Between wish and reality: Where lies the real value of a hotel real estate?

  • 01/28/2016
  • Created by Thomas Wührer
Monopoly

It lies in the nature of the homo oeconomicus that he does not want to pay too much for a property, nor does the seller want to receive too little. Between these contradicting claims of the prospective buyer and the seller, the realistic price should lie ideally.

However, where does the “too” in too much or in too little originate? In principle one can define the determination of value from four decisive factors:

  • the value: is the sum of the current value of the land, the building and the equipment
  • the added value: is the achievable yield of the real estate
  • the amount of the present alternative real estate offer in relation to the topical inquiry
  • the paid prices for comparable objects

Simulation of the market

The inquiry and the adequate weighting of the single factors to each other can be carried out only by a stated hotel-real estate specialist. He alone knows the market, the trends and the influencing "set screws" in every detail. The assessment of catering- and hotel real estate requires professional knowledge in this branch, in the topical market situation and up-dated knowledge of trends, modes of operation as well as market and location judgements. Beside the competence in the property market, excellent knowledge of the catering business and the hotel industry and the identity figures specific for this branch will lead to an expert assessment.

Die besondere Vorliebe und andere ideellen Wertzumessungen einzelner Personen haben bei der Ermittlung des Verkehrswertes außer Betracht zu bleiben (BGBI. Nr. 150/1992).

Objective market value as a guideline

In spite of all figures: With personal appraisement by the seller and the prospective buyer, emotions play always a role too. An objective market value, ascertained by an expert, brings understandable clarity in the business for the benefit of both sides. The market value is defined in Austria in accordance with §2 real estate assessment law (LBG)

as a "price which can be achieved usually in a fair business dealing". The special predilection and other personal values of single people have no influence to the value consideration (BGBI. No. 150/1992).

The choice of the methods.

To inquire the market value of real estate, the legislator puts three methods in the hand of the real estate trustee: The material real value procedure, the capitalized return value procedure and the comparative value procedure. With the material real value procedure the land value, the building value as well as the value of other components and the accessories are to be determined.

In the capitalized return value procedure, the long term attainable yield of the real estate is to be calculated. The management costs (rent failure venture, administrative costs, costs of the running maintenance and operating expenses) must be deducted from it. The so calculated net profit per year is to be capitalized.

With the comparative value procedure, prices of comparable hotel real estates are the graduation. Because a comparison of  hotels in general is very difficult and mostly even not possible, the expert would take additional figures like price per square meter, price per room, per seat, EBITDA or other measurable identification numbers.

Market assessment and valuation by HOTELINVEST

Due to the fact that hotels are yield objects, we at HOTELINVEST put the capitalized return value method in the centre. Indeed, we consider – in contrast to most other experts – also the comparative value and with lower weight the material real value. With it we let individual specific features of the market or the building, its location and equipment flow into the calculation.

In addition to the classical criteria, HOTELINVEST judges also the alternative utilisation of the building, which underpin a future security; as for example the possibilities for rebuilding in a retirement residence, a apartment building or chalets. In contrast to many other real estate agencies, HOTELINVEST only offers such objects in his port folio which stand firm in a fair prize situation of an objective investigation. However, only a concrete certificate can deliver detailed information and suitable security for the decision.

An expert market assessment and professional prize inquiry is essential not only for the purchase and sales sensibly, but also helps to run the real estate properly and correctly due to the tax regulations in the books. Besides, for banks such an object market assessment serves as an important basis for financing. Tax offices and courts recognise a market assessment only if it was provided by a judicially sworn expert. Assurances make - in general - their own assessments, because they place special emphasis on other criteria.

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