Occupancies are Rising. Why sell now?

(3-minute read)

Author: James Cornell

The macroeconomy experiences cycles of growth and stagnation. A growing economy allows for better price valuations. Conversely, during periods of recession, hotel properties are harder to sell, and valuations tend to decrease. Waiting too long for the market to peak is a poor strategy. A stable, expanding economy provides the best opportunity for sellers to maximize returns on hotel property. The best time to sell is during an economic upturn.

Hotel Prices are Higher During a Rising Market 

The following price calculation is important and was also included in the Library Article: “How to Make Your Hotel Sale Go Easier.” 

Below is an example of a simple math calculation. During a growing economy, what if your net income increases by $100,000? How much more money could potentially be gained from a property sale?

Example sale price realized at 0.10 Cap Rate (10% capitalization rate)

When selling at a 10% capitalization rate (Cap Rate), each additional $100 increases the potential selling price by $1,000. A net income that has increased by $100,000 in a rising market will generate an additional $1,000,000 from the sale of a hotel property.

Equation: Hotel Price = Net Operating Income / Cap Rate

$100,000 / 0.10 (cap rate) = $1,000,000. An additional one million more sales dollars realized from a sale.

It’s good to realize an extra million from a sale. However, in a market that is heading south, the cap rate can increase, which leads to fewer dollars realized from a sale. 

Example sale price realized at 0.12 Cap Rate (12% cap rate)

$100,000 / 0.12 (cap rate) = $833,334

Over $800,000 in sales is generated. Clearly, a sale at a 0.10 cap rate is better. Should you sell now or wait?

Is this the Right Time to Sell?

Currently, good hotels are being sold every day. Buyers are actively looking to purchase quality hotels. As history has shown, this period of activity will not last forever. Markets fluctuate as the economy and other factors influence hotel prices. If you believe now is the right time for you to sell your property, we would be happy to discuss it with you.

Cornell offers hotel price valuations and market analysis. Our expertise in brokerage and price valuation has been honed through decades of experience in the hotel industry. We provide analysis and price valuations using the top industry software. 

You are welcome to call us anytime. We are always ready to assist you with answers to your questions.

Best Regards,

James Cornell

Other great reads can be found in Library Articles.

    • “About James Cornell”
    • “How to Choose the Right Broker”
    • “Small Brokerage Firms versus Large – The Advantage Goes to Small Firms”
    • “Hotel Valuations – Correct NOI Calculations”
    • “Hotel Market Analysis & Valuation Software”
    • “How to Make Your Hotel Sale Go Easier ”
    • “Our Offer to You”