10th May 2015
Getting into the hotel business is not like other investment opportunities. While the return on investment in hotel projects can be very attractive, the fact is hotel properties can be incredibly variable in their return on investment and other financial performance indicators, depending on a great number of variables that can be difficult to predict or even understand.
Past Performance Not Enough
In many other investment arenas, past performance analysis may be sufficient to predict future performance of an asset, thus justifying investment participation or at least informing the decision. In the hotels business, however, this is not always a reliable factor. A hotel can see a sudden change in performance for a wide variety of factors, including new development nearby, a change in traffic patterns, loss of economic activity elsewhere in a metropolitan area, or simply the age of the hotel’s facilities and amenities.
The Importance of Hotel and Real Estate Appraisals
This makes an appraisal by a qualified firm familiar with hotel development and management crucial to any investment decision. Appraisals by an experienced firm can take into account the possible downsides to a hotel development, and compile all of the relevant information into a comprehensible and digestible report that clarifies the issues for investors who may not be familiar with the world of hotel management and valuation.
Choosing an appropriate appraisal service for a hotel investment opportunity is a crucial step in due diligence. Whereas other investment opportunities may require only the investors’ own experience and savvy to research properly, hotel properties are special cases that require special experience and in-depth knowledge in order to get to a satisfying conclusion. This makes identifying a knowledgeable appraiser one of the largest priorities when putting together a hotel deal.