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Not that simple.
Example: You have 100 rooms on average filling up a day, but ADR is only $41. So in a year you make $1,500,000, but had 36,500 room nights.
You have 50 rooms a day you are selling, but ADR is $82. So in a year you make $1,500,000.
You would want option #2, because less overhead for the same revenue. Your margins are higher because housekeeping only needs to clean 50 rooms and its also less rooms when it comes to utilities, repairs, etc.
I know hotel owners and its never easy to run this business, but they are extremely profitable in the right hands.
I have a client with a very nice coastal commercial portfolio. But he's got this hotel that is a dog. He's not a good operator. I know guys in this space that are interested. I don't know anything about hotels but it's assessed at $16mil. It's 60,000+ sqft and 110 rooms. He grossed only $1.5mil for 2015. Net income of 150k.
He should sell. I have buyers. Really good buyers.
There's a number of factors - does the hotel have a large component of revenue coming from F&B? If so, margins are usually lower than others (with the exception of banquet and catering revenue). I believe F&B margins for non-banquet and catering is as low as 10%-15 margins. The other two major factors are 1) whether the hotel has union labor (i.e. Chicago is notorious for this) - this will drive up expenses, and 2) if it is a limited-service hotel or a full-service hotel. I believe the former should have an average flow through of 30-35% (meaning 65-70% opex ratios after accounting for a 4% FF&E reserve), and the ladder should fall in the 20-25% flow through range. Limited-service hotels operate with no frills, while full-service operates with.
Excuse the run-on sentences and grammatical errors... it's a Friday night thing.
I looked/underwrote a Marriott deal in Galveston and it was approximately 45% expense to rev. That's my only experience with hotel so take it with a grain of salt
Seems very high. As someone previously suggested on this post, maybe there was minimal rooms in combination with very high ADR for the area. This is certainly not in the range of average flow through ratios.
To hit a 7 cap a current tax assessment, which is usually a low indicator of value, he needs $1mil+ a year of NOI. He's at 150k, lol.
Caps definitely are an indicator, but it all depends on the given situation/story. Is the $150k a stabilized or distressed NOI for this particular hotel? Is there value to be added in changing up segmentation? Is it penetrating below historical peaks, if so, why? Is there room for outperformance in penetration? Is the comp set the right one? Is the hotel capital starved? Bad manager? Unencumbered by management? Unencumbered by debt? F&B opportunity?
Hospitality sources with ADR information (Originally Posted: 09/25/2015)
Is anyone aware of services that provide hotel ADR information? Co-Star's hospitality information is lacking....
thanks
It's expensive, but it's the class of the industry--STR Global. They are the hotel information behemoth.
STR all the way. They tailor the comp set to your specific property.
I don't know of any full service operator that doesn't pay for it. The big limited service owners spend the cash for it, but some of the smaller ones do their own surveys.
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