Before you buy a hotel, you should know what it will cost to insure, whether it can be insured on the terms your lender and brand require, and what liabilities could follow the property after closing. Insurance belongs in due diligence alongside the property condition report and the financials, not in the final week before closing. A surprise at that stage can change the deal's numbers or delay the close.
Because the seller's insurance cost is not your insurance cost. Premiums are priced on the property's condition, its claims history, its operations, and the buyer. A hotel that has been insured at an attractive rate for years may reprice sharply when ownership changes. If your pro forma uses the seller's premium, your projected returns may be too high.
Ask for these early, ideally in the first due diligence request list:
Look for patterns, not just totals. Repeated water damage claims can signal plumbing problems. Multiple slip and fall claims can point to maintenance or lighting issues. Assault claims, liquor claims, or a history of police calls can affect which carriers will quote the property at all. Large open reserves on liability claims deserve a direct conversation with the seller and your attorney.
Underwriters will review the same history when they quote your coverage, so understanding it before you make your final offer puts you in a stronger position.
Hotel loans typically come with detailed insurance requirements. Common items include:
Percentage wind and hail deductibles, common in Texas, sometimes conflict with lender deductible caps. Find this out before the loan documents are final, not after.
A change of ownership usually requires a new franchise agreement or a transfer approval, and the brand will apply its current insurance standards to you. Those standards may be stricter than what the seller carried under an older agreement. A property improvement plan is also often required at transfer, which brings its own insurance considerations during construction.
Generally, no. Most commercial policies cannot be assigned to a new owner without the insurance company's written consent, and carriers usually prefer to underwrite the new owner fresh. Plan on placing new coverage effective at closing. A gap of even one day between the seller's coverage ending and yours beginning leaves the property uninsured, and lenders will not fund without proof of coverage.
Insurance that applies on an occurrence basis generally covers injuries that occurred during the policy period, even if the lawsuit comes later. That means claims from incidents before closing should typically fall under the seller's policies. But if you acquire the operating entity rather than just the real estate, you may inherit its liabilities as well. Your purchase agreement should address indemnification for pre-closing claims, and your attorney should confirm how the structure of the deal affects exposure. Claims-made coverages, such as employment practices liability, work differently and need specific attention.
For a straightforward property, plan on several weeks. For larger hotels, properties with difficult loss history, coastal exposure, or older buildings, it can take longer, especially if multiple carriers are needed to build the property program. Start the process as soon as you have the seller's documents.
As soon as you are under letter of intent. Early premium indications help you underwrite the deal accurately.
Often, yes. A purchase price reflects income and market value, not the cost to rebuild. Insurance should be based on replacement cost.
You can ask, but you should have your own advisor reviewing the coverage on your behalf.
If you are buying a hotel in Guadalupe, Comal, or the surrounding counties, send us the loss runs, current policies, and your lender's insurance requirements. We will give you a realistic insurance cost for your pro forma and flag anything that could delay closing. Call 830-303-8300 or visit our hotel insurance page.