Hotel Valuation Questions

[Zach Schwarzmiller]

Greetings - I have a client whom is interested in potentially selling a large hotel (multiple buildings) located in the Downtown CBD Core of Eastern Washington (state). Sales comparable are not readily available for the hotel industry so I am curious as to how most investors are valuating these investments on both acquisition and disposition. There are obviously a lot of variables; however, I am just looking for some general guidance. I have a good grasp of valuation on most all other commercial asset classes, just not sure what I need to tweak to accommodate hotel type asset.

Thank You! 

[Barry Herbst]

Hi Zach,

Comparable sales are the best indicator; I also recommend speaking with a commercial broker who specializes in this area. My firm, Brown Harris Stevens, has a deep national and international sphere with thousands of affiliates- let me know if you'd like me to connect you to our partners in Washington State.

I studied Hotel & Restaurant Management in college- I recommend taking the total # of keys (rooms) in the hotel, multiply by 365, which leads you to the maximum number of stays per year, and find out the average cost per night, and the average rack rate (highest price someone is willing to pay) for the hotel. From there you'd find out the hotel's total expenses, and you'd get the fixed expenses, variable expenses and finally the net operating income. You'd also be factoring in the land, amenity spaces, etc into the mix.. the commercial broker will be able to lend best insight into your market. 

Best,

Barry