ABSTRACT
Investment-grade hotel transactions are, for the most part, very capital intensive and complex. Highly specialized valuation knowledge is required to accurately pinpoint property values and to realize projected investment returns. This chapter explains the unique characteristics of hotel real estate and discusses asset class-specific operating models. It then lists the key reasons why valuations are required and explains the role a valuer plays in estimating hotel real-estate values. The chapter also distinguishes between the three primary techniques used to value direct hotel investments: transaction comparison approach, replacement cost approach and income capitalization approaches. It introduces direct capitalization and discounted cashflow (DCF) valuation techniques – two popular income capitalization approaches – in greater detail. Discounted cashflow techniques reflect investor rationales most closely and therefore find widespread use in professional valuation reports. The chapter also helps the reader understand and describe the process of converting a future income stream to its present value.
