Two Ways to Identify True Property Value
By Carl Rizzo Partner, Cole, Schotz, Meisel, Forman & Leonard, P.A. | June 28, 2010
Co-authored by Joanna Slusarz, Law Clerk, Cole, Schotz, Meisel, Forman & Leonard, P.A.
Valuation Method of Choice May Spell Madness for Hotel Property Owner Taxpayer
The real property value component of a hotel can fluctuate significantly depending upon which valuation method is utilized by an appraisal expert. Such disparities are particularly significant in today's economic climate with hotel values so closely tied to the whims of the marketplace.
Simply put, the U.S. economy "has been downright inhospitable to the hospitality industry."(1) Recession, scarcity of credit, and shrinking demand have all contributed to the precipitous decline in the volume of annual hotel sales, dropping from an impressive $77.4 billion in 2007, to a startling $10.7 billion in 2008, and finally to a disconcerting $2 billion in 2009.(2) Moreover, "lodging values have dropped 17 percent [in 2009], with properties at the top and bottom of the segment's spectrum hit especially hard."(3)
Historically, hotel values dropped on average 32% during the 1991 recession. Although they slowly recovered through 2000, the September 11, 2001, events brought them crashing back down 25%. Their value then doubled through 2006. Recently, however, HVS Consulting & Valuation Services, a leading hotel consulting and valuation firm, reported that "the average value per room in the U.S. hotel sector has fallen 45% since peaking in 2006 (4)... and won't rebound until 2014."(5)
In light of the inherent susceptibility of hotel valuations to swings in the economy, the approach utilized to value hotels can have a significant impact upon ultimate value conclusions and upon the tax assessments fixed by local taxing authorities.