Effects of Major Renovations on Hotel Market Penetration and Net Present Value
In this article, we seek to understand and quantify, through analysis, the impact of a major renovation on a hotel’s occupancy and rate penetration and, ultimately, the effect on income and net present value.
When conducting a valuation on a hotel asset, the appraiser analyzes the local lodging
market, researches the area's economics, and prepares a forecast of income and expenses, which is dependent on the appraiser's forecast of occupancy and rate for the subject property. On a typical appraisal, the forecast of occupancy and average rate for the subject property is supported by historical supply and demand trends in the submarket being studied, as well as the appraiser's knowledge and expertise of micro- and macroeconomic lodging trends. The forecast of occupancy and average rate becomes more challenging when the property in question has recently undergone a major renovation or is expected to undergo a major renovation, because the appraiser not only has to forecast occupancy and rate for the market and the subject property, but must also forecast any above-average increases to the subject property's occupancy and rate that will result in increased market penetrationAbout HVS
HVS is the world's leading consulting and valuation services organization focused on the hotel, restaurant, shared ownership, gaming, and leisure industries. Established in 1980, the company performs more than 4,500 assignments per year for virtually every major industry participant. HVS principals are regarded as the leading professionals in their respective regions of the globe. Through a worldwide network of over 50 offices staffed by 300 experienced industry professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. For further information regarding our expertise and specifics about our services, please visit www.hvs.com.
Leora Halpern Lanz
+1 516-680-8529
HVS
