Hotel personal prop. vs real property

[Robert Dunkle]

I must, upfront, admit that I am not the world's most experienced hotel appraiser. However, I have appraised several smaller hotels (under $3M) but am now facing a very irate borrower who has a CGA on his side in saying that FFO should be appraised as part of the real property appraisal. I separate it out and show a total value for the property, including FFE, and list the amount allowed for FFE. I would appreciate comments from the forum about whether you include FFE in your "market value" appraisal. The other CGA had appraised a couple of this borrower's other hotel venture and "allegedly" included FFE in the "market value". Locally, we are looking at about $80,000 per room for the building and land and $100,000 per room including FFE. Obviously, it makes a big difference in the bottom line. I THINK I am correct, but I MAY have been wrong once or twice in my life. Maybe this is the third time........what do you think?

 

[stefan olafson]

FFE is considered personal property by and large in this area of the country. I think you are doing your appraisal the correct way. We had a local appraiser here try to get his CG license doing a motel. He ignored and left out the FFE and was soundly drubbed out of the business by the state board for his ignorance.

Believe in what you did and back it up with research, there has to be a book or two at the AI website on appraising motel properties. Find out what they say, typically those books don't cost much.

 

[Joker]

What good is a motel without beds? Who buys them unfurnished?

I have done a lot of motel properties. There is a book (I think published by AI) that does a pretty good job explaining the valuation of hotel/motel properties. I will have to check my library.

How does the market perceive the property? Your market may differ, but every investor I have worked with looks at a motel property as a whole, including FFE. They consider differentiation between real property and personal property as an accounting function and not a valuation function. Prospective buyers are primarily interested in purchasing motels on a furnished and operating basis. Distinguishing between market value and business enterprise value (going concern) is not considered relevant to prospective buyers of the property.

Before you find a hill to die on, research the book.

 

[stefan olafson]

Joker has the right idea, but you can't lump in personal property, that which is not secured to the property, with real estate. It's proper to value the FFE separate from the real estate. Include the methodology and the rationale in the report and READ THE BOOK.

 

[Joker]

http://www.amazon.com/exec/obidos/A...so/&tag=realestatappraat?tag=realestatappraat

 

[Fred]

A couple of points.

1. On FF&E, isn't the second "F" real property?
2. Yes, hotels sell with furniture, but that doesn't make the furniture into realty.
3. What about business value? Does the hotel have a "brand?"
4. Later, when they decide the property taxes are too high, they'll be arguing the appraiser who separated out the business and personal property value is the one who is right.

 

[stefan olafson]

Yeah, the second "F" is Fixtures, so are you going to separate out the value of 100 stools, sinks, and tubs, then depreciate them?

Make a statement in the report what you consider FF&E. Typically it's beds, night stands, chairs, and lamps,etc.....

Stating a value of the FF& E is much easier than including these items in the report as a part of the property. Could you imagine the cost approach with a cost for each of the stools, sinks, beds, etc then a depreciation rate on each item taken from the market??????

 

[Vernon Martin]

Back in the 1990s, I ordered and reviewed a lot of hotel REO appraisals and acquired an appreciation of the reason for separating out the F,F&E and business value components. We foreclosed on more than one Holiday Inn, for instance, and the F,F&E often disappeared (late at night) and the Holiday Inn franchise forced us, as the foreclosing lender, to take down their signs and we were also cut off from their very effective reservations system. Real estate value turned out to be a lot lower than going concern value.

If you are doing an appraisal for a lender, these are the reasons to separate out real estate, F,F&E and business value.

 

[Howard Klahr]

... these are the reasons to separate out real estate, F,F&E and business value.

You mean besides USPAP and FIRREA?

 

[Vernon Martin]

Yes. USPAP and FIRREA are means to the end. Protecting financial institutions is the end.