Effects of Major Renovations on Hotel Market Penetration 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 penetration

Related Document