Why Hotel Deals Are Stalling: Suraj Bhakta on PIPs, Inflation & Transaction

Glenn: [00:00:00] Everybody in hospitality. Friend. Glenn. Here. Listen, we already know Activel gives you the power to profit, but now they’re giving you more actionable insights to drive that profitability. Do me a favor. Take a moment and check out Hotel Datacom. You’re getting set for budget season, right? And this new benchmarking data is going to help compare your hotel’s performance for the rest of 2025 and into 2026. Please check out HotelData.com or the classic actabl.com. Have a great day and enjoy the show! 

Glenn: [00:00:32] Your hospitality. Friend Glenn here with Suraj Bhakta, CEO and Chief Legal Officer with new Gen Advisory. Suraj. We were hanging out at a hotel last time we started to talk about tariffs. I had to get you back because I want to know what’s going on with pips. I want to know what’s going on with General Vibe. As you’re seeing it on the street level. And how are you?

Suraj: [00:00:53] Good man. Good. Thanks for having me, Glenn.

Glenn: [00:00:55] Yeah. So tell me a little bit about what you’re seeing right now. What is the state of the environment? What’s in your top of mind when it comes to thinking about expenses and tips right now? And hospitality?

Suraj: [00:01:07] Look, pips have often become a roadblock in any transaction in our world these days. I mean, lenders are very reluctant to to fund those portions of the loans, and those are harder to come by. So we’re seeing pressure not only from that perspective from finance world, but also from the cost itself. And wow, that’s a.

Glenn: [00:01:25] Wait, let me just put a pin in that real quick to help our younger viewers understand. Typically when a hotel is sold, the new owner has to put the money into it. So that complicates things a little bit. Suraj.

Suraj: [00:01:38] Absolutely. And we’ve seen look, we’ve seen plenty of transactions where, you know, a lot of times sellers will know that there’s a pip coming due, but they may not disclose it and allow the buyer to do it in due diligence. Now that becomes a kind of a immediate, you know, red flag where they have to kind of say, hey, buyers will come in and be like, what are we supposed to do with this? Your price was at this. I’m looking at a 20% increase because of this, Pip. You know, my all in cost is a lot higher than I had anticipated. That’s when that negotiation has to happen again. But it it seems very disingenuous, I think, when sellers are hiding something of that nature. But sometimes it’s a surprise from the brand side.

Glenn: [00:02:16] I will yeah, that that’s true. So there are a lot of sizes right now, sometimes from the seller side, sometimes from the brand side. What are some general examples that you’re seeing out there?

Suraj: [00:02:26] A lot of times I think, you know, the brands will use it as leverage sometimes in you know, up branding their property. Sometimes they may not like current ownership. So even sellers can get strong armed with a pip and say, hey, you know, if you’re if you’re not a person that has multiple properties under a particular brand, then you don’t have that that influence or that power to negotiate at bulk. Right. And so if they don’t like you as an operator, often it can be used and leveraged to almost squeeze you out to get a new preferred buyer in. Wow.

Glenn: [00:02:59] That’s a yeah, it certainly does make sense. And when the major corporations are dealing with quarterly reporting, they’re very focused on those specific things, because you’ve got to keep making more every single quarter. Hey, that’s a natural order of the universe. But the other thing I’m seeing out there is, since we had that tariff conversation back at Ahoa in April there’s still a lot of confusion I’m seeing out there in the marketplace. How are you seeing unpredictability kind of affecting the marketplace?

Suraj: [00:03:32] And that’s always a unknown a little bit. I mean, with the new, with the regime that’s in right now, you never know what you’re going to get tomorrow. Right? But the reality is, look, people are building in cushions, contractors are building in their own cushions. And what I’m seeing sometimes is that they’re actually finding ways to get when they’re getting procuring contractors to do the pips, they want them to store the materials ahead of time because it’s the time delay. Sometimes that costs money. And at the same time, what happens between contract and then actual procurement that increase, everyone goes haywire, and then contractors throw their hands up and say, hey, I can’t do this at your price. You have to change it. So those unexpected pieces have continued to pile up on new buyers and potential sellers as well.

Glenn: [00:04:20] So what’s happening out there? I mean, generally, I think I’m seeing a slowdown in new construction and transactions out there. Are you seeing the same thing? Do you feel it will continue?

Suraj: [00:04:34] You know, we have hope. Let’s put it that way. The there’s obviously a interest rate drop that they’re talking about here in the next couple of days almost.

Glenn: [00:04:44] And I just so everybody knows, we’re recording this on Friday the 12th of September. And if it happened. Hey, at least we called it ahead of time. All right, go on.

Suraj: [00:04:52] That’s that’s about five days from now, maybe where it might happen. But the reality is that might give it a little bit of an adrenaline shot. But I don’t know if it’s the fix. Right. The fix is we’ve got a divide with this inflation problem going on, and it’s trickled into every facet of construction, operation and development. It is. It has bled its way through and it’s becoming a big issue.

Glenn: [00:05:17] Yeah. And not to be a total bummer, but. Bum bum bum. Consumers are feeling it as well. And I don’t think I’m getting very concerned about their ability to travel as frequently. But the good news is people like you trying to help people advise people. Give us one good piece of advice that they could take away today.

Suraj: [00:05:40] Look, if you’re getting into a position to sell an asset, get prepared. Right. I mean, you have to understand your asset to the level that you know what it’s going to need. And then I think the biggest thing we’ve seen over time, at least the last 24 months, is this divide between seller and buyer. Okay, there’s a big gap between what those expectations are. Buyers are not in a position to overpay for assets, and sellers have to understand like you want to put a value on a property, but I’ll tell you, if you run the proforma yourself, would you buy it yourself? Is the question you have to kind of ask them? You know, everyone has that pie in the sky dream of when I sell my asset, I’m going to retire and do this, but it still has to pencil. Buyers are not just blindly putting their money behind an investment. In today’s world especially with expenses on on everyone’s side rising, they’re a lot more cautious in today’s transaction world than they’ve ever been.

Glenn: [00:06:33] Yeah. So how can we learn more about new gen advisory? Where can we find you?

Suraj: [00:06:37] You can come to new gen advisory. We’re at every major conference in the hospitality industry. But all of our agents are always available. Please reach out to us via the web or even email. Happy to help anybody out there that’s ready to get the deal done.

Glenn: [00:06:52] Awesome. And I will see you, Suraj, at the lodging conference. And hopefully I’ll see all of you on the road. Meanwhile, please like, share and subscribe. So for Suraj and Glen, we’ll see you next time.

Suraj: [00:07:03] Thank you.