Hotel Cap Rates and Sales
When selling a Hotel Property do you Cap the hotel EBITDA after FF+E reserves? For other property types you don' capitalize cap ex, but all Hotel Proformas I have received have FF+E reserves as part of the NOI.
For Hotels we use NCF as opposed to NOI and the NCF uses 4% FFE. FFE might as well be above the line because hotels are such a operationally intensive product type and there is a constant need to maintain the hotel to a flag's standards. And side note- if your going to use a CMBS loan, Fitch will stress that to 5% FFE.
Thanks!
What are your thoughts on selling it on an EDITDA multiple?
Brody has the best answer here; however, I would also stress the importance of price per key, especially on an all-in basis (most brands will require a PIP/reno on change of ownership which can be anywhere from $5k/key to $100k/key). Price per key is important because if you can take a 150 room and add 15 rooms by getting rid of a ballroom or other space that is not being used, you effectively improve your top line by 10% and hopefully aren't taking on additional fixed expenses (and honestly few additional "variable"). This also assumes you're in a market where you'll maintain your occupancy/rate levels with the additional rooms (which should be easy if you renovate correctly, have the right revenue management team in place, and are offering a newly renovated product).
Some ballpark numbers, a lot of multifamily class A's will redo TI's/reno's anywhere between 10-20 years. Standard reno time for hotels is 7 years for higher end hotels.
7 years? For a reno? What properties are you talking about?
7 year cycle for a reno. Not 7 years to renovate
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