An automated valuation model for hotels

A stepwise regression analysis to create an automated valuation model (AVM) for hotels found four significant factors that together provide a reasonable estimate of a property's value. The four factors are the twelve-month lagging averages of net operating income, average daily rate, occupancy, and number of rooms. Number of rooms appears to stand in for the extent of the hotel's facilities. The regression analysis tested the following factors but found that they were not significant: region, location in a metropolitan area, age of property (or date of construction), and date of sale. Even though the regression indicates that the operating ratios capture much of a hotel's value, the AVM is not intended to supplant more-sophisticated methods of hotel valuation (such as discounted cash flow). Moreover, the question remains of how to separate the two aspects of a hotel property's value, that of the real estate and that of the business operation.