The mass appraisal of hotels

Journal of Property Tax Assessment and Administration • Volume 2, Issue 1 15

The Mass Appraisal of Hotels

BY TIM WILMATH, MAI, AND KEN ENGEL, CFE

Tim Wilmath, MAI, is Director of Valuation Process for the Hillsborough County Property Appraiser’s Office in Tampa Florida. Ken Engel, CFE, is a Commercial Analyst with the Hillsborough County Property Appraiser’s Office.

The mass appraisal technique was developed to enable assessors to

accomplish the challenging task of esti-mating a value for each of the thousands of properties in their jurisdictions. The IAAO defines mass appraisal as: “The process of valuing a group of properties as of a given date using common data, standardized methods, and statistical testing.” (IAAO 1999) In plain English, mass appraisal is simply the automation of the single-property appraisal ap-proach. Many property types are ideal for the application of mass appraisal, such as single family homes. However, because of the complexities involved in valuing hotels, many assessors find themselves performing single-property appraisals rather than utilizing mass appraisal.

With reliable data, the assessor can create mass appraisal models that incor-porate all of the elements that make up a hotel’s value. Creating income models can be accomplished by utilizing local data and industry sources. Cost models can be created using the Marshall & Swift cost manuals (annual). Creating sales comparison approach models can be dif-ficult due to the lack of sales; however, it

is possible through the use of regression analysis or ranking analysis.

Hotel SegmentationThe first step in the mass appraisal of hotels is to segment them into different categories. The best way to do this is to follow industry classifications. In general all hotels can be put into one of the fol-lowing categories:

• Resort

• Luxury

• Full Service

• Limited Service

• Extended Stay (also known as all-suite)

• Convention Hotels

Resort HotelsResort hotels are generally distinguished through their use of special recreational facilities. For example, a golf resort, as the name implies, would offer its guests access to a golf course, a pro shop, and usually the option of taking lessons. A health resort may offer extensive facilities with exercise

16 Journal of Property Tax Assessment and Administration • Volume 2, Issue 1

equipment, trainers, therapeutic massages, and various other health-related amenities. The objective of these hotels is to make their facilities an end destination, and not necessarily dependent on other attractions in the area to draw guests. Most resort ho-tels offer extensive amenities in addition to those that support their theme, such as indoor and outdoor swimming pools, sau-nas, spas, exercise facilities, restaurants and lounges, and on-site retail shopping.

Luxury Hotels

A luxury hotel is a full service hotel with exceptional amenities, rooms, and service. They generally are not theme oriented, but many offer day spas and tennis facilities as part of their amenity packages. They often provide a multitude of luxurious amenities including elegant rooms and fine dining opportunities. They usually contain a choice of restaurants and may offer on-site shopping facilities as well. The finest of these hotels distinguish

themselves through impeccable facilities and extensive concierge and personal guest services.

Full Service Hotels

Full service hotels differentiate them-selves from limited service hotels by offering in-house dining facilities and cocktail lounges, and by providing a wider range of amenities like swimming pools and fitness centers. Many cater to business travelers and have on-site meeting rooms or conference centers. Business amenities like desks and Inter-net access may be provided in rooms.

Limited Service Hotels

The goal of limited service hotels is to provide a clean, comfortable room at an affordable rate. They do not provide full dining facilities. Some have small kitchens and may offer free breakfast for guests. They cater to families, leisure travelers, and budget conscious business travelers. Many are affiliated with a na-tional chain. Amenities are limited but may include a pool. These hotels usually have fewer and smaller rooms than full service hotels.

Photo courtesy of Saddlebrook Resort, Tampa, FL


Extended Stay or Suite Hotels

These hotels are designed to appeal to travelers who need accommodations for a week at a time. The amenities are more like those found in an apartment such as fully equipped kitchens. They usually do not have a restaurant but may have a small commercial kitchen for breakfast preparation. The better-quality properties are generally affiliated with a national chain. They typically charge weekly rates that are below those of com-parable full service hotels.

Convention Hotels

Convention hotels, as one might expect, are usually located near convention cen-ters. They generally have a large number of rooms. Since they are geared for meet-ing groups, they usually contain ample meeting space and banquet facilities. They typically have several restaurants and lounges, with some providing nighttime entertainment. They gener-ally provide ample business and leisure amenities.

Quality ClassesIndividual hotels within each of these segments can be further subdivided into quality classes. These classes should reflect location, condition, age, ameni-ties, and overall quality. For example, a class “A” property usually has the most desirable location, generally receives the highest income, is typically newer, and contains extensive amenities and supe-rior construction quality and condition. A class “B” hotel may be slightly older or less maintained, lack some of the amenities, and/or may have an inferior location and income to its class “A” coun-terpart. A class “C” hotel may be another level lower in these attributes.

Approaches to Value—Mass AppraisalOf the three approaches to value, the in-come approach is the preferred method to value hotels. The price a buyer is will-ing to pay for a hotel property is directly tied to its income potential. Although the sales comparison approach and cost approach serve important functions in the hotel valuation process, ultimately the income approach is given the most weight.

In mass appraisal, the three approach-es to value are applied through the use of “models.” Models are intended to simu-late market behavior. After reviewing all available data, these models are created and then applied across classes of hotels. This method of assigning models to hotel properties can result in a reliable and equitable assessment.

Income ApproachFor most commercial properties, the income approach can be used to esti-mate value by capitalizing rental income. However, capitalizing hotel rent is not possible because entire hotels are not leased. In addition, a hotel earns its rev-enue not only from room rental but also from food and beverage sales, and mis-cellaneous services such as telephone,



laundry, and fitness centers, for example. For hotels, these revenues and the asso-ciated expenses can be used to measure the value of the entire operation, or what is known as the going concern.

The going concern includes the value of the real estate, the value of the personal property, and the value of the business. The real estate derives value from its location and ability to house guests. The personal property derives value by allowing the owner/manager to generate revenue from its use, and the business derives value from its ability to successfully run the entire operation. These three items are needed for a hotel to operate successfully. Since busi-ness value is not assessed and personal property is usually assessed separately, it is necessary to exclude these items from the final assessment. To accomplish this, the value of the entire going concern is estimated and then allocated to each of its three components. This task can be

accomplished within a mass appraisal model.

To create mass appraisal models for hotels using the income approach, four key items are required: an estimate of gross revenue, occupancy, expenses, and a capitalization rate. Once obtained, this data can be used for each of the five hotel classes. The following are sources that can be employed to estimate income, occupancy, and expenses:

• Actual income submitted by the taxpayer

• PKF—Trends in the Hotel Industry (annual)

• Smith Travel Research (STR)—The Host Study (annual)

• State sales tax records

Actual Income and ExpensesActual income and expense statements submitted by the taxpayer are the best

Figure 1. Typical Hotel Income and Expense Statement


source of a hotel’s operating history. Care should be taken when reviewing a hotel’s actual income and expenses because the goal when creating models is an estimate of a “stabilized” income stream. From year to year, a hotel’s ac-tual revenue and expenses may fluctuate due to weather, poor versus superior management, renovations, and other factors. Similarly, financial statements often include expenses that should be

excluded from the direct capitalization approach, such as depreciation, interest, and capital expenditures. For property assessment purposes, the expenses are also adjusted to exclude property taxes. (This expense will be included by “load-ing” the capitalization rate with the local tax rate.)

Many hotel operating statements do not include expenses that should be included in a direct capitalization approach, such

Figure 2. Sample Page from PKF’s Trends in the Hotel Industry

© 2003 Pannell Kerr Forster. Reprinted with permission.


as reserves for replacement, manage-ment expense, and franchise fee. Once reviewed and adjusted, actual income and expense data submitted by taxpayers should be compiled and segregated by ho-tel class. Figure 1 shows a typical income and expense statement for a hotel.

In some states, assessors have access to sales tax data from the government agency responsible for collecting sales tax. This data is typically confidential and not available to the general public. If this

information is available to the assessor, it can be extremely valuable in determin-ing a hotel’s actual revenue.

PKF TrendsAnother excellent source of hotel perfor-mance is PKF’s Trends in the Hotel Industry (annual). This yearly publication reports hotel revenue, expenses, and profit data for each of the five hotel categories with further breakdowns for geographic re-gion. Data in each of these categories

Figure 3. A Sample Page from Smith Travel Research’s The Host Study

© 2003 Smith Travel Research. Reprinted with permission.


include average daily rates, number of hotel rooms, and the top hotels versus average hotels. In addition, revenue is further stratified by room revenue, food and beverage income, telecommunica-tions income, and miscellaneous revenue. Expenses are similarly segregated.

For modeling purposes, the data from PKF’s Trends should be adjusted to exclude property taxes and include an estimate of reserves for replacements. A sample page from the Trends report is shown in figure 2.

Smith Travel ResearchSmith Travel Research sells a variety of publications related to hotel performance. One of the most helpful to appraisers is The Host Study. This report provides in-come and expense items broken down by hotel type, geographic region, and other categories. A sample page from The Host Study is shown in figure 3.

As with other income and expense in-formation, the data from The Host Study should be adjusted to exclude property taxes. One difference between The Host Study and PKF’s Trends is that The Host Study includes a reserve for replacement expense while Trends does not.

Capitalization RatesAn important component of the direct capitalization process is the estimate of the capitalization rate (cap rate). Two techniques are suggested for estimating cap rates for hotels.

• Extraction from sales

• Industry surveys

Extracting capitalization rates from hotel sales provides a good indication of local activity. Sales of hotels are com-plicated by the potential inclusion of personal property and/or business value. The recorded sales price may or may not reflect consideration for the real estate only. Often purchasers perform sales price allocations (separating real estate, personal property, and business) for in-come tax purposes. Unfortunately, there is rarely any indication on a deed whether a sales price has been allocated. Only through research and/or verification can the appraiser be sure what the recorded price included. Often these purchase details are reported in the Securities and Exchange Commission (SEC) filings or a company’s annual report (such as the excerpt from Highland Hospitality’s 2003 annual report in figure 4).

Figure 4. Hotel Annual Report Describing Purchase Price Allocation


Industry publications provide an ex-cellent source of capitalization rates for hotels. A few of these sources include: Korpacz Real Estate Investor Survey, CB Richard Ellis National Investor Survey, Real-tyRates.com Investor Survey, and USRC Hotel Investment Survey. Capitalization rates from these sources (such as the sample report from RealtyRates.com in figure 5), along with extracted hotel sale cap rates, provide the appraiser or assessor a reliable indication of overall rates. Simi-lar to revenue and expenses, cap rates vary depending on hotel type and class, and should be stratified accordingly.

Business ValueIn most jurisdictions, only real estate and personal property are assessed. However, a hotel is more than “sticks and bricks.” It is an operating business that provides services to its customers above and beyond the rental of the real estate. Consequently, the assessor must understand both the hotel industry and techniques for excluding or removing any business value in order to accu-rately estimate a hotel’s value. Some of

the most knowledgeable and respected appraisers disagree about the best way to measure business value. Over time, several techniques have evolved that iso-late business value. A summary of these methods follows:

Cost Approach MethodSince the cost approach inherently excludes business value, it is an excel-lent approach for isolating the value of the real estate. Simply comparing the final value via the cost approach to the value of the going concern (excluding personal property) could indicate the presence of business value. The cost ap-proach does have limitations, however. As properties get older, it can be difficult to measure depreciation. For new hotels, this approach is excellent and for older ones it still provides an excellent check on other methods.

Rushmore ApproachThis method was developed by Stephen Rushmore, president of Hospitality Valuation Services International. In this method, the management fee and

Figure 5. Cap Rate Indices from RealtyRates.com

© 2004 RealtyRates.com. Reprinted with permission.*2nd Quarter 2004 Data


franchise fee are deducted from the net operating income, and the capitalized value of these two fees is considered busi-ness value (more on this approach later). This technique to isolate intangibles has been used successfully in many court cases and, in the authors’ experience, is the best approach for excluding business value in a mass appraisal model.

Business Start-up Costs MethodAlso known as the Business Enterprise Approach, this theory suggests that in addition to deducting a management fee and franchise fee, a deduction should be made to reflect the original “start-up” costs the hotel incurred when it was built. Start-up costs include assem-bling and training staff and marketing the new hotel. The premise is that an owner expects to recapture these costs throughout the life of the property and therefore they should be amortized and deducted annually.

Critics of this method argue that there is no indication that a buyer would pay an owner an additional sum for these costs because they are already present in the annual operating statement. Moreover, for many hotels, the original workforce that was assembled when the hotel was new no longer exists. Hotels historically have a very high employee turnover rate and they must advertise for, hire, and train a large portion of their workforce every year. Since the existing workforce was likely assembled through expendi-tures in the annual operating budget, and therefore, already accounted for in the income approach, critics charge that deducting the original operating costs would represent double counting.

Excess Profits MethodThis approach says that if a value en-hancement is created due to a hotel’s superior management, it can be mea-sured by comparing its revenue per available room (RevPAR) against its competition. The premise is that two hotels being equal, any superior revenue

generating capability is attributable to the business, not the real estate. The difficulty in applying this technique comes in selecting truly comparable hotels for comparison and confidently attributing revenue differences to man-agement versus location, condition, or other factors.

Proxy MethodThis approach imputes a rent for the various profit centers (rooms, restau-rants, laundry, retail space, and such). This rent is then capitalized to obtain an estimate of value for each of these vari-ous areas. These individual estimates are then summed to obtain a total real estate value estimate. Since few, if any, hotels are leased in this fashion, it would be difficult, if not impossible, to obtain rent comparables for the various profit cen-ters. The use of rent comparables from other property types would probably not be very reliable either because of the unique nature of these services within the hotel environment. Capitalization rates and expenses for the various profit centers (under this lease assumption) would be equally difficult to estimate.

Business Value Summary Of the various options to measure busi-ness value, the authors’ jurisdiction uses the Rushmore approach. This method was chosen to measure and exclude intangibles because it is straightforward, easy to understand, and, in the authors’ experience, the most defendable.

As indicated previously, this approach capitalizes the management fee and franchise fee to isolate the business value. The premise is that no one would pay more for the business portion of the hotel than the cost to replace it. The cost of replacing business aspects is the cost of hiring a hotel management company to run the hotel and affiliating with a known “brand.” Many companies and hotel chains such as Marriott, Hyatt, and Hilton provide these services. The cost of hotel management and chain affilia-


tion currently ranges from 3% to 10% of total revenue (Pannell Kerr Forster 2004; Smith Travel Research 2004).

Using the Rushmore method, re-moving the value of the business from the going concern is accomplished by capitalizing the management fee and franchise fee, then deducting that value from the value of the going concern. An alternative method that accomplishes the same result is to simply include the management fee and franchise fee in the operating expenses of the income model. The inclusion of these costs will reduce the net operating income (NOI) and effectively remove the business value from the final value.

These two techniques are demonstrat-ed in figure 6. While Method 2 results in the same value for the real estate as Method 1, several steps are saved by us-ing Method 2.

Another benefit of the Rushmore approach is that the business value al-location rises and falls with the success or failure of management. Superior management is rewarded with higher

revenues. Since management fees are based on a percentage of revenue, higher revenues result in higher management fees and ultimately a higher business value allocation. Conversely, declining revenues would lower the management cost resulting in a lower business value estimate.

There are many techniques for mea-suring and removing business value. Capitalizing the management fee and franchise fee, in the authors’ view, results in a value that replicates what an investor would pay for a business. This method has seen acceptance in the courts and is widely used in the appraisal industry. In addition, it is fairly straightforward to apply in the income approach and in a mass appraisal model.

Personal PropertyA hotel requires significant personal property to operate. This includes room furnishings, restaurant fixtures, and other miscellaneous furniture, fixtures, and equipment (FF&E). Since most per-sonal property is assessed separately from

Figure 6. Two Techniques for Removing the Business Value from the Going Concern Value

Method 1. Capitalizing Management Fee and Franchise FeeTotal Revenue $1,000,000Total Expenses (excluding mgt. and franchise fee) $ 700,000Net Operating Income $ 300,000Capitalization Rate (includes tax rate) 12.0 % Total Property Value $2,500,000

Business Value CalculationMgt. and Franchise Fee–8% of Revenue $ 80,000Capitalization Rate (includes tax rate) 12.0% Business Value $ 667,000 Value of Real Estate & FF&E ($2,500,000 - $667,000) $1,833,000

Method 2. Including Management Fee and Franchise Fee in ExpensesTotal Revenue $1,000,000Total Expenses (including mgt. and franchise fee) $ 780,000Net Operating Income $ 220,000Capitalization Rate (includes tax rate) 12.0% Value of Real Estate & FF&E $1,833,000


the real estate, the value of the personal property must be excluded from the final assessment of the real estate.

For states that assess personal prop-erty, allocating value to the personal property is fairly easy, since it has already been valued independently of the real estate. Deducting the assessed value of the FF&E from the income approach is appropriate and achieves the goal of separating its value from the real estate; however, one more step is required.

A hotel’s personal property does not last forever, and therefore, requires periodic replacement. A prudent owner would set aside monies on an

annual basis to replace these items as they reach the end of their useful lives (similar to reserves for short-lived real estate items). Although many hotel own-ers do not show this expense on their income statement, the appraiser or assessor should assume these expenses exist by imputing them in the income approach.

“Return Of” and “Return On” are terms often used to describe techniques for removing the personal property from the income approach of a going con-cern. “Return Of” is simply recapturing the FF&E through a reserve for replace-ment. If you have allowed an expense for reserves of FF&E, you have accounted for the “Return Of.”

The “Return On” personal property is a method of estimating the value of the FF&E by assigning a portion of the income stream to the personal property and then capitalizing it to determine its contributory value. For assessors, a quicker method to remove the value of the personal property is to simply deduct its current assessment from the value of the going concern.

Some practitioners argue that both the assessed value of the FF&E and a “Return

Figure 7. 2004 Hillsborough County Hotel Models by Type and Quality



On” should be deducted in the income approach. The argument suggests that the FF&E contributes more than just its assessed value because an owner expects to make a profit on its use. However, this profit has already been considered in the previous deduction for business value. The management fee and franchise fee cover both the cost of operating the hotel and the personal property. Any business value resulting from the operation of the FF&E has already been accounted for by capitalizing the management fee and franchise fee. Deducting both the as-sessed value of the personal property and a “Return On” that same property could be considered double counting.

In the authors’ opinion, imputing an expense for reserves for replacement of the FF&E and deducting the personal property assessment sufficiently excludes the FF&E from the income approach.

Reconciliation Once all sources of income, occupancy, expenses, and capitalization rates have been compiled, models for each of the classes of hotels can be created. Figure 7 provides an example of hotel models for Hillsborough County, Florida, for the 2004 tax year.

The total income for each of the mod-els is intended to reflect what hotels in each class would actually experience on a stabilized basis. The expenses include reserves for replacement for both real es-tate and personal property. The expenses also include a management fee and franchise fee, which effectively removes any business value. After the models are applied, the personal property assess-ment should be deducted, resulting in an estimate of only the real estate.

If available, using a hotel’s actual Aver-age Daily Room Rate (ADR) as a guide will help the appraiser in assigning the correct model. Care should be taken to ensure a hotel’s actual ADR is stabi-lized and is not affected by short-term issues such as remodeling. Hotels with similar locations, condition, amenities,

and overall quality should have similar models assigned.

Cost ApproachAlthough the income approach is the preferred method for estimating the value of a hotel, the cost approach still serves an important function. For new hotels and as a check against other valuation methods, the cost approach provides the appraiser or assessor with an excellent alternative. The Marshall & Swift Valuation Service has a complete section on hotels, broken down by hotel segment (limited service, full service, and so on.) and quality class. Figure 8 is an excerpt from the commercial manual.

Most assessors’ Computer Assisted Mass Appraisal systems (CAMA) utilize the cost approach. In the authors’ ex-perience, the cost approach is the most widely used approach in mass appraisal. Critics of the cost approach will argue that depreciation is difficult to measure, particularly in older buildings. Although the measurement of depreciation can be challenging, the difficulties are not insurmountable. A significant differ-ence between the value calculated by the cost approach and that by the income approach may indicate the presence of obsolescence.

One point worth mentioning—asses-sors should be wary of valuations that contain external obsolescence in the cost approach and a deduction for busi-ness value in the income approach. It is unlikely that an investor would pay a premium for the business value of a hotel suffering from external obsolescence.

Sales Comparison ApproachThe sales comparison approach or market approach is the most direct in-dication of what a hotel would sell for. However, it is probably the most difficult of the three approaches to apply. Using this approach requires the appraiser or assessor to:


• Obtain information regarding the circumstances surrounding the sale

• Obtain financial and physical aspects of the hotel

• Allocate the price between real estate, FF&E, and/or business

• Extract and apply appropriate adjustments for differences between the subject and com-parable properties

Applying mass appraisal techniques to hotels using the market approach is particularly difficult due to a lack of sufficient comparable sales. In Tampa, a fairly large city (ranked 21st among all metropolitan statistical areas in the United States), there were only 17 hotel sales during the past three years. Strati-fying these sales by property type (full service, limited service, and so forth.) leaves very few sales for each category.

Further complicating the use of the

sales comparison approach is the neces-sity to make adjustments for differences between amenities, location, physical condition, and operating performance. These adjustments are often subjective. Since most hotels are bought on the basis of their earning power, access to actual fi-nancial data would be extremely helpful in making these adjustments. However, these data are typically unavailable.

Mass appraisal models for hotels using stepwise regression have been created by John W. O’Neill, MAI, CHE, PhD, an assistant professor at the School of Hotel, Restaurant and Recreation at The Pennsylvania State University. O’Neill created his regression model using 327 sales nationwide spanning 12 years (1990-2002). Since the sales data used in O’Neill’s study (2004) is pro-prietary and data on hotel sales outside an assessor’s jurisdiction are typically not available, it is unlikely that a similar analysis could be performed at the local level. However, the results of O’Neill’s

Figure 8. Marshall & Swift’s Hotel Cost Estimates by Segment and Class

© 2005 Marshall & Swift, L.P. Reprinted By Permission. Further Reproduction Is Expressly Prohibited.


study can be useful. Not surprisingly, O’Neill’s models indicated that four key factors affect the selling price of a hotel: number of rooms, net operating income, average daily room rate, and occupancy. His analysis indicates the importance of the income approach for valuing these property types.

In the absence of sufficient sales to create mass appraisal models for hotels, many assessors resort to single-property appraisal—essentially valuing one hotel at a time. Although this method is ac-ceptable, it can be time-consuming and difficult. Assessors should consider a technique known as “ranking analysis.” (Appraisal Institute 2001) In ranking analysis, comparable sales are ranked in descending or ascending order. An example from Hillsborough County is shown in figure 9. After reviewing the sales, the assessor then determines the relative position of the subject in the array. The comparables are identified as either inferior or superior to bracket the probable value range of the subject.

The sales comparison approach is typically the best method to determine the probable sales price of a property. However, with the lack of sufficient hotel sales, this method is best used as a check

against the value determined by the in-come approach.

ConclusionHotels are one of the most difficult properties to value for appraisers and assessors alike. These properties are complicated by the fact that they are a combination of real estate, personal property, and an operating business. This article focused on the creation of mass appraisal models to value hotels. These models can be created utilizing readily available data and can be struc-tured to exclude business value.

Because hotels are typically bought and sold on their ability to generate revenue, the income approach is the preferred approach to value. Data concerning average daily room rates, occupancy, expenses, and capitalization rates can be obtained from company financial reports and industry publications. This data can be used to create mass appraisal income models. Although less reliable than the income approach, the cost approach provides a valuable check against other valuation methods. The cost approach is particularly useful in new hotels and lends itself very well to mass appraisal. Because of a lack of sufficient sales, the

Figure 9. Comparable Sales of Limited Service Hotels Ranked by Price Per Room


sales comparison approach is the least adaptable to mass appraisal. The assessor can use the “ranking analysis” method to array sales, then bracket the subject accordingly. Again, this approach should probably only be used as a check against income-approach results.

There is an ongoing debate about how to separate the three aspects of a hotel property’s value, that of real estate, personal property, and the ongo-ing business. For personal property, it is the authors’ opinion that imputing an expense for reserves for replacement of the FF&E and deducting the personal property assessment sufficiently excludes the FF&E from the income approach. Of the several methods presented for estimating business value, the authors’ believe that the simplest and most effec-tive method for ensuring that business value is excluded from a hotel’s assess-ment is to include a management fee and a franchise fee in the operating expenses of the income approach.

Uncredited photos and charts were provided by the authors.

Hotel Data SourcesThis list of hotel data sources is by no means exhaustive. However, these re-sources have been most helpful to the authors in developing hotel assessments in their jurisdiction. All prices quoted were as of January 2005.

Hotels and Motels: Valuations and Market Studies by Stephen Rushmore, MAI, and Erich Baum, is a publication of the Ap-praisal Institute (www.appraisalinstitute.org). This book contains information on gauging hotel demand, site selection, facility financing, design, valuation, and management. The price for this book is approximately $45.00.

Pannell Kerr Forster Inc. (PKF) (www.pkfonline.com) publishes a report en-titled PKF—Trends in the Hotel Industry. This is an annual report that details the result of surveys of hotel revenue,

expense, occupancies, and profit data nationwide. The price for this publica-tion is approximately $295.00

STR—Smith Travel Research (www.smithtravelresearch.com) publishes a report entitled The Host Study. Similar to PKF’s Trends report, the Host Study pub-lication provides in-depth survey results for hotel income, expense, and other benchmarks. The price for this publica-tion is approximately $295.00.

Hospitality Internet Media, L.L.C.’s www.hotel-online.com is a Web site that reports all the latest news on hotels and the lodging industry throughout the United States. The Web site provides news articles, classified ads, and links to many other hotel-related Web sites. This Web site is free.

Korpacz Real Estate Investor Survey (www.korpacz.com) provides capitalization rates and other market data, commentary, and analysis on a variety of commercial properties including hotels. Published quarterly by PriceWaterhouseCoopers, an annual subscription is $375.00.

CB Richard Ellis National Investor Survey (www.CBRE.com) is an annual publica-tion that reports capitalization rates for 15 class A, B, and C income-producing properties. The annual cost for the Inves-tor Survey is $100.00.

www.RealtyRates.com is an Internet subscription service which publishes several surveys with capitalization rates, rents, expenses, vacancies and other data for all major income-producing commercial properties. The reports are published quarterly and are $79.00 for an annual subscription.

USRC Hotel Investment Survey (www.USRC.com), which is published by a group of hotel industry specialists, offers cap rates and other hotel data. This Web site is free.


Glossary• Average Daily Rate (ADR) – av-

erage room income per occupied room.

• Departmental Expenses – expenses directly incurred by the operation of the different hotel “depart-ments,” namely rooms, food and beverage, telecommunications, and miscellaneous.

• Food and Beverage Income – all income generated from the sale of food and beverages, including room service and alcoholic beverages.

• FF&E – the furniture, fixtures, and equipment necessary to operate a hotel, typically a large investment for most hotels. These assets are excluded from the valuation of the real estate.

• Franchise Fees – payment that a hotel makes to be affiliated with a national chain. This generally is an expense attributed to the business concern of the hotel.

• Management Fees – payment that a hotel owner makes to a manage-ment company to run the day-to-day operation of the hotel. These fees are typically based on percent-ages of revenue and represent the total cost of running the business.

• Miscellaneous Income – revenue generated from retail space rent-als, meeting room rentals, parking, laundry, and fees from ancillary services.

• Rack Rate – the advertised rate of the hotel. Usually the highest rate offered to someone who has no reservation.

• Room Revenue – all income gener-ated from room rentals.

• RevPAR (revenue per available room) – actual room income divid-ed by the total number of rooms.

• Telecommunications Income – all income generated through the use of in-room telephones for local and long distance calls as well as fax services and Internet connection services.

• Undistributed Operating Expenses – Operating expenses not incurred by the specific departments. Gen-eral hotel operating expenses. For example, administrative, utilities, and marketing expense.

References

Appraisal Institute. 2001. Appraisal of real estate, 12th ed. Chicago: Appraisal Institute.

International Association of Assessing Officers. 1999. Mass appraisal of real prop-erty. Chicago: International Association of Assessing Officers.

Marshall & Swift. 2004. Marshall valua-tion service book. Los Angeles. Marshall & Swift.

O’Neill, J.W. 2004 An automated valu-ation model for hotels. Cornell Hotel and Restaurant Administration Quarterly. August.

Pannell Kerr Forster Inc. Annual. Trends in the hotel industry. New York: Pannell Kerr Forster Inc.

RealtyRates.com. 2004. Third quarter 2004 investor survey. Bradenton, FL: RealtyRates.com.

Smith Travel Research. Annual. The host study. Hendersonville, TN: Smith Travel Research.

Additional Resources

Case law on the Rushmore approach and business enterprise value

Dist. of Columbia v. Wash. Sheraton Corp., 499 A.2d 109 (D.C. 1985).

Estate of Slutsky v. C.I.R., 1983 Tax Ct. Memo LEXIS 208 T.C. Memo 1983-578 (U.S. Tax Ct. 1983).


Glen Pointe Assoc. v. Teaneck Township, 10 N.J. Tax 380 (1989).

Hilton Hotels Corporation v. Jackson County Assessor, 2003 WL 21443402 (Or. Tax Magistrate Div.)

Hull Junction Holding Corp. v. Princeton Borough, 16 N.J. Tax 58 (1995).

In re Grand Traverse Development Co. Ltd. Partnership, 150 B.R. 176 (Bankr. W.D. Mich. 1993).

In re J.F.K. Acquisitions Group, 166 B.R. 207 (Bankr. E.D. N.Y. 1994).

Marriott Corp. v. Bd. Of Cnty. Commission-ers, 972 P.2d 793 (Ks. App. 1999).

Merle Hay Mall v. Polk County Board of Re-view, 564 N.W. 2d 419 (Iowa 1997).

Prudential Ins. v. Township of Parsippany, 16 N.J. Tax 58 (1995).


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