Can Any Hotel Sale Really be Used as a 'Comparable'?
By David Chitlik Vice President - Hospitality Tax, Altus Group | November 20, 2016
A hotel is not the same as a house or a warehouse or an apartment or office building, and assessors often don't understand why. The hospitality sector is frequently the most challenging part of a jurisdiction's property tax base. The only way to derive a hotel's real property value from a purchase price is for an assessor to spend time and energy understanding the adjustments needed to accurately determine what part of that purchase price relates to real property and whether or not it can be used as a sales comparable for other hotels in that jurisdiction.
Too few assessors are willing to make this effort. They are more likely to look at sales of nearby hotels just like they would home sales. They are either unwilling to investigate, or indifferent to, underlying factors that determine overall sales prices. It's easy for the assessor to believe that if a full-service hotel sold for $300,000 a room, then every full-service hotel in the area should be valued at $300,000 per room.
Not necessarily. In fact, that is not likely true at all. A hotel sale typically includes several elements that make it unique in the market. Those elements should pose questions that assessors need to answer to help make adjustments before a sale can be deemed reliable for use in a comparability analysis. Some of those questions should include:
Was the hotel sold as part of a portfolio transaction?
That's been the case for
most sales over the past decade or so. But if the portfolio included hotels
in New York, Boston, Washington, Los Angeles, San Francisco and other
higher-priced destinations, it's not likely it can be used to accurately
determine room values in Chesapeake, Va., or Macon, Ga. Without talking to
the seller and/or buyer, it's unlikely assessors will understand adjustments
needed in using the portfolio hotel sale to set the value of other
hospitality properties in the area.
Was the hotel sold to a Real Estate Investment Trust (REIT)?