10th Aug 2015
Individuals who routinely perform hotel and real estate appraisals in California can attest that properly valuing a hospitality property is complex. Data is often not static and comparable transactions are not as readily available as other types of investment properties. Individuals who are interested in hotel development are most interested in the potential return on investment. However, experts specializing in hotel and real estate appraisals in California can explain that quantifying such projections is difficult due to the many variables that affect this calculation.
In evaluating the potential profit margins of new or existing hotel development, an appraiser may look at past performance like he or she would in a purchase of a family home. The appraiser may use an income approach that calculates the average room rate over a specified duration that is adjusted according to past occupancy rates. This figure can help determine the approximate amount of income that the hotel operation expects to generate in the future.
However, this is only one of many indicators that the appraiser will investigate. Hotels are more sensitive to factors within the market, making one year’s worth of data undependable. Factors such as similar properties in the area, the travel industry, the availabilities of amenities and the price differential with competing properties all have the potential to change a hotel’s performance and profit levels.
In order to develop an accurate estimate of the value of the property, an experienced appraiser who is familiar with hotel development is necessary. Such experts are familiar with these factors and can take them into consideration when determining the value of the property and potential profits. By compiling this data, resort development experts can give their clients a realistic view on projected profits and the value of the project so that they can make informed decisions throughout the negotiation and the operation of the hospitality project.