Abstract
That’s the goal of every lodging enterprise. But as shall soon become evident, achievement of this objective is easier said than done. Many factors come into play: the state of the economy in general, the specific supply/demand features for the industry as a whole, and of course—as the old real estate saying goes—location, location, and location.
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Notes
- 1.
From an Encyclopedia Britannica article on hotels.
- 2.
United Airlines proved this through its purchase of the Westin chain in the early 1980s and its sale of Westin a few years later. Also, Pan American World Airways founded the Intercontinental Hotel chain in 1946 and the parents of TWA and United each owned Hilton International, the chain’s overseas arm. None of these airline-hotel arrangements lasted for long.
- 3.
In hotels, for example, once fixed costs are covered, a large part of every incremental dollar of revenue contributes to profits and the variance of earnings and cash flow (EBITDA) tracks fairly closely. However, in the real estate business, depreciation and interest expenses are prominent characteristics with much greater variance between earnings and EBITDA usually evident.
- 4.
The Tax Reform Act of 1986 ended the Investment Tax Credit , which since 1976 had allowed builders to deduct 6 5 % of the capital cost of a project against taxes, and it also changed partnership rules. In addition, depreciation schedules were increased to 31.5 years from 18 years and earned income could no longer be sheltered by passive investment losses. Moreover, use of so-called nonrecourse bullet-loan financing —popular in the 1980s and featuring 5–10 years of payments with a large payoff required at the end of the loan period—later led to a large number of hotel foreclosures when, in the midst of the weak-demand environment of the early 1990s, many payoffs came due.
- 5.
By comparison, as of the end of the 1990s, debt service consumed only around 4 % of industry revenues.
- 6.
An alternative industry profit definition is that of house profit, i.e., profit before deductions for fixed charges and management fees.
- 7.
The UNWTO previously compiled the following data, which is no longer available but is of historical interest. In 1997, the number of bed-places in Europe were 11.375 million, in the Americas, 9.334 million, and in East Asia/Pacific, 6.708 million. These accounted for around 95 % of all places.
- 8.
In a local situation, a hotel or motel may be the only one in town or for miles around. In that case, the particular property would be a monopoly.
- 9.
In the economy segment, the buy versus build differential was minimal.
- 10.
- 11.
In Hayes and Ninemeier (2007, pp. 196–198).
- 12.
This follows Vallen and Vallen (1996, p. 104).
- 13.
The Hubbart Room Rate Formula , described in Vallen and Vallen (1996, p. 231, and 2000, p. 299) and in Vanhove (2011, p. 133), provided a widely used standardized approach for setting average room rates until the industry began using newer computer software that enabled more precise tracking of demand estimates in the application of yield management techniques. The Hubbart cost-oriented formula, essentially working backward from a projected occupancy rate, estimates what the average room rate should be to be able to cover all expenses and to then provide a specified return on investment. The formula divides fixed costs, variable expenses, and a “reasonable” return on the property investment by the estimated number of rooms sold. It thus prices rooms from the perspective of the entrepreneur rather than the guests. It also provides no detail related to room size and class of quality variations while being imprecise as to occupancy rate and return on investment assumptions.
Gregor (2006) reports that the cost of construction for high-end properties had risen (doubled from 2003 due to costs of labor, oil, marble, steel, concrete, sheet rock, and copper) to around $400 a square foot in 2006 and that it was no longer unusual for such established properties to fetch $1 million per room (or key) on transference.
- 14.
Selected segment breakeven occupancy rates in 1998 were found to be as follows:
Upscale
63.0 %
Midscale (without food and beverage)
49.0 %
Economy
41.0 %
Upper-tier extended-stay
60.0 %
- 15.
A study by the New York University Tisch Center for Hospitality and Tourism indicated that surcharges and fees (e.g., for reservation cancellations, minibars, early departures, Internet) reached a record of $2.35 billion in 2014. McCartney (2015) explains that frequent-stayer (i.e., loyalty) bonuses such as Marriott's rewards program, when later redeemed returned an average of 9.4 % for every dollar spent. That is, for every $100 spent, $9.40 was returned in free rooms. Such loyalty programs in hotels differ from those in airlines, where the airlines directly support the travelers” benefits and have an incentive to restrain costs. As major hotel chains do not actually own most of the properties that bear their brand names, it is instead the franchisees who finance the guest loyalty programs by paying into a pool of funds.
- 16.
The Uniform System of Accounts is a set of standards first published in 1926 by the Hotel Association of New York City, the founding chapter of the International Association of Hospitality Accountants. The system established standardized formats and account classifications to guide individuals in the preparation and presentation of financial statements and permits the statements of similar types of lodging properties to be readily compared. Uniform Systems of Accounts for the Lodging Industry (USALI) is available through the American Hotel & Motel Association Educational Institute (www.ahma.com). The 11th revised edition was published in 2014 and implemented starting in 2015. Important changes involve reporting for labor costs, information and telecommunications, rooms department charges, resort fees and surcharges, and mixed ownership properties (e.g., condo-hotels).
- 17.
As Andrew and Schmidgall (1993, p. 350) note, “an incentive fee may be 15 % of IBFCMF when the basic fee is 2 % of gross revenue, or 10 % of IBFCMF when the basic fee is 4 % of gross revenue.” Segal (2009) reports that management fees for the Four Seasons chain are generally 3 % of the gross and approximately 5 % of profits, while owners must also chip in for chainwide funds for global sales, marketing, and reservations.
- 18.
Commercial lenders will normally insist on a dedicated FF&E reserve for mortgaged properties. And commercial mortgage-backed securities (CMBS) usually require an FF&E reserve of 5 % of annual revenues. Sometimes, though, hotel owners unencumbered by mortgages elect not to fund a separate reserve for each property by instead managing cash flow to accommodate such ongoing expenses. Competitive pressures have made the need for upgrading has become more frequent and thus FF&E reserves of 6 % may now be readily justified. Some of the decision as to the proper percentage depends on the levels at which a hotel will capitalize an expenditure or expense it.
- 19.
Bary (2003) writes of hotel developers eagerly seeking the expertise of the Four Seasons luxury hotel management. Consequently, Four Seasons can obtain favorable terms. Typically, a deal will run for over 50 years give the company a base fee equal to 3 % of hotel revenues and an incentive fee pegged at 5–7 % of profits. However, because there is no “hurdle rate” or level of profitability that must be attained before the fees are charged, such arrangements are better than those at competitor Ritz-Carlton. Four Seasons , thus, draws cash as soon as most of the hotels it runs are profitable. Also, operating costs, including those for Four Seasons workers, are covered by hotel owners, with only sales, marketing, advertising, and administration covered by Four Seasons. In Brown (2001) it is suggested that Marriott’s typical variable incentive fee may sometimes be as high as 50 % of profits.
- 20.
- 21.
A list of recent fees is available at the Lodging/Hospitality Franchise Fact File found at www.LHonline.com.
- 22.
In the time-share structure, the purchaser becomes a tenant in common with other purchasers of the same unit and owns 1/52 of the unit. Interval ownership is similar in concept except that common tenants agree to an interval in which there is an exclusive right to use for a specified period. The interval ownership typically reverts back to tenancy in common after between 20 and 40 years. In leasehold structures, the purchaser leases the premises for a specified period of time but prepays the lease. Although vacation license structures also contain a similar “right to use” during designated times or in specific periods, the time-share buyer in these arrangements does not have an ownership interest in real property. Neither do purchasers of club membership arrangements, which are usually of shorter term (10 years) than the others. As noted in Binkley (2004b), unfilled time-share units are also sometimes rented out for daily room rates.
Destination clubs , which buy luxury homes in vacation destinations, however, sell memberships. The usual arrangement is to make a large upfront deposit and to then pay annual dues that are often more than $10,000. In return, each year members receive an allotment of days in which they can stay at the destination properties. However, members do not own any of the properties. Because households may own more than one interval, the number of intervals owned can grow faster than the number of timeshare owners. See Everson (2007a) and Berzon and Hudson (2011).
- 23.
For example, if each unit is sold for $20,000 for each of 52 weekly periods a year and there are 100 units, the developer’s gross sales potential is $104 million.
- 24.
A variation of the VOI concept, condominium hotel units , has also more recently evolved. In a condominium arrangement, the hotel unit is sold to a single buyer who can then make the unit available to the hotel operator for rental to visitors when the owner isn’t using the unit. The hotel operator and the unit’s owner usually share (~40 % for the owner) the rent revenues thereby generated, a feature that helps the buyer to more quickly pay down the mortgage on the unit. The condo owner also has the potential to benefit from price appreciation of the property even while deriving tax benefits from interest and depreciation deductions. As noted by Corkery et al. (2008), the outcome is not always favorable for owners. See Alsever (2006) and Carney (2008). Morgenson (2016) discusses pressure sales tactics and the difficulty in reselling units. See also www.pwc.com/us/en/technology/publications/assets/pwc-consumer-intelligence-series-the-sharing-economy.pdf.
For hotel owners and operators, such condo unit arrangements make it easier to finance hotel construction, reduce marketing costs relative to those in time-share sales (because the unit is sold once, not 50 times), and provide additional hotel room inventory. According to Morrissey (2000), advertising and marketing costs absorb anywhere from 35 to 50 % of a time-share unit versus only 10–13 % of the price of a hotel-condo unit. See also Smith (2004), Pristin (2004), and Corkery (2006).
Another variation to time-share ownership follows a country-club business model in which access to luxury resort homes is purchased with an upfront membership fee that begins at $150,000 plus payment of annual dues that might run to as high as $20,000 a year (for a maximum of 60 days of visits to any number of properties). This arrangement allows access to club properties for as many as perhaps 6 weeks a year and includes extensive services. The clubs are able to generally avoid overbooking in peak seasons by limiting memberships in each club. Companies involved include Private Retreats, Exclusive Resorts, Mirabella Estates, and Odyssey Club. See BusinessWeek, September 15, 2003; Smith (2003), and Johnson and Corkery (2006), and Sullivan (2012). According to the American Resort Development Association (www.arda.org/aif-foundation/research/timesharedatashare/overview.aspx), a timeshare trade group, in 2014 net timeshare sales were $7.9 billion generated from 1555 resorts in the US, the average sales price was around $20,500, and the occupancy rate was 80.7 %. See also Kaufman et al. (2009)
- 25.
Timeshare accounting follows the distinct protocols of the three business segments involved. For the resort development and sales aspect, FAS 66 and 67, “Accounting for Sales of Real Estate” and “Accounting for Costs and Initial Rental Operations for Real Estate Projects,” are respectively applied. These have been later supplemented in 2004 by FASB amendments via Statement of Position (SOP) 04-2, “Accounting for Real Estate Time-Sharing Transactions.” For projects that sell deeded interest in real estate and where the developer can immediately recognize 100 % of the interval sales as revenues, there are additional criteria (e.g., developer has received at least 10 % of the purchase price, the period for refund cancellation has expired, the receivable is collectible) that must be met. But for projects not yet completed, all revenues are deferred and recognized using the percentage of completion method. Costs are normally capitalized during the development and construction period, and are then amortized using a relative sales value method.
- 26.
Guidelines for restaurant turnover might be as shown in the following table.
Square-foot requirements and turnover rates.
Dining room (sq. feet per seat)
Turnover in patrons (per seat per hour)
Commercial cafeteria
13–18
1.5–2.5
Coffee shop with counter and table service
15–18
2–3
Deluxe restaurants
13–18
0.5–1.25
Popular-priced restaurants
11–15
1–2.5
Source: Walker and Lundberg (1999, p. 77), The Restaurant: From Concept to Operation, 3rd ed. Reprinted with permission of John Wiley & Sons, Inc.
As shown in Powers and Barrows (2003, p. 74), differences in service levels are reflected in productivity of staff, where direct labor hours per 100 guests is estimated at 10.5 h for fast-food establishments, 18.3 h for cafeterias, 20.7 h for family restaurants, and 72.3 h for luxury restaurants. See also Lundberg (1994), Schmidgall et al. (2002), McCracken and Adamy (2008) and Walker and Lundberg (2014). The restaurant industry overall employed 13 million people, which makes it the third-largest employer in the United States after the US government and the health care industry.
- 27.
See Salzman (2013) and Edleson (2013a), in which the four models typically used by online travel agencies (OTAs) are discussed. OTAs can book rooms in ways similar to traditional travel agencies (sometimes referred to as global distribution systems, or GDSs) and the hotel then pays the OTA 5 % commission. There is an auction system as used by Priceline; an opaque model as used by Hotwire.com in which consumers don’t know what brand they are buying; and a merchant model, in which an OTA buys room inventory from hotels and the hotel then typically pays a commission of between 18 and 38 %. OTAs are estimated to account for nearly 20 % of all bookings and the percent of room revenues paid to them by hotels may generally range from 10 % to 25 %.
- 28.
According to Smith Travel Research, in 2015 in shares of branded properties were: North America, 67 %; Europe, 41 %; Asia/Pac, 51 %; Middle East/Africa, 44 %; and South America, 41 %.
- 29.
Hotel loyalty programs were launched in 1983 by Holiday Inn and Marriott and were originally conduits to airline programs wherein currency earned in hotels could be used for free flights on participating airlines. The programs, now often co-branded with credit cards, then evolved so that accrued rewards could be used for free roomnights and other benefits. Points in loyalty programs are accumulated when a guest checks into a hotel and the hotel’s owner pays a fee into a special fund that is structured to cover the expected costs of potential future point redemptions. When guests redeem their points for a free night or other benefits, the management company charges the fund to pay the hotel owner back for the room night that is redeemed (but at a fraction of the published room rate). The challenge for the hotel is that it must have sufficient cash to cover all of the potential redemptions. As noted in Hudson (2010), the economic recession that began in late 2007 led to an increase of merchandise redemptions as compared to overnight stay redemptions. The hotel owner must then pay more to product suppliers for merchandise instead of being compensated for the cost of a room out of a reserve fund that hotels pay into. See also Audi (2007).
- 30.
For example, estimates by PriceWaterhouseCoopers suggest that at upscale hotels, a 1 % rise in price (i.e., in real ADR) results in a 0.4 % decline in room demand and a 0.6 % decline in occupancy percentage points for each $1 increase in real ADR. The cross elasticity for the economy sector against midscale hotels without food and beverage indicates even greater sensitivity, with a 1 % increase in economy prices raising midscale demand by 0.8 % and with each $1 change in economy real ADRs raising midscale occupancy percentage points by 1.4 %. See Hanson (2000).
- 31.
- 32.
Mortgage bonds can be classified as being either open or closed. If they are closed, no more bonds may be issued against the mortgage. However, there may not be any limit as to the amount of bonds that may be secured, and if so, the issue is open.
- 33.
Securitization converts identifiable and predictable cash flows into securities that may be easier to trade than are other forms of debt because different packages (tranches) of such securities can be designed to appeal to investors desiring different combinations of rights and risks. Also, the risk can be spread over a number of borrowers, and the costs of administration may be lower.
- 34.
A third type of REIT, known as a paired-share REIT , was limited to four companies that had been grandfathered into this particular structure when REITs were formed. For a long time, the paired-share structure allowed a REIT company and an operating company to function side by side, minimizing tax payments as compared to C corporations. Such tax advantages, for example, allowed Starwood Lodging to outbid Hilton in the 1998 takeover battle for ITT’s Sheraton chain. In response, Congress clamped down, and paired-share REITs are no longer factors in the market. Even Starwood changed over to a regular corporate structure in 1998. REITS are generally not subject to corporate federal income tax on that portion of REIT taxable income (i.e., at least 90 %) that is distributed to shareholders. Under the U.S. Tax Code, the REIT cannot operate the hotels owned and acquired but must lease the properties and engage third-party independent contractors manage the hotels. And the REIT does not have the authority to require any hotel property to be operated in a particular way or to govern aspects of daily operations. REIT conversions such as those by Penn National and Pinnacle Entertainment have also been applied to the casino sector. See Hoffman and Rubin (2015).
- 35.
New equity REITs may also be formed with existing properties and/or real estate partnerships through an Umbrella Partnership Real Estate Investment Trust (UPREIT) . This entity differs from a traditional REIT because a limited partnership structure is utilized, with the REIT functioning as general partner. The arrangement allows existing partnerships (or property holders) to contribute their property in exchange for a limited partnership interest in the new REIT operating partnership. After a period of time (usually 1 year), limited partners who contributed property can exchange some or all of their interest for cash or REIT shares. This will cause tax to be due on appreciation that occurred in the contributing partnership (although by selling their units over a period of time, the partnership unit holders may spread any tax over several years). Both holders of real estate partnership interest and REITs can benefit from the UPREIT. Real estate partnership unit holders transform their illiquid partnership interest into the more liquid REIT shareholder status. The REIT benefits by acquiring real property without having to generate capital to purchase the property.
- 36.
FFO, as adopted by the National Association of Real Estate Investment Trusts, provides a measure of cash from operations and is calculated by adding back real property depreciation expense to net income and adjusting for other extraordinary events. Nevertheless, FFO should not be relied upon as an ultimate measure of a REIT’s ability to pay dividends because it does not reflect recurring capital expenditures that are capitalized and not expensed. A reserve for these capital expenditures is therefore deducted from FFO. The result is cash available for distribution (CAD) , a more accurate indicator of a REIT’s ability to pay dividends.
- 37.
FFO is defined as net income minus profit from real estate sales plus real estate depreciation. Adjusted FFO (AFFO) takes FFO and subtracts recurring capital expenditures, amortization of tenant improvements, amortization of leasing commissions, and rent straight lining. But controversy abounds as to definitions used in practice, and great attention must be paid to the details. To boost FFO, REITs may be capitalizing some expenses rather than treating them as current expenses. And REITs have been criticized for deeming certain costs nonrecurring, avoiding hits to their FFO. As Vanocur (1999) notes , “the figuring of FFO starts with net income as computed in accordance with GAAP. From that number gains or losses from debt restructuring and property sales are excluded. Real-estate-related depreciation and amortization is added back, and the total is adjusted for unconsolidated partnerships and joint ventures.” Such differences in earnings measures are further discussed in Smith (2001a, b); the Wall Street Journal of March 20, 2002; and in Block (1998, p. 152), who indicates that FFO is also flawed because not all property retains its value every year and because not all REITS capitalize and expense similar items in similar ways. For this reason, the raw FFO data ought to be adjusted for recurring capital expenditures, amortization of tenant improvements, and other items to arrive at an adjusted FFO.
The Wall Street Journal of August 11, 1999, writes that Archstone Communities Trust divided depreciable items into things such as carpets, roofs, and appliances that have a life of less than 30 years and those such as buildings and land improvements with a life of more than 30 years. Archstone treated depreciation of more perishable items as expenses instead of adding them back to cash flow, as most REITs have done.
The REIT Modernization Act of 1999 allowed a REIT to own as much as 100 % of the stock of a taxable REIT subsidiary that provides services (e.g., concierge, travel, and delivery) to REIT tenants and others. Previously, REITs could only own up to 10 % of the voting stock of a taxable corporation, which made it difficult for hotel REITs to avoid potential conflicts of ownership and operating-control issues that arose when hotels had been required to lease properties to third parties. Under the new Act, financial results would be based on profits rather than hotel revenues. See Wall Street Journal, November 24, 1999; January 24, 2001; and February 21, 2001.
- 38.
In assessing the risks of extending long-term loans, banks and other lenders will focus on loan-to-value (LTV) ratios and debt-service-coverage (DSCR) ratios that are comparable to the coverage and leverage ratios discussed for airlines in Chap. 2. According to PriceWaterhouseCoopers data, the LTV ratio for the industry averaged 61.3 % between 1996 and 2001, while the average DSCR from 1995 to 2001 was 1.81:1 or 24 % above the average of 1.46:1 for the years 1978–1989. The typical range for the LTV ratio is 60–75 %. Lower breakeven occupancy levels, which declined from 65.2 % in 1990 to 51.0 % in 2001, also helped the industry avoid significant delinquencies during the economic downturn of 2001.
- 39.
Pooling-of-interests accounting , no longer allowed after 2001, had been approved only if certain strict criteria had been met. In a pooling, two companies combined their assets and liabilities as if they had always operated as a single entity. The advantage was that there is no charge to earnings for what in purchase merger accounting is known as goodwill amortization. Such goodwill represents the value of intangible assets such as brand names and reservation systems and operating know-how that a purchaser buys for a price that exceeds the target company’s stated book value.
In a purchase-accounting type of merger this goodwill used to be charged, according to U.S. GAAP, as an expense and written off evenly over no more than 40 years. After calendar 2000, goodwill is no longer amortized over any particular period and may remain on the books indefinitely, until it has been determined that the value of the acquired assets has been impaired. Prior to this change, amortization of goodwill had depressed stated earnings results, with such charges in large mergers often amounting to several hundred million dollars a year. See, also, Financial Accounting Standards Board (FASB) Statement No. 142 and the New York Times and Wall Street Journal, December 7, 2000.
- 40.
The industry has developed a forecasting tool known as the US hotel industry leading indicator (HIL) , which is a monthly composite of nine different components that, on the average, are able to estimate industry demand data by 4–5 months in advance of a change in direction in the business cycle. Among the HIL components are the Treasury bond yield curve, oil prices, job market conditions, hotel worker-hours, housing activity, foreign demand, new orders, and a vacation barometer.
- 41.
PriceWaterhouseCoopers economists have also estimated the elasticity of room demand with respect to real GDP between 1987 and 2000 by hotel segment: Upper upscale was 1.02; upscale 1.46; midscale with F&B, not significant; midscale w/o F&B, 1.24; economy, 1.03; Independent, <1.00.
- 42.
PriceWaterhouseCoopers, in privately commissioned research, estimated a correlation coefficient of –0.4 between changes in the airline cost index and changes in lodging demand for 1979–1997. The firm also estimated that a 1 % increase in the price of crude oil causes a 0.06–0.09 % decline in lodging demand.
- 43.
Levere (2010) discusses major hotel expansion projects coming on stream even as occupancy rates and prices are still relatively weak. That’s because most of these projects had been planned and financed at the business cycle peak and prior to the long recession that began in late 2007.
- 44.
For purposes of assessing local competitive conditions, the key factors are the distance between new hotels and older ones, along with brand segmentations (e.g., upscale customers usually don’t substitute with economy hotels and vice versa), and the relative size of existing nearby hotels. The n/e ratio , of course, does not directly take demand growth into consideration, so that hotels competing even in a high n/e ratio region may not experience near-term profit impairment if growth of demand in the region is strong and able to absorb any new construction.
- 45.
As in the airline industry, technology has enabled middlemen room wholesalers such as Expedia .com to exert significant influence over the availability and pricing of large blocks of rooms (and airline seats). National hotel chain brand managers, and to an extent airline managements, have thereby surrendered some of their former prerogatives. Local franchisees, who actually own the properties, now have much greater say in pricing and availability of rooms than in the past, when national brand managers had more power to dictate on these items. Online wholesalers will generally earn more on higher sales margins from their merchant than their agent activities. Expedia , which sells airline tickets, hotel rooms, and cruise packages under Web Sites that include its name as well as Hotels.com, hotwire.com, and tripadvisor.com, participates in an online travel market estimated to be around $95 billion as of 2014. See BusinessWeek, August 1, 2005.
Angwin and Rich (2003) note that Expedia , a full service travel agency (air, hotels, cars) created by Microsoft in 1996, and Hotels.com accounted for about 60 % of online bookings in 2002. By 2012, hotels still accounted for the majority of online travel agency revenues. As the airlines have done with Orbitz, hotels have banded together to form their own online systems. Marriott, Hilton, Hyatt, Six Continents, and Starwood formed Travelweb LLC in 2002 to sell rooms on Travelweb.com . Six Continents, Hilton Group PLC (operator of Hiltons outside the United States), and Accor also formed WorldRes Europe to serve the Euro market. And Travelocity , owned by Sabre Holdings, also launched a wholesale hotel service around this time.
For 2014, the hotel industry estimated that online travel agencies (OTAs) cost the industry at least $2.5 billion and accounted for approximately 99 million of the 1 billion room-nights sold in the US during 2010. In 2011, OTAs accounted for around 7.4 % of US industry revenues as compared to 1.3 % 10 years earlier. The hotel industry sees the OTAs as typically the most costly of any distribution channel because OTAs are an intermediary between a hotel and the traveler. Most OTAs, in turn, see the economics of serving the hotel industry as being much more favorable for them as compared to servicing airlines. See also Morgenson (2003), Nicas (2011), HotelNewsNow.com, 04 August 2011, and Karmin (2015).
- 46.
However, the combination of better technology and faster-than-average unit expansion of the limited service formats that require relatively lower labor content has enabled the number of hotel industry employees per 100 rooms to decline from approximately 78 in the late 1980s to 74 by the late 1990s.
- 47.
Various valuation techniques are illustrated in more detail, for example, in deRoos and Rushmore (2002).
- 48.
See Karmin and Fung (2015) about per room prices in New York exceeding $2 million. In 2014 New York’s Waldorf Astoria was sold for $1.95 billion, or $1.3 million per key. Micro hotels are discussed in Zipkin (2016).
- 49.
Encumbrances are often the most important in determining the going concern value. A potential complication, for example, arises when ownership interest is encumbered by intangible non-cancelable and long term agreements that may be owned by different entities than those owning the real and personal property. All other things being equal, buyers will typically pay a higher price for hotel assets that are unencumbered.
- 50.
This spread is usually calculated against 10-year Treasury bonds for which the average yield spread from 1990 to 2004 was 490 basis points (bps) and from 2001 to 2004 630 bps. The Real Estate Research Corporation tracks this data. See also Titman et al. (2005).
- 51.
The same approach to public versus private market value comparisons and the use of valuation ratios as described for airlines (Sect. 2.5) may also be applied.
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Vogel, H.L. (2016). Hotels. In: Travel Industry Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-27475-1_4
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