actual value.

An Inn’s commercial market value will ultimately be determined by evaluating the values of the real estate, cash flow, good will and sometimes furniture, fixtures and equipment (FF&E).   It is important that you are comfortable with this value before making an Offer to Purchase or a Contract of Sale.  Realtors who specialize in marketing and selling Bed & Breakfasts/Inns have access to comparable sales data and property specific financial information that should support the asking price and may be made available to “Qualified Buyers”.   The concentration of Bed & Breakfasts/Inns in a particular area may or may not be insufficient to develop the comparable sales data that will be acceptable to a lender.   A lender familiar with the industry, an accountant or qualified industry consultant’s services should be used to analyze the financial data to be sure that income from the property can support the debt service relative to the down payment and your investment objectives. 

The Contract of Sale is the controlling document in a purchase and should reflect terms that are practical relative to the down payment and the financing terms for which you are best qualified.  The value of the business’s “Good Will” and FF&E may be assigned separate values from the real estate in the Contract of Sale. Try to avoid this if possible as loan programs that accommodate financing anything other than real estate are less flexible and sometimes difficult to obtain. It is always a good idea to consult with a knowledgeable lender before entering into a Contract of Sale, since a lender who is familiar with bed & breakfast properties can pre-qualify you specifically to the property you have identified.

Most Contracts of Sale contain a mortgage contingency clause of 30 to 45 days, the exception being cash transactions, 1031 exchanges of equal value or sales where the seller has agreed to be the primary lender. The contract will also contain inspection clauses for items such as insect infestation, plumbing, HVAC, electrical and the structural integrity of the building(s).  During this ‘due-diligence period,’ it is also common to incur attorney fees, survey fees and title fees. 

It is therefore important to note, that should the appraised value be determined to be less than the contract sale price, the appraised value will be used to determine the actual loan-to-value, rather than the contract price.  If this should occur and the parties cannot agree on a revised value or contract terms, the buyer risks losing all or a portion of his/her due-diligence expenses.   It is also worth noting that when a property’s value as determined by a qualified appraiser is less than the contract price the parties to the contract may decide to re-negotiate the sales price and modify the contract accordingly; however, since appraisals often take thirty days or more to complete, the parties and their agents may find it challenging to work through their respective issues and ultimately the seller may decide they will not or cannot accept the lower value. 

Conclusion:  In the end, determining the value of your business could save all concerned time, money and the anxiety associated with the unknown.  The real benefit is that Innkeepers and their realtors can market the property with confidence by having a qualified valuation or appraisal available to share with qualified buyers, their advisors, realtors and ultimately, a lender. 

Note:  Most lenders will only accept an appraisal if dated within six months of the date on the appraisal, it may also be acceptable to the lender to have the same appraiser update the appraisal which is deemed out of date which will save the buyer time and money.

CCN’s Verified Financials™ program is designed to provide Innkeepers and realtors a designation that can be used to instantly differentiate their hospitality property listing from other B&B listings on Industry Websites, Multiple Listing Services, and conventional advertising.

CCN’s Verified Financials^TM certification signifies that an independent evaluation of the inn’s business financials has  been conducted and that the historical income & expense documentation reconciles to its Federal Tax Returns.  Aspiring Innkeepers and their advisors understandably require copies of an inn’s financials to determine that the income from the inn will be sufficient to pay all expenses, service the desired loan and produce an acceptable bottom line relative to the ongoing financial needs of the buyer; the former must logically be determined before a well informed buying decision  can be made.     

CCN’s underwriting process examines the following to determine an acceptable range of debt relative  to the average of the historical business cash flow:

• Three (3) most recent years Federal Tax Returns
• Three (3) most recent Income & Expenses Statements
• Current Year to Date Income & Expenses Statement
• Prior Year Income & Expenses Statement for the corresponding period

CCN’s confidentiality policy and practices protects the ALL financial data and documentation.    CCN shall:

• Evaluate all financial documents and proofs necessary to issue its opinion on business financials as they relate to commercial financing
• Entitle the innkeeper/owner, agents or representatives to use the Verified Financials™ designation in all media and advertising

Note: Underwriting a commercial financing combines an analysis of both the business being acquired and the personal qualifications and assets of the principal/s seeking to purchase.

As an added benefit, CCN will confidentially retain this financial data and documentation; this service insulates an owner from sharing sensitive data with un-qualified prospects.   Once a Pre-Qualified Buyer™ has been identified; the property/business data may be combined with that of the buyer to efficiently underwrite the feasibility of a successful transaction.

Innkeeper’s…   2010 Refinancing Update!

By Rick Newman, Managing Partner, Commercial Capital Network

Property Owners wishing to reorganize debt to make capital improvements or refinance a loan that is ballooning or adjusting would be well advised to begin the application process in the early part of 2010.
 

Rates are low but may not be for much longer… Interest rates seem to have hit bottom, but how long they will stay at this level is anyone’s guess.  Many experts express concern over the future of our economy and the impact market conditions will have on long-term interest rates.

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By Hugh A. Daniels, BS, MBA

While you are busy looking at properties, considering what decor you might want, what should the name be, should we incorporate, dreaming of that opening day, don’t forget the less glamorous, but equally important plan of how you will handle your accounting, plus who will provide your bookkeeping services.  Accounting is the principals or practice of systematically recording, presenting and interpreting financial accounts, while Bookkeeping is the work of keeping a systematic record of business transactions.  Now if you purchase an existing inn, this may be moot.  However, their existing accounting program may not be the best and may need some sprucing up when you take over, so read on.

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Note:  This material is being provided for general information purposes.  This overview is intended to alert the reader to the importance of managing his/her credit.  General guidelines, material and other information is being provided as a courtesy.  No representations or warranties are made as to the accuracy or processes covered herein.  The Credit Tier Examples listed below are for information purposes only, as lender guidelines vary.

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All Bed & Breakfasts/Inns are unique by design; in fact, it is that unique quality that separates one Bed & Breakfast/Inn (B & B/Inn) from the next.  Innkeepers invest their energy and capital over time to create a welcoming and hospitable environment that is unique to their community and valued guests. While the charm and ambiance of an inn add to a patron’s experience, such intangibles have only an indirect effect on the actual value.

Continue Reading »

All Bed & Breakfast/Inns are unique by design; in fact it is that unique quality that separates one B & B from the next. Innkeepers invest their energy and capital over time to create a welcoming and hospitable environment that is unique to their community and valued guests.  Each financing is unique as well, so your individual circumstances i.e. credit financials and investment objectives  need to be analyzed  and considered relative to what financing programs best fit your investment objectives and your particular property.

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