An accurate valuation of your hotel’s worth is often necessary to obtain hotel financing arrangements and provide added information for owners, investors and stakeholders. Understanding the valuation methods used to determine this figure can help assess the current value of your hotel more effectively. This can allow you to make practical business decisions regarding acquisitions, renovations and hotel financing options.
Three Primary Valuation Methods
Real estate appraisers and hotel valuation firms typically use one of three methods to determine the actual value of a particular property. These three methods may be tweaked to produce accurate information about the hotel’s value in the market.
- The income approach for valuation looks at cash flows and uses a predictive method to determine the likely revenue streams for the hotel. This can help in determining hotel loans based on valuation of an existing property. Past results are not a guarantee of future performance. However, lenders often request historical data on occupancy rates, profits and revenue streams when applying the income approach to property valuation.
- The cost approach is based on the idea that the hotel is worth as much as it would cost to rebuild less any depreciation. The value of the land on which the hotel sits will also be factored into this valuation.
- The market comparison approach uses comparable properties in similar markets to determine the most accurate selling price for a specific hotel. The amenities, physical characteristics, size and capacity of the hotel will be taken into consideration. Special features or distinctive advantages or disadvantages of the property will also be considered.
Each of these methods can provide valuable information on the actual worth of your hotel investments. With accurate information, the likelihood of success in acquiring hotel construction financing for new projects or acquisitions increases.
At Stonehill, we offer many hotel financing options for investors. We work with our clients to ensure the best lending solutions for every need. Our commitment to going above and beyond for those we serve is demonstrated in every transaction we handle. If you need hotel financing, call Stonehill today at 713-666-2544. We look forward to the chance to serve you.