Selling hospitality real estate during the crisis
INFORMATION AND TIPS FOR RESTAURATEURS
The hospitality industry has been severely affected by the consequences of the Covid-19 pandemic. Across Germany, hospitality properties are closing, operators are filing for insolvency or are on the verge of ceasing trading. Many restaurateurs find themselves compelled to sell their hospitality property. Those who bear certain points in mind can still achieve strong sale proceeds for their hospitality property despite the economic downturn. This article outlines what matters when selling a hospitality property in uncertain times.
No guests: the Corona restrictions caused massive drops in revenue. Across Germany — in München, Hamburg, Berlin, Düsseldorf, Köln and many other cities, as well as in rural regions — inns, taverns, restaurants, cafés, discotheques, clubs and hotels are currently on the market. The operators and owners of these hospitality properties are often selling under duress. Those wishing to dispose of their business for reasons unrelated to Covid-19 are few and far between.
Every crisis comes to an end. When selling, the focus should therefore not be on the current reason for the sale, but on the intrinsic value of the hospitality property.
Enduring Values Do Not Lose Their Worth
Tip: Be mindful of this and emphasise primarily the merits of the property, not your personal circumstances or the potentially unfavourable reason for the sale. Focus on the demonstrable strengths that existed prior to the crisis and the potential looking ahead over the coming years and decades. Working with an experienced agent is strongly advisable. They know how to find a financially sound buyer who recognises the true value of a property and pays the appropriate price for it, even in difficult times.
Institutional investors from home and abroad must deploy capital. Investment pressure is driving investors into bricks and mortar. Investors must put their money to work even in times of crisis. They often have little choice but to invest in property — partly because real estate is among the most secure asset classes, and partly because it offers solid returns.
Investment Pressure Is Driving Investors into Bricks and Mortar
The background: low or negative interest rates, volatile equity markets and meagre yields in bond markets are making life difficult for pension funds and other institutional investors. They are under pressure to deploy capital whilst simultaneously being obliged to meet stringent requirements governing how they manage the funds entrusted to them. Private investors, too, are suffering under these conditions, which look set to persist for some time.
The solution: investors therefore frequently opt to acquire hospitality properties, as these — like property in general — hold decisive advantages over other asset classes. A hospitality property offers security, capital preservation, solid returns, and, given the right location and management, significant potential for capital appreciation. For the seller of a hospitality property, these advantages and opportunities are invaluable.
Prime Locations Remain Prime Locations
Despite the challenges, sellers can draw on the time-honoured quality criteria that are relevant when selling a hospitality property. A prime location will always remain a prime location — no short-term external shock can change that.
Is your restaurant, hotel, inn or café situated in a particularly desirable area? Does it occupy a scenic elevated position? Is it located in a town or city centre? Does it offer other locational advantages?
Is your hospitality property an established restaurant, hotel or other hospitality business that built its reputation well before the crisis arrived?
Established hospitality businesses enjoy an additional locational advantage beyond mere position — their proven track record. Investors and prospective buyers of hospitality properties are well aware of this. An established restaurant, café or hotel has every chance of rebuilding the same level of guest acceptance and appeal after a brief difficult period as it enjoyed beforehand — if not more so.
Location therefore remains the number one criterion when selling a hospitality property, even in times of crisis.
Other factors — such as orientation, fit-out, scope for extension, and catchment area — are equally decisive when it comes to a sale. The crisis has also demonstrated, however, that an adaptable operational concept pays dividends.
Covid-19 has shown how vulnerable the hospitality sector is. Those involved have learned their lessons from the crisis. Numerous operators adapted their business models during the crisis itself, finding new ways to reach guests. Most restaurants switched to click-and-collect or offered a delivery service — some very sustainably by bicycle, such as Spielweg in the Münstertal. Many installed a hatch for collection orders or for dispensing small dishes for immediate consumption, thereby catering to passing trade.
Alternative Operational Concepts
Particularly innovative restaurateurs, such as Heinz Winkler, published their recipes on social media channels. Others put together meal kits, enabling guests to recreate at home the dishes they would normally order in the restaurant.
These measures may not have generated the necessary turnover directly during the crisis, but they ensured that the restaurant remained front of mind, and that guests returned promptly once restrictions were eased.
Tip: Draw attention to the fact that the hospitality property also offers potential and measures for risk mitigation during difficult periods. Where applicable, describe alternative operational concepts, secondary revenue streams, or other experience and success factors that have proved their worth — or would prove advantageous — in times of crisis. A skilled agent will bring these valuable additional details to the attention of investors.
Is there potential to change the permitted use of your hospitality property? Are you unsure? Find out — this planning and building law information could significantly increase the value of your property.
Doubly Attractive: The Change-of-Use Option
This means you can pursue a twin-track approach from the outset of marketing, offering the property both as a hospitality asset and, for example, as a property suitable for conversion to a care home for the elderly or for intergenerational living.
The change-of-use option makes your property twice as attractive to investors. The possibility of alternative use makes the purchase decision considerably easier for them. Furthermore, prospective buyers recognise the added value in parallel or alternative use. This enhances the intrinsic value of the property, as the offering comes with a contingency plan — and not only for times of crisis.
Sellers often find themselves running out of time. Are you in a difficult position where the costs associated with your hospitality property continue to accrue whilst you have little or no income? Then speed is of the essence.
Strong in Marketing, Swift in Selling
Marketing is the be-all and end-all. Not only the manner in which the property is presented — with all facts, photographs and information — is decisive, but also the channels through which it is marketed. When publicising and circulating your sales listing, pursue both avenues: the traditional route via print advertising and the digital route via the internet. Place advertisements on portals, on social media and in specialist hospitality property networks.
Tip: Engage an experienced agent who is also well versed in the digital world. They will know which measures are efficient, cost-effective and likely to deliver results quickly, and can implement them on your behalf.
Finding the right buyers for a hospitality property — buyers who are prepared to pay the true value of a property even in a crisis — is somewhat more complex than under normal circumstances. Applying the right filters from the outset when searching for suitable prospects, and knowing where to look, saves considerable time during subsequent selection and the negotiation process.
Finding Financially Capable Buyers
Tip: Engage an agent who is already managing the marketing and promotion of your property and circulating it in the right circles. Instruct that agent to carry out pre-selection and creditworthiness checks as well, so as not to waste time.
Many agents offer to manage the entire process from marketing through to the notarial completion. This gives operators the opportunity to focus on their day-to-day business right up until the actual sale of the hospitality property.