The Valuation of Hotels and Hospitality Assets

The role of a hotel valuer requires not just the expertise of a qualified real estate valuer, but also the competencies of a detective, an accountant and even a social worker. Here, we will explain why the valuation of hotels requires such a multi-dimensional and disciplinary approach and why appointing a valuer experienced in this domain is so crucial.

Bethier & Associés have experience of valuing hotels and tourist residences for over 40 years, particularly in the tourist-dense areas of the French Alps. Due to the particular nature of these assets, this extensive understanding of the market and methods of valuation is crucial for an accurate valuation. For an English-speaking introduction to the specialist valuation services that can be provided, contact Samuel Thompson via email at [email protected] or telephone +44 7933 239126 / +33 07 45 55 81 46.

Valuation of Hotels
Valuation of Hotels reception desk

How Does the Valuation of Hotels Differ From Other Commercial Properties?

As hotels are operational assets, they are distinct from most other categories of commercial property. One cannot simply measure the building and multiply the surface area by a particular number to produce the value. The valuation of a hotel requires further elements to be considered, which necessitates that the valuer converses with the hotel’s management, the landlord and their clientele. These additional skills required by the valuer adds to the complexity of the task.

What Are the Key Factors That a Valuer Must Take in to Account When Valuing a Hotel?

Firstly, a valuer must have a deep understanding and appreciation of the sector, the property they are valuing and its situation. They must be capable of evaluating the quality of the current management team and, from that, determine hypothetically the performance of another reasonably effective operator for this same property at the valuation date.

Furthermore, the valuer has to be competent at examining the robustness of the business model and the ways that it could be impacted in the future should there be changes in the management team, shifting market trends or in the event of a disaster. If the hotel depends upon just one or two major sources of income, the valuer must ensure that the business can adapt and continue to attract customers from elsewhere if this source is reduced or completely cut off. The same considerations apply if a key team member were to leave and need to be replaced.

The valuer needs to undertake their inspection with great attention, taking in to account the physical condition of the building and looking out for potential threats to the business, including existing and prospective future competitors.

A valuer who holds all these attributes is one that you can have confidence in to continue to the next stage, valuing the hotel itself.

Valuation of Hotels number of rooms
Valuation of Hotels in Savoy French Alps

What is the Process For the Valuation of Hotels

There are several ways to value a hotel, notably through directly capitalising the stabilised EBITDA, the realisation of cash flow, the investment method (capitalisation of market rent) or through the comparison method (price per room). Whichever method (or combination of methods) adopted, too often the valuer will lose sight of the key question they have been engaged to answer – what is the Markey Value of the hotel?

Applied correctly and competently, all the valuation approaches cited above will provide the response to this question. Conversely, if applied incorrectly and without true understanding, the resulting opinion of value runs the risk of being no more than a mathematical calculation which bears no relation to the true Market Value. This clearly will lead to subsequent issues.

What Must a Valuer do to Ensure an Accurate Valuation?

To apply a method of valuation with precision, the valuer must be capable of taking a step back to examine the results of their valuations and then proceed with making adjustments to reach a figure conforming to the market. This necessitates an element of common sense. The valuer should thus take time to discuss their approach with various industry stakeholders including not just colleagues, but hotel owners, managers and investors. This is particularly important in the current market where direct comparables are limited and a knowledge of the market is invaluable to come up with accurate and reliable outcomes.

Hotel Valuation Method

It is clear that the valuation of hotels is far from straightforward, and it is for this reason that there are so few specialists in this domain. With over 40 years of experience valuing hotels and tourist residences, Bethier & Associés possess the knowledge and skills necessary to provide considered and accurate advice which is tailored to the client’s requirements. For an English-speaking introduction to these specialist valuation services, contact Samuel Thompson via email at [email protected] or telephone +44 7933 239126 / +33 07 45 55 81 46.