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Social media informs acquisition decisions
January 31 2013

Hotel investors increasingly are using social media as another tool when evaluating deals.

Highlights
  • Social media allows investors to determine whether a seemingly attractive asset on paper is trending with consumers.
  • Twitter “isn’t a site to look at to gather information,” said David Sangree of Hotel & Leisure Advisors.
  • “Social media hasn’t changed whether we make the investment, but it’s useful when making the investment,” said Noble’s Mit Shah.

REPORT FROM THE U.S.—Using social media is common practice for sales and marketing executives looking to lure travelers to their hotels, but it is now garnering the attention of investors who want an extra tool when considering acquisitions .

More underwriters are utilizing this type of information in their process of understanding an asset, William G. Sipple, executive managing director at HVS Capital Corporation, said via email.

Mit Shah
Noble Investment Group

The same is true for investors, said Mit Shah, CEO of Noble Investment Group.

“When we’re looking at new investments and existing assets, we’re looking at how aggressive that hotel has been (on social media), how that hotel is really engaged with the consumer (on social media) and what the consumer is saying about that asset,” he said.

Social media helps investors determine whether a seemingly attractive asset on paper is trending with consumers, he added.

“Without ever leaving your desk, you get a ton of information about (the asset),” Shah said. “Look at it on Google Maps, go on TripAdvisor, go on Facebook and get pictures and understand if it’s something you want to pursue further or not.”

A growing trend
Because there are myriad social media outlets from forums to blogs, podcasts, video-sharing sites and more, investors need to determine which one makes most sense. For example, social media websites such as TripAdvisor and Facebook offer investors the ability to eavesdrop on consumer chatter and uncover details about a hotel’s day-to-day business practices.

Sipple said he finds forums, picture and video sites, and ratings sites are the best when it comes to weighing transactions.

“Social media is considered one piece of the due diligence process for both lenders and investors,” he said. “Savvy buyers and lenders will look into such areas to determine if there are facility quality/condition issues, service issues or other issues with a property that should be considered in the transaction.”

David Sangree
Hotel & Leisure Advisors LLC

David Sangree, president of Hotel & Leisure Advisors LLC, said his staff uses TripAdvisor “extensively,” especially if they are analyzing an existing property or a competitor for a proposed property.

Facebook provides an outlet for smaller properties that use the social media site as their primary means of communication. “That’s useful for reviewing,” Sangree said.

He could not say the same for Twitter, which “isn’t a site to look at to gather information.”

Along with TripAdvisor, Sangree uses online travel agencies Expedia, Priceline, Orbit, Hotels.com and flash-sales site Groupon.

“Groupon is an interesting one for independent hotels,” he said. “When you see the specials independents offer on Groupon, it helps you determine the actual rate they’re achieving. It also gives you the idea of the types of specials they’re offering the public.”

“It can be a good supplement to a personal interview,” he said. “It helps you get up to speed on a property more quickly.”

Challenges
“Social media is a useful tool to get information about the market and how a property is marketing itself,” Sangree said. However, “it doesn’t take the place of a detailed financial analysis.”

Hotel investment is based on cash flow, Sangree said. “Social media sites don’t get into cash flow.”

Another drawback is information on social media is not necessarily qualified, confirmed or accurate, Sipple said.

William G. Sipple
HVS Capital Corporation

“The good news is this information is unfiltered. The bad news is that this information is unfiltered,” he added.

But social media sites do provide background information on a property and how it’s perceived within a market place.

If a hotel scores a poor rating on TripAdvisor, “an investor isn’t going to pay $300,000 per room for a 1-star hotel,” Sangree explained. “As an investment decision, you have to consider that a TripAdvisor rating does influence the type of value you’re willing to pay for the property.”

Looking ahead
Consumers rely on social media because it impacts their travel behaviors and purchasing decisions, which both inform acquisition decisions, sources said.

“What’s interesting,” Shah said, “the consumer travel sites and the social media sites, they’re moving at light speed, and (executives) are feeling like the hotel industry will catch up.

“It’s going to take time for the entire industry,” he said, but social media will “be part of the investment analysis.”

As more people engage and communicate on these platforms, they will have greater applicability in the hotel investment world, Shah said.

“Social media hasn’t changed whether we make the investment,” he said. “But it’s useful when making the investment.”

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