Hotels
What is my hotel worth? The numbers buyers and lenders look at first
Before anyone talks about a cap rate, they look at a handful of operating numbers. Here's what they are and why they matter.
By [Founder name], Ph.D. 6 min read
Every hotel owner eventually asks the same question. The answer depends less on the building than most people expect, and more on a short list of operating numbers that buyers and lenders check before anything else.
1. RevPAR, and how it compares
Revenue per available room combines occupancy and average daily rate (ADR) into one figure. On its own it says little; what matters is how your RevPAR compares to your competitive set. A property that consistently captures more than its fair share of the market (a RevPAR index above 100) is worth more than one that trails it, even at the same revenue.
2. Net operating income, normalized
Buyers don't pay for your tax return; they pay for the income the hotel can reliably produce under typical management. That means adjusting reported results for:
- Owner salaries or family members on payroll at non-market rates
- One-time repairs or unusual expenses
- A market management fee, even if you self-manage
- A reserve for replacement of furniture, fixtures and equipment (FF&E)
The result, a normalized NOI, is the number most valuation work is built on.
3. The franchise agreement and PIP
A strong flag can support rate and occupancy, but it comes with fees and obligations. Buyers will look at the remaining term, the royalty and marketing fees, and above all any property improvement plan (PIP) that comes with a change of ownership. A $2 million PIP is, in practical terms, $2 million off the price.
4. Condition and deferred maintenance
Room age, roofs, HVAC and parking lots all show up in a buyer's capital budget. Deferred maintenance is rarely hidden from a careful buyer, so it's better to know the number before they do.
5. Supply coming into the market
New rooms under construction nearby can cap your future rate growth. Lenders in particular will ask about the pipeline.
A hotel is real estate and an operating business. A good valuation separates the two, so everyone at the table understands what they're paying for.
Why separating the value matters
For lending, property tax and purchase-price allocation, the total value is often split into real property, personal property (FF&E) and intangible business value. Getting this allocation right can affect your financing, your tax bill and your depreciation after a sale.
What to do next
If you're thinking about selling, refinancing or bringing in a partner, start by pulling three years of P&Ls, your STR reports and your franchise agreement. Those three documents answer most of the first questions anyone will ask.