Document View

Automated Valuation Model (AVM) uses the statistical application of stepwise multiple linear regression analyses, though it is relatively simple for hotel managers, owners, potential purchasers, potential lenders and analysts with an interest in a hotel to apply. In other words, users of the AVM need not use stepwise linear regression analysis, only basic math, and have access to a hotel's number of guestrooms, occupancy percentage, average daily rate and net operating income during the previous 12-month period. The methodology employed is not intended to replace such vital background as real estate appraisal training and professional hotel management experience and education, but is meant to assist analysts with understanding the dynamics of hotel properties.

Copyright Penton Media, Inc. Nov 2004

Using hundreds of hotel purchase/sale transactions compiled over the past 14 years, I've developed a statistically significant Automated Valuation Model (AVM) that predicts hotel sale price, i.e., value, based on the factors that most frequently contribute to sale price. This AVM uses the statistical application of stepwise multiple linear regression analyses, though it is relatively simple for hotel managers, owners, potential purchasers, potential lenders and analysts with an interest in a hotel to apply.

Enlarge 200% Enlarge 400%

Tlius, in the previous example, the 57-room Hampton Inn would have an estimated value of approximately $3,860,000 ($67,718 x 57). In fact, the hotel actually sold within the past year for $64,912 per room, very close to the $67,718 per-room value estimate.

The methodology employed here isn't intended to replace such vital background as real estate appraisal training and professional hotel management experience and education, but is meant to assist analysts with understanding the dynamics of hotel properties. While AVM provides a quick, cheap, and objective estimate of a hotel's value, it is not quite as accurate as an actual hotel appraisal performed by a licensed MAI hotel appraiser. My research indicates that while average appraisals vary from sale price by approximately five percent, this AVM results in value estimates that differ from sale price by an average of roughly 10 percent, a limitation of statistical methodologies. Such AVMs will probably always be useful for quick analysis and for assessing the appropriateness of more detailed analysis.

Enlarge 200% Enlarge 400%

Now on to the latest edition of the Penn State Index of Hotel Values, which uses an econometric model to estimate future hotel values. This year, average U.S. hotel values are expected to increase seven percent to $72,638 per room. Luxury hotels are expected to experience the greatest increases in value per room, or $14,392, to $269,112 per room, while economy hotels are expected to register the highest percentage increases, or 11.5 percent, to $17,916 per room. In 2005 and 2006, overall U.S. hotel values are expected to increase by roughly six percent each year.

Enlarge 200% Enlarge 400%

[Author Affiliation]

John W. O'Neill, MAI, CHE, Ph.D., is a professor in the School of Hospitality Management at The Pennsylvania State University and a licensed real estate appraiser. He previously held unit-level, regionallevel, and corporate-level management positions with Hyatt and Marriott. He can be reached at jw03@psu.etfu or 814-863-8984,