Appraising Small Motels

Small motels are often owner operated without national affiliation and while challenging they are not as daunting as there much larger franchised limited and full service big brother operations.  

Appraisers understand that motels are valuable because they generate income and they are usually analyzed as "going-concerns," and all three approaches to value are of course considered. 

Small motels are usually older facilities at least they are in my market.  Newer motels here are usually larger than the 10 to 30 unit roadside motels that are disappearing or already gone from many communities.  There are some of the small operators who are still hanging on, but it’s a smaller and smaller group.  Larger facilities can offer common area amenities like a large reception area, breakfast, conference rooms and some even have restaurants and / or retail areas.  

Smaller motels generally command a lower average daily rate (ADR) than their larger-scale cousins.  Their newer age and additional services / amenities make the difference, but the larger facilities also usually have superior locations.  In Las Vegas hotels average around $ 135 per room night while motels, usually with inferior locations, struggle near the $ 65 per room night figure.  Effectively motel rooms are “half the price” of the other rooms.

One of the most compelling factors that benefit small motels is the personal contact that they provide and the ability of an owner to add value at a reasonable cost.  You can do almost anything for customers and it's more than he or she or the family would likely get at most of the franchised places.  Fresh flowers and baked cookies will get you a lot of points with many customers who get used to walking into the same bleak room over and over again.

Motel appraisal accuracy has a lot to do with the historical income and expense information that is or is not provided.  If you have little data and it's not stabilized you immediately have difficulty trying to project the future benefits to an owner and capitalize current or discount future results.  That’s why many avoid appraisals on properties without established financials.

Appraisers also have to be able to recognize income and expense abnormalities when they see them on the statements.  Yes there is a reason to use property profiles or having enough data to consider whether the expense ratios are reasonable.  

Small motels are relatively easy to analyze / appraise when compared to large full service or limited service hotels or motels that have multiple income sources with many departments to evaluate.  They are easier to manage and many don’t have franchise fees to deal with.

Gaming adds another wrinkle to the analysis problem.  While many appraisers don’t have to deal with gaming it sometimes comes up in my neck of the woods.  It can be another revenue source but if the property has an unrestricted gaming license rooms are usually a secondary income source.  It becomes a casino with rooms not a hotel / motel with a casino.

Update 2016:  You have to pay attention to details like is the property a daily-occupancy motel or an extended-stay motel.  Since extended-stay motels offer larger discounts you generally pick up on this difference in the income approach comparisons. 

For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

Article source: http://www.appraisalarticles.com/4622-Appraising-Small-Motels.html