The ADR rule-of-thumb as predictor of lodging property values

Abstract

In a positive context, asset valuation models may be judged on the basis of their predictive ability rather than on the number and elegance of the underlying assumptions. The Average Daily Rate (ADR) rule-ofthumb has been used for decades as a quick way of estimating hotel and motel room rates and, more recently, as a simple gross-income multiplier model for predicting values of lodging properties. This study examines how well the ADR rule-of-thumb model predicts property values. The results of our comparative analysis of estimates from the ADR model with those from a hedonic valuation model indicate that the ADR model performs well in the aggregate, but is an inconsistent estimator at various levels of disaggregation, such as when property subsamples were organized by number of rooms, age, occupancy rate and number of restaurants.

The Effects of Securitization, Foreclosure, and Hotel Characteristics on Distressed Hotel Prices, Resolution Time, and Recovery Rate

“…If hotel room rates are increased by $1, the expectation is that the distressed price will increase by 0.5 percent. This result is consistent with previous research—rate has a statistically positive relationship with hotel sales prices (Corgel, 2008; Corgel & deRoos, 1993; O’Neill, 2004). Thus, distressed hotels with higher average room rates will sell at higher disposal prices than hotels with lower room rates.…”

“…A 1 percent increase in the number of rooms is associated with a 0.73 percent increase in the distressed price. This result is also consistent with prior research that the number of rooms is an important predictor of sales price (Corgel & deRoos, 1993; O’Neill, 2004). Thus, a larger a hotel is likely to command a higher distressed sale price, which makes intuitive sense if the hotel is in good operating condition.…”

“…This is because buyers are willing to pay a significantly higher price for properties liquidated via an auction/trustee sale relative to an REO sale, implying that the auction process may be a less costly and more efficient method of disposal given the significantly shorter resolution time and higher recovery rate. The finding that rate and size are positively correlated with price is consistent with prior research (Corgel & deRoos, 1993; O’Neill, 2004). Buyers of distressed hotels should expect to pay a higher price for a full-service hotel that provides more facilities, amenities, and services and charge a higher room rate relative to a limited service property.…”

The Effects of Securitization, Foreclosure, and Hotel Characteristics on Distressed Hotel Prices, Resolution Time, and Recovery Rate

“…If hotel room rates are increased by $1, the expectation is that the distressed price will increase by 0.5 percent. This result is consistent with previous research—rate has a statistically positive relationship with hotel sales prices (Corgel, 2008; Corgel & deRoos, 1993; O’Neill, 2004). Thus, distressed hotels with higher average room rates will sell at higher disposal prices than hotels with lower room rates.…”

“…A 1 percent increase in the number of rooms is associated with a 0.73 percent increase in the distressed price. This result is also consistent with prior research that the number of rooms is an important predictor of sales price (Corgel & deRoos, 1993; O’Neill, 2004). Thus, a larger a hotel is likely to command a higher distressed sale price, which makes intuitive sense if the hotel is in good operating condition.…”

“…This is because buyers are willing to pay a significantly higher price for properties liquidated via an auction/trustee sale relative to an REO sale, implying that the auction process may be a less costly and more efficient method of disposal given the significantly shorter resolution time and higher recovery rate. The finding that rate and size are positively correlated with price is consistent with prior research (Corgel & deRoos, 1993; O’Neill, 2004). Buyers of distressed hotels should expect to pay a higher price for a full-service hotel that provides more facilities, amenities, and services and charge a higher room rate relative to a limited service property.…”

What makes hotel values in the UK? A hedonic valuation model

“…That proved to be true for proximity to the city centre. This finding supports Corgel and deRoos (1993) results for the US. However, airport proximity was unimportant in both this study and Corgel and deRoos (1993).…”

“…Affiliation of property was also significant and bore a positive sign. This result was entirely the opposite of what Corgel and deRoos (1993) obtained in their US research.…”

The Effects of Securitization, Foreclosure, and Hotel Characteristics on Distressed Hotel Prices, Resolution Time, and Recovery Rate

“…If hotel room rates are increased by $1, the expectation is that the distressed price will increase by 0.5 percent. This result is consistent with previous research—rate has a statistically positive relationship with hotel sales prices (Corgel, 2008; Corgel & deRoos, 1993; O’Neill, 2004). Thus, distressed hotels with higher average room rates will sell at higher disposal prices than hotels with lower room rates.…”

“…A 1 percent increase in the number of rooms is associated with a 0.73 percent increase in the distressed price. This result is also consistent with prior research that the number of rooms is an important predictor of sales price (Corgel & deRoos, 1993; O’Neill, 2004). Thus, a larger a hotel is likely to command a higher distressed sale price, which makes intuitive sense if the hotel is in good operating condition.…”

“…This is because buyers are willing to pay a significantly higher price for properties liquidated via an auction/trustee sale relative to an REO sale, implying that the auction process may be a less costly and more efficient method of disposal given the significantly shorter resolution time and higher recovery rate. The finding that rate and size are positively correlated with price is consistent with prior research (Corgel & deRoos, 1993; O’Neill, 2004). Buyers of distressed hotels should expect to pay a higher price for a full-service hotel that provides more facilities, amenities, and services and charge a higher room rate relative to a limited service property.…”

What makes hotel values in the UK? A hedonic valuation model

“…That proved to be true for proximity to the city centre. This finding supports Corgel and deRoos (1993) results for the US. However, airport proximity was unimportant in both this study and Corgel and deRoos (1993).…”

“…Affiliation of property was also significant and bore a positive sign. This result was entirely the opposite of what Corgel and deRoos (1993) obtained in their US research.…”

The Effects of Securitization, Foreclosure, and Hotel Characteristics on Distressed Hotel Prices, Resolution Time, and Recovery Rate

“…If hotel room rates are increased by $1, the expectation is that the distressed price will increase by 0.5 percent. This result is consistent with previous research—rate has a statistically positive relationship with hotel sales prices (Corgel, 2008; Corgel & deRoos, 1993; O’Neill, 2004). Thus, distressed hotels with higher average room rates will sell at higher disposal prices than hotels with lower room rates.…”

“…A 1 percent increase in the number of rooms is associated with a 0.73 percent increase in the distressed price. This result is also consistent with prior research that the number of rooms is an important predictor of sales price (Corgel & deRoos, 1993; O’Neill, 2004). Thus, a larger a hotel is likely to command a higher distressed sale price, which makes intuitive sense if the hotel is in good operating condition.…”

“…This is because buyers are willing to pay a significantly higher price for properties liquidated via an auction/trustee sale relative to an REO sale, implying that the auction process may be a less costly and more efficient method of disposal given the significantly shorter resolution time and higher recovery rate. The finding that rate and size are positively correlated with price is consistent with prior research (Corgel & deRoos, 1993; O’Neill, 2004). Buyers of distressed hotels should expect to pay a higher price for a full-service hotel that provides more facilities, amenities, and services and charge a higher room rate relative to a limited service property.…”

What makes hotel values in the UK? A hedonic valuation model

“…That proved to be true for proximity to the city centre. This finding supports Corgel and deRoos (1993) results for the US. However, airport proximity was unimportant in both this study and Corgel and deRoos (1993).…”

“…Affiliation of property was also significant and bore a positive sign. This result was entirely the opposite of what Corgel and deRoos (1993) obtained in their US research.…”