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  #1  
Old 12-19-2011, 09:17 PM
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Default "ADR Rule of Thumb"

Thoughts?

Value is ADR x room count x 1,000.

http://www.personal.psu.edu/jwo3/Hot...%20Article.pdf
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Old 12-19-2011, 09:35 PM
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Drat. Wrong forum. Can a mod move this to the commercial forum?
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Old 12-19-2011, 10:03 PM
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The little black book of commercial RULES .. sheesh!!!
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Old 12-19-2011, 10:09 PM
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Originally Posted by PropertyEconomics View Post
The little black book of commercial RULES .. sheesh!!!
lol... I knew that's what you would say.
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Old 12-19-2011, 10:13 PM
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lol... I knew that's what you would say.

well with only a few hours of work time you dont have all the time to do the research .. right?
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Old 12-19-2011, 10:26 PM
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One of my co-workers emailed that to me this afternoon. I haven't read it all the way through. It seemed interesting. We wouldn't use this for evidentiary hearings. Just a quick way to see if there's a potential case. Perhaps.

I'm not sure I'd even rely on it for that.

And yes. I have to do them fast. I've done half a dozen hotels this month (from small SRO types to 300 rooms.) This afternoon I had to start an argument with an assessor's appraiser about a 150 room budget/limited service property. My value is for the going concern and he wants to add FFE on top of that. It's my position that FFE should be subtracted from that (for assessment purposes.) Really though, this is more of a misunderstanding than a methodology problem.

I have a phone conference tomorrow morning on a pair of golf courses. This only leaves the rest of the week to respond to about 20 requests for information (a statutory requirement prior to a request for a formal change of assessment) for all sorts of properties. Not to mention making sure my hearing schedule is caught up until January 9th.

I'm going on vacation right after Christmas.
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Old 12-22-2011, 07:24 PM
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Default Hotel valuation based on ADR or RRM

Quote:
Originally Posted by CANative View Post
Thoughts?

Value is ADR x room count x 1,000.

http://www.personal.psu.edu/jwo3/Hot...%20Article.pdf
This technique is tantamount to constantly using a Room Revenue Multiplier of 2.74 (which is 1000/365). I think this is slightly high for current market conditions.

Why not use a market-derived room revenue multiplier? Last comp I have in northern California is the America's Best Inn in Modesto, which sold a year ago at an RRM of 2.36.
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Old 12-22-2011, 07:48 PM
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"Rules of Thumb" are generally nonsensical except in cases where the buyers and or sellers are using them as a guide to valuation....then it becomes a self-fulfilling prophecy, some with a very long life line.

In petroleum, as early as 1865, only 6 years after Drake discovered oil in Pennsylvania, they were using a multiplier of 1000 x the number of barrels of oil per day. A well that made 100 barrels in a day would sell for $100,000.

Today many gas explorers are estimating the total gas reserves at 1000 x the IP (initial daily production). So a well that makes 2 million cu. ft. per day would be estimated to make 2 billion cu. ft. A plot of production by an engineering firm of a more rigorous engineering method projected from the first 15 years of production in the Barnett shale yielded a ratio of 1:893...so it wasn't off much more than 10%.
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  #9  
Old 12-22-2011, 09:21 PM
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What I've been doing is going over their income and expense statements for the two years prior to the date of value and sometime the year after. I convert their income to RevPAR and put it in a 10 year excel model. I then put in their expense ratio as a % of revenue (allowable expenses.) Other income (if any) goes on a separate line. I've got a collection of discount rates for various types of properties in various MSA's for the first quarter of each year I may be working on (their all retrospective.) Typically my assumptions are the first 3 years revenues don't increase (keep in mind this is retrospective). After that I assume about 2%-4% revenue escalation. Terminal cap rate is usually around 9% or so.

I also use use ADR and occupancy numbers if I receive detailed information from the client (it varies from mom & pop 25 room properties to 300+ room flagged properties to middle of the road budget/limited service flags like *cough*Good Nite* Cough - we have dozens of those.)

Some assessor appraisers love direct cap and no sales, a few are impressed with DCF and a sale or two, some (usually rural Counties like Tehama, Butte, Yolo, Shasta, etc.) like gross revenue multipliers. I've never thought of RRM's. I'll try to figure that one out and try it sometime.

Quote:
Last comp I have in northern California is the America's Best Inn in Modesto, which sold a year ago at an RRM of 2.36.
Stanislaus County. Their hotel guys are pleasant to work with.

I work all 58 Counties for hotel properties because my company has declared me the "hotel guy" for some reason. I realize I'm a lowly residential appraiser but you wouldn't believe the stacks and stacks of appraisals, financial data, and other information I've collected on hotels in the last couple of years.
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  #10  
Old 12-23-2011, 02:16 PM
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The enrolled value of the hotel I'm working on today represents an RRM of 6.875 based on this formula: Hotel Value / Room Revenues = RRM.

Quote:
The subject property is the xxx xxx Inn, a privately managed, 23 room economy/limited service hotel located in xxxxx at the intersection of xxth Street and xxxx Street about a tenth of a mile south of State Route xxx. SRxxx is a controlled access freeway in the section of xxxx where the subject is located. There is an off-ramp at xxth Avenue and access to the subject is easy, although visibility could be better.

Property Description:
The xxx xxx Inn, built in 2006, has 23 units, in a two-story, exterior corridor building. There is a separate two-story building that contains the lobby on the lower level and a two-bedroom, two-bath manager' s unit. The buildings form an inner court yard that includes guest parking. All units open into the courtyard. All rooms include coffee maker, refrigerator, microwave, hair dryer, iron/ironing board. Bathrooms have ceramic tiles with marble around tub area and vanity/sink area is granite. The lot area is about 0.59 acres (24,370 square feet.)

The reported purchase price in July 2008 was $1,650,000 or about $71,740 per room. We believe the purchaser was not an experienced hotel owner and overpaid for this property.
So I'm looking at the financials for 2009. $240,697 in room revenues. No other source of revenue. The allowable expenses (Amortization, depreciation, interest, property taxes excluded) are $151,388 (about 63% of revenue... IMO typical for an under performing budget hotel in the southern San Joaquin Valley).

I think the value should be about $1,000,000 or slightly less instead of $1.65M.

The problem I seem to be having with revenue multipliers is accounting for owners who may be idiots.
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Last edited by CANative : 12-23-2011 at 02:24 PM.
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