A hotel is often perceived as a major project involving investment and labor followed by an indefinite period of return on that investment. This “flat” approach does not take into account fluctuating economic conditions, depreciation and wear-and-tear on the structure itself, and the changing nature of the area in which the hotel is constructed. When attempting to quantify the overall value of a hotel, whether in the planning stage or when purchasing an existing business, it’s necessary to involve hospitality appraisal experts.
The Crystal Ball
Hospitality appraisal services come in three basic strategies:
- Net income: The most popular and most useful approach is to project income from the hotel against projected maintenance and other operational costs.
- Sales comparisons: While useful, sales comparisons cannot really help predict future value, and are usually used only as supplementary data, to get a read on the market.
- Costs: A useful metric in determining the value of a new hospitality establishment is determining how much the structure and infrastructure cost to build. This metric is far more useful in estimating the value of a new hotel than for an older one.
Best Practices of Hospitality Appraisal Services
The ideal approach to determining the true value of a hotel is to combine the three approaches and apply them not only to the hotel in question, but to other businesses and structures in the area, giving investors a glimpse of where the overall economic situation is headed.
A declining area will drag down even the best-maintained hotel, and a rising area will make it easy to fund improvements and maintenance to keep hotel values steady or even improving. Getting as complete a picture of this situation as possible is ideal for an accurate valuation of a hotel project.