Motel Leasing

A question I often get asked is "How much is my motel lease worth?" I am not a registered valuer so my comments are based from a real estate agent's perspective, with 20 years experience as a motel broker, selling only motels and with hundreds of confirmed sales for comparison.

The answer is "there is no simple answer" to that question.

Some may assess value by comparable sales, but few have access to sufficient volumes of data to be accurate and often trades, vendor finance, etc, distort values. Unlike residential sales, where at the press of a button one can access all the sales in the area, or specific street.

Others may utilise capitalisation of income as a yardstick. This can be worthwhile if there are no "one-off" lumps in the income stream and it doesn't always show "hidden benefits".

An old, but in my opinion unreliable, method of assessment is the "something times turnover formula".

For example:
Two comparable motels in the same street of same location. It may be reasoned that 1.5 x T/O = value.

Motel A 10 units x $85 x 365 x 70% occ= T/O $217,175               Value=$325,000?
Motel B 10 units x $65 x 365 x 92% occ= T/O $218,270               Value=$327,000?

Too simplistic in my opinion, even if the myriad of other factors were the same, eg, length of lease, Motel B has reduced his tariff to increase his occupancy rate. Motel A has achieved the same gross income at a higher room yield. As a consequence Motel B will have greater operating expenses, eg, power, cleaning, "wear and tear". So the returns would be greater from A than B, then how does "something x T/O" work?

So how do you assess the value of a motel lease? Well, I consider it is a little like baking a cake - miss one of the key ingredients and the end result won't work.