There are different factors that influence the value of a hotel, and if these are in place when a hotel valuation is undertaken, it is likely that a favourable sales price will be recommended by a broker. Whilst our preferred method of conducting hotel valuations is through discounted cash flow and capitalisation rates, all of the factors below will have an influence on the cash flow levels.
Location: The location of a property will have a strong influence on the hotel valuation. For example, in Cape Town, a property located at the V&A Waterfront is likely to achieve a higher hotel valuation than one in the CBD, given the higher levels of demand for properties located at the V&A Waterfront.
Quality: The quality of a property will also mean a higher hotel valuation. Whether positioned at a budget or luxury level, the quality must be aligned with that of the customer’s expectations.
Maintenance and upkeep: The continued upkeep and maintenance of a property is critical for ensuring a positive hotel valuation when the time comes to sell. Usually, with a hotel valuation, a technical review is also undertaken in order to understand the level of capital investment that the new owner will be required to make in order to operate the hotel. A hotel that is well maintained will only require a minimal capital injection (unless the hotel owner wishes to change the concept of the property), which will have a positive knock-on effect for the cash flow of the hotel.
A strong management team: Whether working for a branded or independently operated hotel, the level of experience of the management team can affect a hotel’s valuation. A strong management team will be able to manage the occupancy, ADR, food and beverage, and any other facilities in a way that maximises revenue, regardless of the market conditions. In addition, the sales and marketing team will adjust their sales strategies to be in line with the changing needs of the hotel’s market.
Hotel valuations are different from other property evaluations. At HTI Consulting, we believe that achieving a high cash flow is the key to obtaining a positive hotel valuation.