Valuation of Hotels
CALVIN G. SCHOENE
The lodging industry has grown worldwide by tremendous leaps and bounds over the past decades. It encompasses a wide range of product: country inns, roadside motels, downtown hotels, limited-service budgets, all-suite properties, and luxury resorts, to name just a few. There is hardly a hamlet in the United States that does not have some type of lodging facility.
Building was particularly intensive during the late 1970s and early 1980s, when tax incentives outweighed the economic viability, resulting in overbuilding. This was followed by the credit crunch of the mid1980s. During the next seven or eight years, very few motels were built. In fact, during this period, the number of motels actually declined with many old inferior properties disappearing from the market. Like most of the real estate market, motels are cyclical. In the past few years, with easy financing available, a number of new motels are again being built.
Overall, the motel business is still a growth industry—both business and vacation travel continue to increase. People have more leisure time now, and their vacation or mini-vacation patterns have changed. With the growth of franchise companies and their domination of the lodging industry, the market has become even more segmented.
For our purposes here we will concentrate on only the small and midsize properties—from 30 to 150 units. Below this level it is difficult to earn a living or receive a reasonable return on an investment. Those properties larger in size tend to be owned by investment groups. Like-