Valuation of the Hotel

Real Estate & Intangibles

by
Thomas Dolan
Managing Director
HVS Property Tax Services

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Components of a Going Concern

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Superior/Inferior Management/Brand

 Adjustments for Management/Brand

 RevPAR – Brand and Management
 Expenses – Management
 Example – Westin Hotel, St. Louis
 Penetrated its competitive set at 150% revPAR
- Partially due to location and physical
- Primarily due to Management and Brand

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Examples of Intangibles

 Westin – Major market

 Operating at 150% of market RevPAR versus Marriott,
Hilton, Hyatt, Ritz, Independent luxury
 We made adjustments down to 125% of the market

 Residence Inn flag loss – Tertiary market

 Year end 2009 70% @$100
 Flag removed March 1, 2010
 Year end 2010 58% @ $79

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Sales Comparison Approach

 Sales occurring today at historically Low cap rates

 Reason #1: income still remains below historically levels
(inflation adjusted), and buyers still seeing upside
 Reason #2: Cost of capital is at historically low levels
 Debt – interest rates remain at all time low for hotels
 Equity – new capital (foreign) sources entering the market
looking for opportunity in the US

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Market Value – Assessed versus Appraised

 Assessed Value is “Value in Use” most places; HBU is not

considered
 I believe that there are differences
 Value of brand adds to real estate value when leveraging
with a mortgage
- Extraordinary assumption
 Assessed valuation – any and all impact of branding needs
to be removed from value of real estate
- No assumption necessary

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Capitalization Rates and Sales

 Sales of well branded hotels typically include intangibles,

which can often be found in the cap rate
 Branding assumptions
 Therefore market extracted cap rates are not always ideal
unless you have all details of the sale
 Personal property is an ambiguous number
 Property Improvement Plan (PIP)
 Many factors can affect cap rates
 Buyer’s motivation
 1031
 REITs

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Approaches for Mass Valuation

 Bucket approach
 Put hotels into different buckets
 i.e. independents Upscale, Mid scale, economy
 i.e. branded – upscale, midscale, economy

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Massachusetts Sales

 Real Capital Analytics

 HVS Database

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Massachusetts Sales
Property Name Address City Price in $ $/Units
Liberty Hotel 215 Charles St Boston 170,000,000 570,470
Hotel Commonwealth 500 Commonwealth
Boston
Ave 78,375,000 526,007
Hilton Boston Financial District 89 Broad St Boston 160,000,000 441,989
Veritas at Harvard Square 1 Remington StCambridge 13,000,000 419,355
Copley Square 47 Huntington Ave
Boston 60,750,000 410,473
W Hotel & Condos 100 Stuart St Boston 89,500,000 380,851
The Back Bay Hotel 350 Stuart St Boston 84,387,000 375,053
Boston Common Hotel & Conference Ctr 40 Trinity Pl Boston 22,550,000 352,344
Boston Harbor Hotel at Rowes Wharf 70 Rowes WharfBoston 77,465,767 336,808
Courtyard Boston Copley Square 88-90 Exeter StBoston 25,000,000 308,642
Renaissance Boston Waterfront Hotel 606 Congress StBoston 132,000,000 280,255
Bulfinch Hotel 107 Merrimac StBoston 21,810,176 272,627
Royal Sonesta 23 Cambridge Pkwy
Cambridge 97,827,155 244,568
Park Plaza Hotel 50 Park Plz Boston 250,000,000 237,417
enVision Hotel Boston 81 S HuntingtonBoston
Ave 9,200,000 235,897
Embassy Suites Boston 550 Winter St Waltham 64,500,000 234,545
Bulfinch Hotel 107 Merrimac StBoston 18,200,000 227,500
Homewood Suites 1 MassachusettsArlington
Ave 22,100,000 221,000
Courtyard Boston Cambridge 777 Memorial DrCambridge 42,000,000 204,878
463 Beacon Street Guest House 463 Beacon St Boston 3,800,000 190,000
Hyatt Summerfield Suites Burlington/Boston 2 Van De GraaffBurlington
Dr 27,485,872 183,239
Residence Inn Woburn 300 PresidentialWoburn
Way 27,000,000 181,208
Best Western Roundhouse Suites 891 Massachusetts
Boston
Ave 16,450,000 178,804
Burlington Marriott One Mall Rd Burlington 73,350,000 175,478
Park Plaza Hotel 50 Park Plz Boston 132,468,441 140,774
Aloft and Element Hotels 727 Marrett Rd Lexington 36,000,000 138,996
Hampton Inn 215 Wood Rd Braintree 13,600,000 132,039
Residence Inn 181 Faunce Corner
NorthRdDartmouth 11,692,983 121,802
Hilton Garden Inn 420 Totten PondWaltham
Rd 18,000,000 121,622
Americas Vest Value Inn 1800 Soldiers Field
Boston
Rd 6,657,500 121,045
Boston Marlborough Courtyard by Marriott 75 Felton St Marlborough 23,980,000 118,713

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Massachusetts Sales (Cont.)
Property Name Address City Price in $ $/Units
Summerfield Suites 54 4th Ave Waltham 15,600,000 114,706
Hampton Inn Boston/Woburn 315 Mishawum Woburn
Rd 10,458,790 105,644
Doubletree Westborough 5400 Computer Westborough
Dr 21,900,000 98,206
Doubletree Bedford Glen 44 Middlesex Tpke
Bedford 27,759,500 93,466
Homewood Suites 57 Newbury St Peabody 7,846,262 92,309
Hampton Inn 59 Newbury St Peabody 11,077,075 92,309
40 Berkeley St 40 Berkeley St Boston 17,230,000 86,150
Holiday Inn Express 50 Fortune BlvdMilford 9,800,000 83,761
Sheraton 1657 WorcesterFramingham
Rd 27,225,000 72,989
95 Main St 95 Main St Tewksbury 7,500,000 62,500
65 Newbury St 65 Newbury St Danvers 6,300,000 58,879
Quality Inn 1005 Belmont St Brockton 3,900,000 56,522
Springhill Suites - Peabody 43 Newbury St Peabody 9,250,000 56,402
Red Roof Inn Boston Woburn 19 Commerce Way Woburn 8,959,400 56,348
Best Western Plus 740 Elm St Concord 5,792,000 55,162
Holiday Inn Express 50 Fortune BlvdMilford 6,300,000 53,846
Best Western Plus Merrimack Valley 401 Lowell Ave Haverhill 6,380,000 50,635
Best Western 909 Hingham StRockland 3,810,000 50,132
1668 Worcester Rd 1668 WorcesterFramingham
Rd 5,300,000 50,000
125 Union St 125 Union St Braintree 4,200,000 45,652
Comfort Inn - Danvers 50 Dayton St Danvers 6,350,000 45,357
Red Roof Inn Boston Northeast Saugus 920 Broadway Saugus 4,900,000 41,880
Radisson 10 Independence Chelmsford
Dr 8,000,000 37,736
fmr Courtyard By Marriott 150 Royal PlazaFitchburg
Dr 9,178,400 37,463
Westford Regency Inn & Conf Ctr 219 Littleton RdWestford 7,000,000 36,269
Hampton Inn Boston/Woburn 315 Mishawum Woburn
Rd 3,000,000 30,303
48 Commercial Rd 48 Commercial Leominster
Rd 3,300,000 28,947
Crowne Plaza Boston North Shore 50 Ferncroft RdDanvers 9,575,018 26,090
Comfort Suites 106 Bank Rd Haverhill 3,208,500 24,492

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My Prediction on next downturn

 Hotel operations will remain strong through 2019

 However, cap rates will begin to rise in 2015 and upside in
market diminishes due to cap rate increases
 New supply to outpace demand

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Thank you

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