Hotel Due Diligence Checklist for Buyers
By the time a buyer signs a letter of intent on a hotel or motel, they have usually toured the property, reviewed a summary of results and perhaps stayed a night. Hotel due diligence is the period in which those impressions are tested against records, inspections and agreements. It is where a buyer learns whether revenue is as reported, whether the building needs more work than expected, what the brand will require and what contracts and obligations come with the property.
This checklist is organized by area so buyers, their advisors and their lenders can work through it methodically. It is a practical guide, not legal advice; agreements, permits and transfer requirements should be reviewed with qualified professionals. For the full acquisition process, see our guide on how to buy a hotel.
1. Financial Performance
- Several years of operating statements and business tax returns
- Monthly operating statements for the current and prior years
- Daily or monthly revenue reports from the property management system
- Bank deposits reconciled to reported revenue
- Departmental revenue and expenses: rooms, food and beverage, other
- Payroll records and staffing levels
- Utility, insurance and property tax history
- Owner expenses or non-recurring items that should be normalized
2. Market and Revenue Quality
- Occupancy and average daily rate trends by month
- Market performance information for competing properties, if available
- Booking channel mix: direct, brand channels, online travel agencies, groups and contracts
- Significant corporate, group or contract business and when those agreements expire
- Guest review history and response practices
- New competing supply or changes in local demand drivers
3. Brand and Franchise Matters (Branded Properties)
- The current franchise or license agreement and its remaining term
- The brand’s change-of-ownership requirements and application process
- Any property improvement plan the brand will require of the new owner
- Recent quality inspection results and any notices of default or deficiencies
- Fees and charges payable to the brand
Brand approval and PIP scope are determined by the applicable brand and are not guaranteed. Our guide to hotel PIP financing explains how buyers plan for and fund required improvements.
4. Physical Property
- A professional property condition assessment
- Roof, structure, mechanical, electrical, plumbing and life-safety systems
- Guest room condition and the age of furniture, fixtures and equipment
- Elevators, pools, laundry and kitchen facilities where applicable
- Parking areas, signage and site conditions
- Capital expenditure history and deferred maintenance
- Accessibility considerations, reviewed with appropriate professionals
5. Environmental and Site
- A Phase I environmental site assessment, often required by lenders
- Any history of environmental issues or nearby concerns
- Zoning and permitted use, confirmed with the appropriate local authorities
- Title, survey, easements and encroachments
6. Contracts and Operations
- Any third-party management agreement and its termination terms
- Vendor, service and equipment lease contracts
- Booking-channel and technology agreements and whether they transfer
- Advance reservations and deposits on the books at closing
- Licenses and permits for lodging, food and beverage or alcohol, and how they transfer in the jurisdiction
7. People
- Key staff: general manager, front office, housekeeping and maintenance leads
- Compensation, benefits and any employment agreements
- Staffing levels compared with occupancy patterns
- Whether key employees plan to stay after closing
8. Legal and Insurance
- Pending or threatened claims
- Insurance policies and claims history
- Any code violations or open permits
9. Transaction Structure
Diligence findings may affect whether the buyer acquires assets or the ownership entity, and how liabilities are handled. See our guide to asset vs stock purchases when buying a hotel.
How Findings Affect Price and Financing
Diligence often leads to price adjustments, seller repairs, escrows or changes in structure. Lenders review many of the same items and will order or require their own appraisal, property condition and environmental reports. Organized diligence helps the financing process; our guide to hotel loan requirements shows what lenders typically request.
Smaller Motels
Owner-operated motels can involve additional diligence around record-keeping, on-site living quarters and older buildings. Our guide to buying a motel covers those motel-specific considerations.
Build Your Diligence Team
Hotel acquisitions benefit from an accountant experienced with hospitality properties, a property condition consultant, environmental professionals, legal counsel familiar with hotel transactions and franchise agreements, an insurance advisor and a lender who understands lodging properties.
US Professional Funding works with buyers acquiring existing hotels and motels. Learn more about our hotel and motel acquisition financing.
