The Economic Life of Economy Hotels
August 5, 2014 12:45am
By Hans Detlefsen and Todd Isenstadt
Economic life is an important component in determining development feasibility of hotels. Economic life is defined in the Appraisal Institute’s Dictionary of Real Estate Appraisal as “the period over which improvements to real property contribute to property value.” A deteriorating property can lead to a depreciation of the value of the asset, and owners of an aging property may determine that the expenses associated with improving the property cannot be justified. When improvements cease to contribute to value, the property’s economic life comes to an end.
The authors have collected data from approximately 150 economy tier hotel properties from across the United States to determine the average economic life of these properties. Outliers with an economic life of fifteen years or fewer were eliminated from our data set. This study considers only properties that were closed by normal wear and tear associated with age. Other reasons for the closing of properties that are not associated with normal wear and tear, such as natural disasters, have been excluded from our collection. Data on opening and closing dates of properties were gathered through the extensive HVS database of hospitality assets, STR participation lists, and interviews conducted by the authors.
We have determined that the average (arithmetic mean) economic life of an economy hotel property is as follows: 40.4 years. The median value is 39 years. The frequency distribution is presented in the figure below. The range of economic life, excluding properties that closed prior to sixteen years in operation, is reported on the horizontal axis. The vertical axis reports the number of properties within each period.
Superior Results through Unrivalled Hospitality Intelligence. Everywhere.
HVS CONSULTING & VALUATION – CHICAGO OFFICE
HVS Chicago office specializes in hotel consulting and valuation. Our clients include investors, lenders, rating agencies, buyers, sellers, government agencies, tax assessors, operating companies, and owners.
Technology in the Hospitality Industry – Have We Gone Too Far?
Canadian Hotel Development Cost Survey 2018
HVS Market Pulse: Rochester, MN – Medicine at the Forefront of Development
HVS Market Pulse: Gaylord Rockies – Impact on Denver Lodging Submarkets
HVS Market Pulse: Minneapolis - After the Super Bowl
European Hotel Transaction Levels Down in 2018 Although Investor Interest Remains Strong, Says Hvs Report
Interviews With Leaders - Mr. Neil George, Strategic Advisor, Rosewood Hotel Group
European Hotel Rooms See Strong Growth in Value With Gains Across Most Cities, Reveals HVS Valuation Index
HVS Market Pulse: San Francisco, CA
HVS Market Pulse: Atlanta, Georgia
Convention Center Headquarters Hotel Openings – Nine Cases in Point
Lisbon Hotel Market – Europe's Miracle Baby Maturing
Supply Increase Impacts Occupancy in UK's Provincial Hotels, Says Hotel Market Tracker
HVS Market Pulse: Bend, Oregon
HVS Market Pulse: Greater Fort Myers, FL
Many Hotel Sellers Won Big in 2018
Possessory Interests in Hotel Real Estate
Hotel Cap Rates Hold Steady - Values Under Pressure
Are Colorado Ski-Resort Hotels Posed for a Rebound?
HVS Market Pulse: Dallas, TX
Please login or register to post a comment.