By KC Cuijpers, CEO, Town & Country Property Co., Ltd.
Every now and then another hotel, resort or guesthouse appears on the market for rent in Pattaya, Jomtien or Bangsaray, and I always find myself asking exactly the same question. Not how many rooms it has, whether the swimming pool looks inviting or what sort of view you get from the rooftop bar. My first question is much simpler: why does the owner want to let his ongoing concern? If somebody has an established hotel, with guests checking in, staff coming to work and a business ticking along, why would he suddenly want to hand the entire operation over to somebody else? Surely that deserves an explanation before we start discussing monthly rent.
There may be perfectly legitimate reasons. Perhaps the owner is getting older, has health issues or is simply tired of the daily grind. Maybe the children have absolutely no interest in taking over the family business. Perhaps there are other ventures demanding his attention, or he has reached the stage in life where a predictable rental income sounds much more attractive than dealing with receptionists, online bookings, laundry, guest complaints and air-conditioning units that always seem to break down on a Saturday evening. Fair enough. I can understand every one of those reasons.
But let's not be naïve either. Perhaps the hotel isn't making enough money, has been underperforming for years or is desperately in need of expensive renovations. Maybe there are staffing headaches, licensing problems or financial figures that look considerably less attractive than the glossy brochure suggests. And that's where I start getting a little suspicious. After all, if the current owner, who presumably knows his hotel better than anybody else, can't make a decent living out of it, what makes us think the next operator will suddenly turn it into a goldmine? Of course, a capable operator with fresh ideas, stronger marketing or better cost control might improve the business. But that's a business case to be demonstrated, not a fairy tale to be believed.
So, for me, the sequence is clear. Question one: WHY? If the owner's explanation is credible, we can move on to question two: what are the exact terms? And by that I mean the complete picture, not just an attractive monthly rental figure at the top of an advertisement.
Before We Get Excited, Show Me the Numbers
How much is the monthly rent? What deposit is required? Is there key money, and if so, how much of it is non-refundable? How long is the lease, who has the right to renew it and on what terms? Is there a rent-free fit-out period or some form of trial arrangement? Does the tenant inherit furniture and equipment, and in what condition? Who pays for the next major repairs, or the replacement of thirty air-conditioning systems that are already past their best? These aren't little details for the lawyers to sort out after everybody has shaken hands. These are the deal.
In fact, give me the number of rooms, a realistic average room rate, a sensible occupancy assumption, the rent, the key money and a rough idea of operating expenses, and I'll happily make the first calculation on the back of a beer coaster. That may sound rather old-fashioned, but I think it's an excellent way to avoid wasting everybody's time. You don't need a glossy PowerPoint presentation or a spreadsheet with seventeen different tabs to discover that the basic arithmetic doesn't work. Not at this stage, anyway. If the numbers don't make sense on the back of a beer coaster, they are unlikely to look much better in Excel.
Take a purely hypothetical 30-room hotel. At 60% occupancy and an average room rate of THB 1,000, you're looking at roughly THB 540,000 in monthly room revenue. Now imagine the rent is THB 250,000 a month, plus THB 4 million in non-refundable key money for a three-year lease. Spread that key money over 36 months and it represents an additional economic cost of about THB 111,000 per month. That leaves around THB 179,000 before salaries, electricity, water, linen, cleaning, booking commissions, maintenance, insurance, marketing and the inevitable surprises. Perhaps the restaurant makes money. Perhaps the operator can achieve higher rates. Perhaps there is a very convincing turnaround plan. Wonderful. Show me. Because a busy hotel and a profitable hotel are not necessarily the same thing.
And if the figures do look feasible? Good. That's when the real homework begins, because a hotel lease isn't simply about renting a building. You are dealing with an operating business, its employees, systems, guests, suppliers, licences, goodwill and reputation. That is a very different animal from renting a house or a shop.
The Owner May Escape the Headaches. Or Inherit New Ones.
For an owner, leasing out the hotel can sound like a dream. No more staff rosters, no more arguments with booking platforms, no more complaints about breakfast or hot water. Just collect the rent and enjoy life. Lovely in theory, but what happens if the new operator is enthusiastic rather than experienced? Perhaps room rates are slashed in a desperate attempt to increase occupancy, service standards drop, the food and beverage operation deteriorates, good employees leave and routine maintenance starts to slip. A hotel's positioning can change very quickly under new management. That's not a question of guests' nationalities; it's about the market segment, service standards and reputation the property has spent years building.
Then come the online reviews. A few months of unhappy guests can do serious damage to a name that may have taken twenty years to establish. What if the operator loses money and stops paying rent? What if the building comes back with damaged furniture, exhausted equipment, unpaid bills or a long list of complaints? The landlord may eventually get the keys back, but he doesn't automatically get his old business back with them. Bricks and mortar can be repaired. A damaged reputation is rather less straightforward.
The Tenant Isn't Buying a Dream Either
Now look at the same deal from the other side. The incoming operator may see a nice lobby, a decent pool and a hotel that looks perfectly respectable in the photographs. But what lies underneath? Old electrical installations, tired plumbing, ageing air-conditioning, kitchen equipment that needs replacing, a leaking roof or a backlog of room renovations can turn an apparently attractive lease into a very expensive lesson. And who is responsible when something major fails? If the agreement is vague, you can already imagine the conversation between landlord and tenant.
I'd also want to see real trading information, not just an owner's optimistic recollection of how full the hotel used to be before the market changed. What were the actual average room rates, occupancy levels, booking commissions and operating margins? Which staff are staying, and on what terms? Does the hotel name, website, telephone number, booking-platform presence or guest database form part of the arrangement, and can it legally be handed over? Is the business heavily dependent on one tour operator or one particular source of customers? A tenant who invests a fortune in renovation and marketing needs to know what he is receiving, what he can control and what happens if the arrangement ends.
The Lease Agreement Is Where the Romance Ends
Let's talk about the length of the lease. If a tenant must spend several million baht upgrading a hotel, a short agreement with vague renewal rights may be commercially ridiculous. On the other hand, an owner who signs away control for years without clear operating standards, proper security and workable termination provisions may find himself in an equally uncomfortable position. Lease duration, registered rights where applicable, rental increases, renewal options, additional key money, repairs, refurbishment, insurance and the return of the property all need to be thought through before signing, not after the first disagreement.
A probationary or trial period sounds attractive, and in some circumstances it might work, but even that raises questions. Who can end the arrangement, for what reason, and with how much notice? What happens to deposits, key money, employees, bookings and improvements if the parties part company after six months? What security does the owner have if the tenant defaults, and what protection does the tenant have if the owner fails to honour the agreement? A deposit is not a magic solution to every problem, and a verbal promise is certainly not a substitute for properly drafted obligations.
Then there are the matters that should never be brushed aside: ownership and the legal right to lease the premises, hotel licensing, the identity of the licensed operator, building and fire-safety compliance, employment obligations, any food and beverage permissions and the legal position of foreign participation where relevant. Nobody should assume that permission to operate automatically follows the handover of a set of keys. These are questions for a qualified Thai lawyer familiar with hotel operations, with technical and financial specialists brought in where needed.
And What Exactly Is the Broker's Job?
This is where the responsibility of the real estate broker becomes interesting. Finding somebody who likes the property is the easy part. Finding somebody who is financially capable of running it, understands hospitality and has realistic expectations is something else altogether. A broker doesn't have to be a hotel manager, engineer or accountant, and I certainly wouldn't pretend to be all three. But an experienced broker should know which uncomfortable questions need to be asked, which documents should be requested and when it is time to bring in the right specialists. Above all, he should be prepared to say that a deal doesn't make commercial sense, even if that means there won't be a commission.
And yes, I believe a broker's reputation can suffer when a hotel lease goes badly wrong. Not because every failed business is the broker's fault; landlords and tenants make their own decisions and accept their own contractual responsibilities. But if an agent knowingly ignores obvious warning signs, exaggerates the earning potential or pushes an unsuitable operator simply to close the transaction, he can't reasonably expect everybody to forget who put the deal together. There is a considerable difference between introducing two parties to a transaction that later struggles despite proper checks, and promoting a deal that should never have passed the first conversation.
Which brings me to a final question. How many genuinely attractive hotel leasing opportunities are there in Pattaya, Jomtien and Bangsaray once you remove the unrealistic rentals, excessive key money, deferred maintenance, weak operating figures, licensing uncertainties and owners or prospective tenants who aren't really ready to do business? I don't know the number, and I would be suspicious of anybody who pretends to know without examining the individual properties. There are undoubtedly legitimate opportunities. But the fact that a hotel is advertised for rent tells us very little about whether it is worth renting.
So my approach remains rather uncomplicated. First, ask why the owner wants to let his ongoing concern, and insist on an honest explanation. If that makes sense, ask for the exact terms and do the beer-coaster calculation. If those numbers still look convincing, then bring in the accountant, engineer and lawyer, check the operator and investigate the property properly. Because sometimes the most professional advice a broker can give is simply: think twice. This may not be the right deal.
KC Cuijpers is CEO of Town & Country Property Co., Ltd., established in Pattaya in 2003. These are his personal observations on commercial property and hospitality transactions.
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