COVID-19 Hotel Appraisal Impacts
I’m looking to close on a refi in the next 60 days. We’ve already begun the process and have a bank underwriting it. However, are there any expectations that the appraisal might be affected by the virus? Looking at the last three years of P&amp;L, the performance is rock solid so will short term uncertainty affect the appraisal? I’ll know the exact impacts when the appraisal comes in but just want to see what any appraisers or investors are seeing so I can ease my mind or adjust expectations.
[{"id": "fl21ji7", "text": "If you havent already gotten a commitment on hour loan by a bank thats said they will honor it   Then good luck on the loan. Most lenders wont even look at hotel deals right now. Your appraisal may be affected by lowering the expected cash flows as the market recovers thus lowering value according to the income approach but its hard to say if lenders/appraisers can look past that since this is a shortish term shock", "replies": [{"id": "fl231ej", "text": "^ this..until things pass the lending market for hotels and retail(unless you have a single tenant cvs) has dried up completely. My friend who is a hotel manager just laid off 9 people", "replies": [], "depth": 2}, {"id": "fl2ys26", "text": "Yeah unless it\u2019s really low leverage, A+ location, franchise and like a 15% debt yield... even this will take a hit when any other time it\u2019s an easy deal. \n\nUnfortunately for hotels Marriott and Hilton corporate came out to say they\u2019re operating at 10-15% occupancy. Also, if the lender is underwriting the T12 cash flows, the latest month will likely show a huge dip, impacting your leverage and loan amount. \n\nI\u2019d try to get it done as a balance sheet that converts to a fixed rate program in a years time. PM if you\u2019d like to discuss.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fl21wxj", "text": "Appraisers can't predict the future. We use historical data to determine the value on the effective date. Although this event seems to be having some impact on markets, it's not likely able to be quantified yet by the appraisal process. Generally we look at the 2 to 3 years of STR reports and P&amp;Ls so one month of bad numbers shouldn't have much of an impact. \n\nI know some appraisers are using Extraordinary assumptions stating that we do not know of the impact if any by the virus.", "replies": [{"id": "fl22pej", "text": "I hope to God you are quantifying this in your appraisal process. China bottomed out at 4% occupancy and hotels all over the US are shutting their doors. You can't ignore the impact this will have on hotels in the near and long term. Obviously hard to quantify, but you can't stick your head in the sand and pretend it's not happening.", "replies": [{"id": "fl28pu5", "text": "I don't have a hotel appraisal currently, thank God. I know there is going to be an impact but have no idea how much? Is occupancy going to dip for a month, is it going to be be single digits for 3 months? Or is it going to be years?\nHow to you forecast occupancy with this much uncertainty and still produce a credible report? Usually it's based on previous performance but that is not reflective of the near term. There hasn't been any closed sales of hotels within the effect of this virus and likely won't be many if any soon. \n\nIs it even possible to perform a credible appraisal right now? Particularly on a hotel.", "replies": [{"id": "fl306dq", "text": "Oh I agree it's nearly impossible, but there are ways you can at least reflect what the market is thinking. We are doing monthly occupancy and ADR forecasts for the next 2 years, with lots of assumptions and discussion based on early data from STR and interviews with asset managers. Pace reports are going to be more meaningful than ever.", "replies": [{"id": "fl3katf", "text": "If the lender feels potential heart burn about short term market conditions, I was considering to offer a six month fixed deposit enough to cover one year of fixed costs. I\u2019m thinking that might be the confidence/security they need to fund the cash-out.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fl23060", "text": "Hotel appraiser here...short answer, yes, it will impact the appraisal. It obviously depends a lot on your specific property/market, but right now we are underwriting occupancies in the single digits in the short term. Ramp up will vary a lot by market and discount/cap rates are anyone's guess. I've had multiple appraisals cancel in the last week, even some that were under contract because either the buyer pulled out or the bank did.\n\nEdit: To add to this...if the date of value is before shit it the fan, the appraiser might just try to get away with ignoring the events of the last week or so. Technically, that wouldn't be wrong necessarily, but I would be surprised if the lender let them get away with that.", "replies": [{"id": "flcajha", "text": "Holy shit man, I feel like I found a unicorn. How are you estimating the revpar recovery? Not to be a dick, but nobody really knows how this is going to play out. Genuinely curious to the rough approach you're taking to project stabilization. I thought my week had been rough, I can't imagine trying to defend a hotel appraisal right now", "replies": [{"id": "fle9nb3", "text": "It's difficult to say the least. As with any appraisal, it's all about reflecting the market. By looking back at past downturns, we can get a sense of how long the recovery period was, which obviously varies a lot by property type and market. This is a different animal to be sure given many hotels are shutting their doors entirely for the time being. Accordingly, we are doing a monthly occupancy forecast for the next two years, basically modeling 0% to 5% occupancy for the next few months, and ramping back up from there. The views on how long the recovery will be range from 90 days to 5 years, so no one knows. Big group houses will be impacted the most as many groups are cancelling meetings as far out as August and no one is booking major meetings right now. Corporate travel will be the first to recover once business gets back to usual, but the impact on leisure markets is highly dependent on the fallout from COVID 19 and resulting unemployment/decline in disposable income. The hope is that operators learned from the great recession and maintain ADR in the near term, even at low occupancies, but that is probably wishful thinking.", "replies": [{"id": "fledzad", "text": "That's really interesting. It would make sense to try and hold firm on ADR as anyone traveling right now is not likely to bee too price sensitive. Vacancy is what it is and if you can hold rates you only have one side of the equation that has to recover", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fl2kig4", "text": "All those historicals go out the window with this currently situation", "replies": [], "depth": 1}]