Hotel Capitalization Rates and the Impact of Cap Ex
Hotel capitalization rates hold steady in current market environment, yet increasing need for capital improvements as assets age can affect values and rates of return. This article evaluates impact of cap ex on hotel cap rates and exit strategies.
Conclusion: As the U.S. hotel stock ages, the need for capital improvements will continue to rise. Capitalization rates derived from sales transactions do not overtly address the impact of capital improvements upon the purchase price or return expectations of the buyer. A realistic assessment of capital improvement costs at the time of the initial investment, and upon exiting the investment in the future, can provide an educated basis for selecting appropriate going-in and exit capitalization rates and results in a more reasoned and supportable current valuation.
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