Help on Small Town Hotel

[cotterboy]

Been lurking and really enjoy the site, 1st post, so here it goes. Note, I will also use search, but wanted to post some pretty specific stuff.

I have a new type of assignment for me and need a little help on deriving cap rates and form structure. kinda long, but here is the deal.

Small resort town hotel that was sold by a private auction company as the seller wished.. Loan amount is below $250,000. It has a home that was included and i am going to work it up on a short eval form. The hotel has 20 units, an office with living quarters, pool, parking etc. older, but decent condition and set-up. I have the last three years operating income schedule, 2005-2008 average rents received was in the mid $80,000 range, say $7,000 per month.
The units rent for $50-$80, with a maximum full capacity daily in income as $1300. They also rent some weekly, monthly,etc, but lets keep it simple and not worry about that. They are mostly full June-through September, and basically unoccupied December-March, with April, May, and November being very weather dependent. Decent xmas and new years. Based on my calcualtions they full capacity monthly income is $39,000, but they only report $7,000 so they are operating at .17% capacity. That seems awfully low to me. I assume new buyers really want to increase this and probably can with proper managment, remodels, etc. Please help me construct some relibale cap rates or shoot me towards some good sources.

Secondly, there are a few resort sales, but no hotels. There are a few in neighboring larger towns, but they are mostly newer, along major highways etc. I don't feel the the sales comp approach is too reliable. Basically how would you'll appraoch this assignment. I have done many income producing properties, and a few small reosrts, but nothing on this scale. Any encouraging words and insight is appreciated. Any discouraging comments or insight is not . Thanks for anything you can offer

 

[Michigan CG]

Have your client get a copy of the Smith Travel Report and take this one-day online seminar.

http://www.appraisalinstitute.org/education/seminar_descrb/Default.aspx?sem_nbr=OL-660&key_type=SO

 

[cotterboy]

Thanks, that is exactly yhe type of stuff i am looking for. I don;t think my client will want to spring for the travel report, but i may take the seminar tomorrow. Keep them coming.

 

[Michigan CG]

....I don;t think my client will want to spring for the travel report....

BEFORE you bid a motel you should say: "Did you want to provide me with the local Smith Travel Report or do you want me to obtain it?"

If he says you get it then your bid is $500 higher.

 

[SharperImage]

Occupancy rates:

Been lurking and really enjoy the site, 1st post, so here it goes. Note, I will also use search, but wanted to post some pretty specific stuff.

I have a new type of assignment for me and need a little help on deriving cap rates and form structure. kinda long, but here is the deal.

Small resort town hotel that was sold by a private auction company as the seller wished.. Loan amount is below $250,000. It has a home that was included and i am going to work it up on a short eval form. The hotel has 20 units, an office with living quarters, pool, parking etc. older, but decent condition and set-up. I have the last three years operating income schedule, 2005-2008 average rents received was in the mid $80,000 range, say $7,000 per month.
The units rent for $50-$80, with a maximum full capacity daily in income as $1300. They also rent some weekly, monthly,etc, but lets keep it simple and not worry about that. They are mostly full June-through September, and basically unoccupied December-March, with April, May, and November being very weather dependent. Decent xmas and new years. Based on my calcualtions they full capacity monthly income is $39,000, but they only report $7,000 so they are operating at .17% capacity. That seems awfully low to me. I assume new buyers really want to increase this and probably can with proper managment, remodels, etc. Please help me construct some relibale cap rates or shoot me towards some good sources.

Secondly, there are a few resort sales, but no hotels. There are a few in neighboring larger towns, but they are mostly newer, along major highways etc. I don't feel the the sales comp approach is too reliable. Basically how would you'll appraoch this assignment. I have done many income producing properties, and a few small reosrts, but nothing on this scale. Any encouraging words and insight is appreciated. Any discouraging comments or insight is not . Thanks for anything you can offer

Cotterboy;

You stated that the occupancy rate is 17%, which it is for the whole year. For the most part it is a seasonal operation and you should get a more detailed breakdown if at all possible for the "on season" months.
If the property was full during June - Sept, it would be generating $100,000 for those months alone (20 units x 100 days x $50), one would assume that the summer rate would be higher as your ADR (average daily rate is $67 and some change) $84,000/20 units/365 days/17% occupancy.
If you used the ADR of $67.00 for the season, then at full occupancy during those months the income would be $134,000. Not many resort motels are fully occupied during the season, but one could venture that the majority of the income is derived from that time period and keeping the operation open during the off season could incur more expenses than income.
Another thought is since this is a small resort and CASH IS KING, that perhaps the income statements may not be telling the whole story.
I would try to get as much information regarding the time between June - Sept, since that is when the money is made. Perhaps a conversation with the previous owner may help.

Best of luck.

SI

 

[Wayne Tomlinson]

I have observed that often the only time such properties discuss the real income is when they want to sell, or when the appraiser comes calling.

CASH businesses are real hard to do an accurate income approach and feel comfortable with it.

Wayne Tomlinson.

 

[cotterboy]

I know for a fact they pocket cash and the "real income" is a very hard thing to pinpoint. I think they also count the attached house utilities, insurance, etc in with reported expenses. They group buying it has three motels spread around this market , so do you think It is a good idea to try to get some info from them on a deal like this.

 

[Michigan CG]

I know for a fact they pocket cash and the "real income" is a very hard thing to pinpoint. I think they also count the attached house utilities, insurance, etc in with reported expenses. They group buying it has three motels spread around this market , so do you think It is a good idea to try to get some info from them on a deal like this.

Absolutely!

You are working with a CG on this....?

 

[cotterboy]

For his stamp only. He is really no help, but a former mentor and good friend who are past their appraisal prime.

 

[SharperImage]

Hmmmmmmmmm

For his stamp only. He is really no help, but a former mentor and good friend who are past their appraisal prime.

Good luck, since your CG is no help. But the rest of your sentence has me baffled, is the "former mentor and good friend who are past their prime" helping you, or is that the CG?

It seems like your statement regarding your CG, leaves both you and he in a potential problem, should something go awry with the report and you end up on the other side of the State Appraisal Review table.