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Hotel Valuations

Key Considerations for Valuers

Valuers evaluate:

  • Current Use: Assuming a permit would be granted.

  • Potential Use: Given the underlying zoning of the land.

The market value should be assessed by comparing sales of similarly zoned land with similar attributes and development potential.

Site Value

Assessing the site value involves considering various factors such as land area, frontage, topography, shape, location, accessibility, exposure, and proximity to public transport and amenities. The site value should reflect the highest and best use of the parcel, whether or not it has a planning permit.

Income Capitalisation Approach

For going-concern hotels, valuations may also be based on a ten-year forecast of income and expense, combined with a discounted cash flow analysis. This method provides a reliable estimate of a hotel's value by examining its profit potential, considering the long-term forecast of income and expenditures in the current market context.

Valuation Methods

There are three basic methods typically used to determine the actual value of a property, including hotels. These methods can be adjusted to accurately value different types of properties.

1. Income Approach

  • Overview: This approach looks at cash flows and uses predictive methods to determine likely revenue streams.

  • Application: It helps in determining hotel loans based on the valuation of an existing property.

  • Considerations: Historical data on occupancy rates, profits, and revenue streams are often requested by lenders, although past results are not a guarantee of future performance.

2. Cost Approach

  • Overview: This method is based on the cost to rebuild the hotel, minus any depreciation.

  • Application: It includes the value of the land on which the hotel sits.

3. Market Comparison Approach

  • Overview: This method uses comparable properties in similar markets to determine the most accurate selling price.

  • Considerations: Factors such as amenities, physical characteristics, size, capacity, and any unique advantages or disadvantages of the hotel are taken into account.