Mr. Chitlik

Revenue Management

Can Any Hotel Sale Really be Used as a 'Comparable'?

By David Chitlik, Vice President, Atlus Hospitality Tax Group

A hotel is not the same as a house or a warehouse or an apartment or office building, and assessors often don't understand why. The hospitality sector is frequently the most challenging part of a jurisdiction's property tax base. The only way to derive a hotel's real property value from a purchase price is for an assessor to spend time and energy understanding the adjustments needed to accurately determine what part of that purchase price relates to real property and whether or not it can be used as a sales comparable for other hotels in that jurisdiction.

Too few assessors are willing to make this effort. They are more likely to look at sales of nearby hotels just like they would home sales. They are either unwilling to investigate, or indifferent to, underlying factors that determine overall sales prices. It's easy for the assessor to believe that if a full-service hotel sold for $300,000 a room, then every full-service hotel in the area should be valued at $300,000 per room.

Not necessarily. In fact, that is not likely true at all. A hotel sale typically includes several elements that make it unique in the market. Those elements should pose questions that assessors need to answer to help make adjustments before a sale can be deemed reliable for use in a comparability analysis. Some of those questions should include:

  1. Was the hotel sold as part of a portfolio transaction?

    That's been the case for most sales over the past decade or so. But if the portfolio included hotels in New York, Boston, Washington, Los Angeles, San Francisco and other higher-priced destinations, it's not likely it can be used to accurately determine room values in Chesapeake, Va., or Macon, Ga. Without talking to the seller and/or buyer, it's unlikely assessors will understand adjustments needed in using the portfolio hotel sale to set the value of other hospitality properties in the area.

  2. Was the hotel sold to a Real Estate Investment Trust (REIT)?

    REITS are established to take advantage of favorable tax treatment, and that advantage drives property transactions. REIT buyers frequently will pay a premium to churn sales that can earn tax-advantaged profits. Without adjusting the purchase price of the REIT sale being used as a comparable, it clearly is not going to yield reliable market data - unless the property being assessed is also being offered for sale to a REIT.

  3. Who bought the hotel?

    Foreign investors approach U.S. property differently than American buyers. International investors tend to be more patient and eye a longer return. They may be satisfied with a 2 percent annual rate over 30-50 years and frequently will pay more for stability of income. A U.S. investor tends to look for a 7-to-10 year holding period, demands a higher return and tries to negotiate a lower going-in price. Without divining business culture's impact on a sales price, the assessor is not going to understand its relevance for comparable sales purposes.

  4. Did the hotel sale include a management contract with a recognized flag in place?

    It may well be that a branded hotel such as a Marriott or Ritz-Carlton garners more value than another brand, but an assessment is supposed to reflect the land, bricks-and-mortar only. The premium one might pay for the manager's brand advertising, reservations system and rewards program is not part of the real property and adjustments should be made.

  5. Was the sales price driven by the hotel's bar and restaurant business? This was not an issue when bar and restaurant sales were largely a function of room service. Often, a hotelier was happy to break even, or perhaps make a little positive revenue, on food and drink.

    Now, with a focus on meetings and conventions, bar and restaurant sales can be major profit centers, adding significantly to hotel gross revenue. But, again, the assessor is dealing with bricks and mortar and land, so bar and restaurant influences on value may have to be adjusted out of a hotel's purchase price for tax purposes, and out of the sales price of a hotel being used as a comparable.

  6. Was location a primary factor in determining purchase price? Premiums are often paid to get into markets with high barriers to entry, such as Las Vegas, San Francisco, and, until recently, New York City. If it is difficult to build from the ground up due to lack of open land or onerous permitting processes, owners are willing to pay more for an existing hotel.

While receiving an assessment based on poorly adjusted sales is not a good situation for the hotel property owner, there is potentially a worse scenario if an appeal is filed. A hotelier who challenges the assessment, and goes into an appeals board hearing armed with his or her facts about the subject property, can be ambushed. Remember, the board works under the belief that the assessment is already correct, so the appellant has to prove the assessor erred. After making the claim and presenting the evidence, the hotel owner can be confronted by someone from the assessor's office defending the assessment with a sheaf of papers reflecting unadjusted sales of "comparable" hotels. This happens more often than you might think.

What can be done to avoid this situation? The appellant either has to really know the comparable properties being used to support the subject assessment, or he or she needs to hire a consultant who does. It's imperative to have information such as location, brand, ancillary businesses and amenities, as well as any other data on the local hotels to counter an unadjusted sale offered as a comparable.

There are data services that can help with this data collection, but remember, assessors and appeals boards often have access to the same sources. It's best for the owner or consultant to get out and survey the market situation regarding other hotels.

In summary, assessing a hotel properly is difficult, but it can be done if assessors are willing to do their homework. But if an assessor isn't willing, the hotelier - or the consultant - has to be able to demonstrate the correct real property value to an appeals board. Eliminating excess tax expense depends on getting it right. Don't let the process go without education for the accessor and, if necessary, challenge to the assessment.

David J. Chitlik, CAE, has extensive experience in all facets of the property tax assessment and appeal industry. Prior to joining Altus Group, he spent 18 years as the Director, then Senior Director, of the Property Tax Department at Marriott International. Initially he oversaw a staff of more than 20 associates working on both sales and property tax compliance, appeals and audits. Mr. Chitlik has many years of property tax consulting experience as well, first with Tenenbaum Hill & Associates, Inc. and then Marvin F. Poer & Company. He was the Managing Director for the Mid-Atlantic Regional Office for both companies with a combined 11 years with both firms. Mr. Chitlik can be contacted at Please visit for more information. Extended Bio... retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by

Receive our daily newsletter with the latest breaking news and hotel management best practices.
Hotel Business Review on Facebook
General Search:

MARCH: Human Resources: Inspiring a Journey of Success

Cara Silletto

Ever wonder what planet your new hires are from? For most, it is called Millennialland. It is my homeland, and it is a whole different world than where Boomers and GenXers were born. So why are your younger workers from this strange land so hard to understand, manage and retain? Why is it that they lack the loyalty of those who came before them? Why do they need so much handholding in the workplace? And where does this tremendous sense of entitlement come from? Allow me to explain. READ MORE

Nicole Price

You’re just being politically correct! In America, being politically correct has taken a new meaning and now has a negative connotation. But why? Definitions can help identify the reason. The definition of political correctness is “the avoidance, often considered as taken to extremes, of forms of expression or action that are perceived to exclude, marginalize, or insult groups of people who are socially discriminated against.” In simple terms, political correctness is going to the extreme to avoid insulting socially disadvantaged groups. What could be wrong with that? The issue is not them or the term, it’s us! READ MORE

Kimberly Abel-Lanier

Engaging and retaining talented, trained workers is a critical component of success for any business in any sector. When employees are disengaged or turnover is high, organizations face challenges of subpar customer service, high costs, and human resource inefficiencies. Gallup estimates rampant disengagement among employees costs American businesses between $450 billion and $550 billion per year. High turnover also carries exorbitant costs to organizations, averaging approximately 1.5x an employee’s salary for replacement. In the hospitality sector, delivery of impactful customer experiences is strongly connected to employee engagement and satisfaction. Happy, engaged employees can make happy, loyal customers. Currently; however, the hospitality sector suffers higher than average employee turnover. READ MORE

Michael Warech

So where will we find the next generation of leaders in the hospitality industry? Like their counterparts in other business sectors, this question remains top-of-mind for those responsible for finding, managing, and developing the talent needed to ensure the vitality of their organizations. While, arguably, not as glamorous as a new guest amenity or as important as a cost-saving innovation, there is nothing more critical than talent to succeed in an increasingly competitive and challenging global business environment. Leveraging the best strategies and tactics related to talent management, succession planning, workforce planning, training and leadership development are, quite possibly, a company’s most critical work. READ MORE

Coming Up In The April Online Hotel Business Review

Feature Focus
Guest Service: The Personalized Experience
In the not-too-distant future, when guests arrive at a hotel, they will check themselves in using a kiosk in the lobby, by- passing a stop at the front desk. When they call room service to order food, it will be from a hotel mobile tablet, practically eliminating any contact with friendly service people. Though these inevitable developments will likely result in delivered to their door by a robot. When they visit a restaurant, their orders will be placed and the bill will be paid some staff reduction, there is a silver lining – all the remaining hotel staff can be laser-focused on providing guests with the best possible service available. And for most guests, that means being the beneficiary of a personalized experience from the hotel. According to a recent Yahoo survey, 78 percent of hotel guests expressed a desire for some kind of personalization. They are seeking services that not only make them feel welcomed, but valued, and cause them to feel good about themselves. Hotels must strive to establish an emotional bond with their guests, the kind of bond that creates guest loyalty and brings them back time and again. But providing personalized service is more than knowing your guests by name. It’s leaving a bottle of wine in the room of a couple celebrating their anniversary, or knowing which guest enjoys having a fresh cup of coffee brought to their room as part of a wake-up call. It’s the small, thoughtful, personal gestures that matter most and produce the greatest effect. The April issue of the Hotel Business Review will document what some leading hotels are doing to cultivate and manage guest satisfaction in their operations.