Hotel & Motel Management - August 2008 - (Page 16) 16 Cornell Insights make large investments in the property. From the moment they open, hotels lose value, particularly after about 10 years. But then hotels generally reach a magic moment when that depreciation stops. In his report, Jack Corgel, the Robert C. Baker Professor of Real Estate at the Cornell School of Hotel Administration, determined the average age for this magic moment is 28 years. Corgel’s findings are detailed in “How Prices of Hotel Properties Change with Age,” available free of charge from chr.cornell.edu. Corgel conducted his research in recognition of the nearly total separation between operations and ownership in the hotel industry. While the present value of discounted cash flow is one important indicator in the sale (or purchase) of a property, it doesn’t always H&MM August 2008 | HotelMotel.com www.HotelMotel.com/digital_edition What happens when hotels reach that “awkward age” IN THE details Evaluate property’s future Hotels lose value from start Explaining “magic moment” Value not lost in straight line provide a strong indicator of the future value of that investment. Thus, he set out to create an equation that would provide an years. In fact, he found that hotel depreciation takes the shape of a modified letter V. That inflection point is at 28 years. At By Glenn Withiam H&MM Columnist From the moment they open, hotels lose value, particularly after about 10 years. But then hotels generally reach a magic moment when that depreciation stops. indication of how hotels’ values change with age. The answer creates a conundrum of sorts for hotel owners. If all hotel depreciation occurred in a straight line, the average hotel would be obsolete in no more than 77 years, and technological obsolescence would capture many long before that. However, Corgel found an inflection point, which shows hotels don’t lose value in a straight line over the that point, hotels tend to hold their value for some time without extensive investment. Hotels lose value fairly steadily, especially after about 10 years. In part, these “awkward age” hotels are subject to technological obsolescence. As newer hotels open, they can make existing properties appear dated. For many reasons (including franchise system requirements), owners start making substantial investments in T he value of hotels as real estate changes in unexpected ways over time, according to a new study from the Cornell University Center for Hospitality Research. Moreover, the widely used method for valuing hotels—discounted cash flow—should be applied in different ways. Eventually, hotels reach what could be called an “awkward age,” when owners must decide whether to their real estate during this period. Corgel suggests that such money is well spent on middle-age properties positioned in strong markets with good locations because those properties are the ones that should make it to the inflection point when their value stabilizes. The best-positioned hotels that survive this “awkward age” may well be on their way to becoming classic properties. Those that are not so well positioned may be candidates for rebranding at a different level. The decision for the owner is whether to make investments that counter the effects of obsolescence, or whether it’s time to find a buyer. hmm@questex.com Glenn Withiam directs publications at The Center for Hospitality Research at the Cornell University School of Hotel Administration. He can be reached at grw4@cornell.edu. Maintenance Doctor Water conservation starts at property level IN THE details Simple steps reduce use Linen-reuse programs Water-saving appliances Irrigation techniques Business Boosters The Sonesta Bayfront Hotel Coconut Grove (Fla.) offers complementary valet parking to any guest visiting the hotel or Panorama Restaurant who arrives in a hybrid vehicle. By Rajan Batra H&MM Columnist Q My property is located in an area where water is considered a scarce resource. What are some ways I can significantly reduce the amount of water used at my property? The first and simplest recommendation is to implement a linen-reuse program. Many guests are happy to use their towels and bedsheets more than once. By plac- A ing placards in bathrooms and near beds, you can show your guests that your hotel is making a conscious effort to conserve water. In high-traffic or common-area restrooms, consider installing waterless urinals, which are growing dramatically in popularity. Without water, there are no flush valves to push, which improves restroom sanitation and helps eliminate odor. With proper preparation and maintenance, the installation of waterless urinals has an average water savings rate of 88 percent per urinal and a simple payback period of about one to three years (based on a 1.5-gallon-per-flush urinal at a rate of $2.50/1,000 gallons). Ice machines commonly are overlooked when discussing water conservation. Simply moving your ice machines out of high-traffic areas or areas with sun exposure, which tend to be warmer and have less air circulation than less frequented areas, can significantly reduce the amount of energy they use. According to the Environmental Protection Agency, Energy Star-rated ice machines are, on average, 15 percent more energy efficient and 10 percent more water efficient than standard models. Two water-conservation techniques include fixing leaks and installing watersaving plumbing fixtures and appliances. Some leaks, such as those from toilets and broken tub diverters, are not easy to spot and require monthly maintenance inspections to catch. To check your toilets for leaks, have your maintenance staff place a drop of food coloring in the tank. If your toilet is in good condition, the dye will stay in the tank until flushed. Low-flow showerheads and aerators can help to further reduce water consumption. If you are not ready to replace your faucets, install low-flow aerators in your faucets. A showerhead that delivers 2 gallons per minute uses 2,229 fewer gallons per year than one that delivers 2.5 gpm, based on an average household that takes three six-minute showers per day. Finally, property irrigation and landscaping are other effective ways to conserve water. It is important to choose plants or foliage that are native to your area and can survive drought conditions or drastic weather changes. Make sure you have installed a proper irrigation system with a two-hour time limit and only water at night to prevent a huge quantity of water from being wasted on the property. It is estimated that 50 percent of water used in irrigation is lost due to evaporation and overwatering. hmm@questex.com Rajan Batra is a senior national account manager for HD Supply. In addition to receiving the AAA discount of 10 percent, with the Hyatt 2008 Summer AAA Promotion, AAA guests at Hyatt Regency O’Hare in Chicago may enjoy complementary full breakfast daily. The St. Regis New York offers a package in honor of Salvador Dali, a former St. Regis resident. It includes a stay in the suite Dali lived in for more than a decade, a bottle of 1958 Mouton Rothschild and a tour of Dali: Painting and Film at the Museum of Modern Art. Compiled by Elaine Simon, esimon@questex.com http://HotelMotel.com http://www.HotelMotel.com/digital_edition http://chr.cornell.edu
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