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How to handle a hotel liquidation sale

Column: industry Tag: hotel liquidation sale,liquidation sale,renovation Published: 2017-07-21 10:14 Source: Author:

Hotel liquidation sales offer hoteliers a way to clear out their old FF&E before renovations. Pictured here is a guestroom from the Hilton Baltimore Convention Center Hotel. (Photo: CHMWarnick)

REPORT FROM THE U.S.—When renovations are on the horizon, hotel owners might find they need a way to clear out their old furniture, fixtures and equipment to make way for the new. Hotel liquidation sales can offer a way to make room and a little extra cash.

“Rather than discarding items that could be of use to someone, when possible, it’s a great alternative to execute a liquidation sale of select items with remaining shelf life,” Barry Nidiffer, EVP of development management for Chartres Lodging Group and Kokua Hospitality, said via email. “When done effectively, the liquidation sales can produce proceeds to help fund impending purchases of replacement items for the property.”

Sources said hotel liquidation sales can happen in several ways:

Off-site: In this instance, the third party will haul everything away to another location to sell. Mike Marshall, president and CEO of Marshall Hotels & Resorts, said this type of sale leaves less money for the hotelier at the end because transportation costs are involved.

On-site: Hoteliers can select a third-party liquidator to set up the sale at the hotel, preferably in a ballroom or other large space on-property to ensure hotel operations aren’t interrupted, Marshall said. The company will conduct all of the advertising to bring buyers in, and the sales process should last about three days.

Auctions are another way to tackle on-site liquidation sales, said Michael Doyle, managing director and EVP at CHMWarnick, whose company is in the execution phase of liquidating one hotel and in the planning phase of another. Auctions are typically done if the items being sold are deemed historic or have other high value, he said.

“There are higher costs with (on-site) sales because you need to have crowd control and security, and you need to set up the space,” Doyle said.

However, Marshall said that on-site sales can cost less than off-site sales because transportation costs aren’t a factor. But if a hotel has limited space, such as a select-service property, then conducting an on-site sale won’t be feasible.

Presale: If a hotel is about to undergo a major renovation, a presale can be arranged with the third party. The sale can take place in truckloads of 10 to 15 rooms at a time.

“When you’re ready to take out the old stuff, they load it up and take it to whoever bought it,” Marshall said.

Whichever way a liquidation sale is approached, sources said the value isn’t necessarily in making money from the old FF&E. The value is in emptying the hotel of unwanted items.

“We think about it as straight disposal and getting it off the property to make room for work and renovations in an efficient and timely manner,” Doyle said. “We don’t often concern ourselves with the sale side of things because the product may not even bring economic value back to the owner. The value is purely in clearing the hotel of product that is no longer needed.”

Marshall agreed, adding that third-party liquidators have crews that will come in and remove the FF&E so hoteliers don’t have to manage the process.

“You almost would give stuff away if you don’t have to pay people to move it,” he said. “There’s a certain value to getting stuff out in one fell swoop. Otherwise, you would have to pay someone to do it.

“It’s not like you are going to get rich selling this stuff. You might get $200 to $300 per room if they sell it for $600.”

Hiring help

When it comes to choosing a third party to handle the sale, sources said there are a few key things they look for. Typically, a regional player is a top choice.

“Pick someone close by that doesn’t have to transport the stuff as far,” Marshall said. “It all comes down to how far you have to move it.”

Nidiffer said the process is most effective when the third party knows the market for the products being sold, especially when liquidating arts and artifacts.

“It takes somewhat of a trained eye to discover a gem and bring value to the owner,” he said. “We often go through this process for televisions, service equipment and some fitness equipment that is still functional.”

Doyle’s company goes through a request-for-proposal process. During the development of the RFP, the team reaches out to ownership and management so that everyone is on the same page and knows what’s going to happen with the product. Then, vendors are identified within the hotel’s region that are qualified to handle the volume and complexity of the assignment. In some cases, the team will talk with ownership, procurement firms and designers for referrals. Once vendors are identified, walkthroughs and interviews are conducted to find the right third party for the job.

Sale challenges

Although there are many benefits to holding hotel liquidation sales, they don’t come without challenges.

While hiring outside help is key to liquidation-sale success, Nidiffer said coordinating with the liquidator on an ever-changing renovation schedule can be a challenge and requires attention to detail.

Doyle agreed timing is an important factor to consider, and he encourages hoteliers to clearly define the timeline in order to achieve results. Part of that includes thinking about the hotel’s market. For example, if a hotel undergoing a sale is located in New York City, timing can be an issue as there are restrictions in Manhattan for loading certain-sized trucks during specific days and times during the week.

“Make sure you invest the right amount of time to do it right,” he said. “We have found that the process takes longer to secure the right plan, secure the right vendor and then execute on the plan. It can’t be done on short notice.” The process from start to finish can take about four months to complete, he said.

Nidiffer said that working with people who are trustworthy is also critical to avoid any issues with dishonesty in transactions.

Marshall, who has also participated in liquidation sales as a buyer, said that if hoteliers are purchasing items from a sale, they need to be cautious about the size of the FF&E.

“You could be purchasing stuff from a room that is 20 square feet bigger than what you’ve got,” he said. “You can’t be buying a room full of furniture out of New York City and think it’s going to fit in a rural area—think small rooms versus big rooms. It would look odd.”

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