Hotel Valuation
Anyone in here that does hotels? I am curious what expenses you take that are not typically reported. From my experience, I use $10,000-$20,000 per room FF&amp;E with a BV that ranges from 5-25% depending on the scale of the hotel. I typically do upper upscale to luxury hotels so I know I am conservative with my FF&amp;E but I want to be safe. Other than FF&amp;E and BV, I typically stabilize ADR, Occ, RevPar, Revpor, and expenses based on historicals and STR comps. How do you usually approach them?

Also, if you're an appraiser, what type of fee do you charge for hotel valuation? Whether its for acquistions,  tax purposes, or anything else.

Thanks
[{"id": "f7mqrpv", "text": " I am not sure exactly what you are asking but most proformas I see have an ff&amp;e reserve in the 3-5% range. however the dirty little secret is that it doesn\u2019t usually cover the 7-14 year capital cycle needs.  Luxury is also a little more difficult due to the focus on quality and need to stay competitive - think $$$.  If you can give more details I can maybe steer you in the right direction.", "replies": [{"id": "f7nelb1", "text": "It covers if you\u2019re in a high ADR market since the % scales with room revenue.  In markets like all of Kansas and Oklahoma you do find that 4% is a bit light, but that\u2019s what banks are happy with so as long as the banks happy.", "replies": [], "depth": 2}, {"id": "f7o0o9a", "text": "Yeah. Too much bourbon last night when I posted lol. I was trying to start a conversation on hotel valuation since I did not see much on here, more or less.\n\nI stabilize my FF&amp;E on a per-room basis, but it typically concludes around 5% on a percentage basis. Do you deduct a business value? For national chains, I deduct anywhere from 5-25% because the name recognition, rewards programs, etc make them more valuable.", "replies": [], "depth": 2}], "depth": 1}, {"id": "f7mu7d7", "text": "I\u2019m an MAI that does a fair amount of hospitality assignments, including upscale/luxury. Feel free to DM me and I can give you some information.", "replies": [{"id": "f7o14p0", "text": "Thank you, I'll do that", "replies": [], "depth": 2}], "depth": 1}, {"id": "f7muaja", "text": "Our fees for limited service hotels are $3000 to $4000, add $500 for Star report. Full service is a while different story.", "replies": [{"id": "f7mwh6z", "text": "Do you specialize in hotels or is it just part of your general practice?", "replies": [], "depth": 2}, {"id": "f7mx9jm", "text": "Thought in star reports? They were purchased right?", "replies": [{"id": "f7mxzd3", "text": "I\u2019m not sure what your asking but you need a star report to shop flags. It helps determine the gap, if there is one, in the marketplace", "replies": [], "depth": 3}, {"id": "f7ncgtz", "text": "They were bought by Costar. They are the only real company that tracks hotel data, but start ups like kalibri labs are starting to break into the space. Will be awhile before big lenders accept anything other that STR though.", "replies": [], "depth": 3}], "depth": 2}, {"id": "f7my1os", "text": "Do you appraise full service. That\u2019s seems more like an operating business component and hard to appraise, at least for someone who is typically appraising real estate more typically", "replies": [], "depth": 2}, {"id": "f7o0xtl", "text": "Do you value hotels without a Star report then if someone doesn't want to pay the $500? I rely a good amount on them, I couldn't imagine doing a hotel without them.", "replies": [{"id": "f7o13di", "text": "Usually the owner has one and provides it. Star report is a must have, we do not value hotels without them.", "replies": [{"id": "f7o35e3", "text": "Ahhh that makes sense", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f7n7gwo", "text": "The question is a bit unclear. Are you asking from an underwriting perspective? If so, typically there is a 4% FF&amp;E reserve that is taken into account along with a 3% management fee. \n\nI am currently doing a $90M refinance package for a Marriott hotel. \n\nHappy to help guide you if you are interested.", "replies": [{"id": "f7o06t9", "text": "Yeah. Probably shouldn't have posted this after five glasses of bourbon. My FF&amp;E is typically around 5% with a 3% management fee, but then I will also deduct a business value because the Hilton, Marriot, etc name is valuable in running a hotel. Even if the hotel is a franchise that pays a fee, I still deduct an overall 5-25% of business value expense because these national chains have the benefit of leveraging their size, name, rewards programs, etc that, in theory, would increase occupancy and make them more valuable.", "replies": [{"id": "f7o1lf7", "text": "I can only speak from a debt perspective as that\u2019s what I do... I\u2019ve never seen additional deductions for a national chain (maybe someone can chime in if otherwise). The franchise fee already takes into account the value of the chain, that\u2019s why it\u2019s paid. \n\nAlso for debt underwriting, if you take an additional deduction for \u201cbusiness value\u201d you\u2019re lowering the Net Cash Flow which will impact the loan amount attainable. I\u2019ve never seen this done by any lender (bank, life co, etc.). \n\nIf you\u2019re looking for debt financing (over $5mm), feel free to reach out - more than happy to help and provide guidance where I can.", "replies": [], "depth": 3}, {"id": "f7od72k", "text": "Um no. That should be apparent in the franchise fee line (certain % of room rev and a diff % of F&amp;b rev) on the expense side and if the brand adds value it will be apparent in the top line rev lines, then cap it and you\u2019ve got your value. Sometimes brands don\u2019t actually add a whole lot.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f7nceel", "text": "I'm an appraiser that exclusively works in the hotel space. We never allocate business value, just real and personal property (Rushmore approach).  Can go into a lot of detail on valuation, but a DCF is the primary approach and direct cap used as a check of reasonableness. \n\nFees start at $4,500 at the low end (sadly, 10 years ago I'd get $8,500 for a Limited service property) and can get to $20,000+ for full service/luxury/resorts.", "replies": [{"id": "f7nzmoq", "text": "What interest rate have you been using for your DCF recently?", "replies": [{"id": "f7pu3hw", "text": "You mean discount rate? We do a mortgage equity approach too, but it basically just backs into the value based on discount and terminal cap we selected. Discount rates vary widely. Where specifically are you looking? Limited service can be as low as 9.5% in high barrier to entry urban markets, maybe lower. Mostly I use 11% where I work, maybe 10-10.5% for better located assets, but got as high as 15% in markets like Midland/Odessa, or for old, independent or poorly branded hotels. For full service if varies a lot too, but generally around 8.0% to 10.0%.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f80vskw", "text": "Hotel guy, checking in. We\u2019re definitely a rarer breed, seems like everyone and their mother does apartments", "replies": [{"id": "f8q76zb", "text": "Accurate - even more accurate when job hunting and I have to explain the similarities in lodging and multifamily to sell myself... lol", "replies": [], "depth": 2}], "depth": 1}, {"id": "f80wt6p", "text": "The inherent value of the business is achieved in your ADR, ie people are willing to pay more to stay at a recognized brand hotel. In exchange, you pay franchise fees and sign a franchise agreement. Thus, no business value is taken into consideration when valuing a hotel.", "replies": [], "depth": 1}]