factors contribute to the market value of a hotel or motel and
these are different fromt the Valuation
of an Inn. Different buyers use different formulas for the
price they are willing to pay for a hotel or motel. Whatever formula
used, everyone should take into account factors which may or may
not be used by other buyers and lenders. One should consider:
market conditions, current franchise or future franchise possibilities,
age and condition and architecture, renovation and maintenance
costs, reputation of the past management, future hotel or motel
development in the area, future room night demand, barriers to
entry, financing options, functional obsolescence, value of the
land, and more. Each of these must be considered and in some cases
one should be considered more heavily than all of the others.
Risks will vary with every property. The following formulas are
just some of the ways that you might arrive at a valuation.
A popular formula used by buyers of motels and hotels generally
under $10,000,000. This Multiplyer varies from region to region.
from less than 2 times the gross room revenue to over 5 times
the gross room revenue and makes using this method imprecise for
valuation. It should be considered only as one of a the measures
R=I/V or Rate = Income (usually accepted as the Net Operating
Income) divided by the Value; or to determine Value (V) = Income
(I or NOI) divided by Rate. A good measure of value for a consistently
performing investment property which the purchaser plans to maintain
in the same manner.
This is basically a cost of replacement comparison and a sales
comparable method at the same time. If a new hotel or motel with
the same construction and amenities costs $45,000./room and you
can purchase an existing property for $25,000./room plus renovation
costs of $5,000 per room and have a property equivalent to a new
property, the savings of justifies the purchase of the existing
property. With knowledge of the price per room of similar properties
in the same or similar markets you could arrive at a price for
the property you wished to purchase.