Hotel Executive Magazine: Can Any Hotel Sale Really Be Used as a ‘Comparable’?
While a hotel is not the same as a house or a warehouse or an apartment or office building, many assessors often don’t understand the differences. This is due to the fact that the hospitality sector is frequently the most challenging part of a jurisdiction’s property tax base.
Correctly deriving a hotel’s real property value from a purchase price requires an assessor to spend time and energy to understand the adjustments needed to accurately determine what part of that purchase price relates to real property, and whether or not it can be used as a sales comparable for other hotels in that jurisdiction.
Unfortunately, too few assessors are willing to make this effort, and are more likely to look at sales of nearby hotels just like they would home sales. A hotel sale typically includes several elements that make it unique in the market. Those elements should pose questions that assessors need to answer to help make adjustments before a sale can be deemed reliable for use in a comparability analysis.
Some of these questions include:
- Was the sold hotel part of a portfolio transaction?
- Was the hotel sold to a Real Estate Investment Trust (REIT)?
- Who bought the hotel? Was the investor foreign or domestic?
- Did the hotel sale include a management contract with a recognized flag in place?
- Was the sales price driven by the hotel’s bar and restaurant business?
- Was location a primary factor in determining purchase price?
Based on the complexity of these questions, assessing a hotel properly is difficult, but it can be done if assessors are willing to do their homework. But if an assessor isn’t willing, the hotelier – or the consultant – has to be able to demonstrate the correct real property value to an appeals board.
These are some of the key highlights of a recent Hotel Executive Magazine guest article by David Chitlik, Altus Group’s Vice President, Hospitality. David was recently asked to be on the editorial board of this publication. This article is the second in a series where he will cover a wide range of hospitality property tax topics.
Hotel Executive Magazine: REIT Status Shouldn’t Impact What You Pay in State and Local Property Taxes
Apr 3, 2017
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Last updated on August 25th, 2019 at 08:31 am