What determines the value of a hotel

In an income-producing asset, value is determined first of all by the income it generates. In a hotel, that income comes from the operation, so the buyer analyses operating performance and the building together. Two methodologies dominate in practice, and a credible valuation triangulates between them: the income approach (capitalising income at a market yield, or discounting future cash flows) and comparable transactions.

  • Operating performance: the quality and consistency of the operation's results.
  • Location and condition: the micro-location, accessibility and physical condition of the building.
  • Repositioning potential: income or results below potential, or a possible change of use, can be a risk or, with the right plan, the main source of value creation.

Who buys hotels

  • Real estate investment funds, which look for stabilised, income-generating assets.
  • Family offices, patient capital that values stable income and the preservation of wealth.
  • Hospitality operators, who buy for their own use or with an investor, and who may pay a premium when the asset has a specific fit.
  • Private investors, often the natural buyers for smaller assets.

Finding the match between the hotel and the profile that values it most is where an adviser adds value most clearly. Selling to the wrong audience leaves money on the table.

How the sale is run

There are two ways to take an asset to market. In an open process, the asset is advertised to reach the widest audience, but it exposes the owner's intentions to the market, to staff and to competitors. In a restricted process, the hotel is presented confidentially to a list of pre-qualified buyers under an NDA, which protects sensitive information and, by creating competitive tension between credible bidders, often protects the price better than a public advertisement.

Documentation gathered in advance keeps due diligence short: land registry certificate and tax record, plans and licences, relevant contracts and a tax and planning position in order.

A published case, on the buyer side: Chiado

Note: this case is a purchase, not a sale

The hospitality case Harbor Partners publishes is an acquisition mandate: Project Chiado is the advisory on the acquisition of a hospitality asset with more than 30 keys in Chiado, Lisbon. It was an advisory to the buyer, and not to the seller of a hotel.

On asset sales, Harbor Partners works exclusively for the owner, with no dual agency: it never advises both sides of the same sale.

What to prepare before going to market

  • Certificates: the permanent land registry certificate and the tax record.
  • Plans and licences: plans, the use licence and any planning approvals.
  • Relevant contracts and the operating information that supports the results.
  • Energy certificate, now a standard requirement in any sale.
  • A regularised tax and planning position, with no pending issues or encumbrances.

An asset that reaches the market with its documentation in order signals quality, supports the asking price and shortens the road to closing. Gaps discovered in due diligence are the most common cause of renegotiation and of deals that fall through.

From offer to deed

Interested parties submit a non-binding offer (LOI) with the price and main terms, and running several in parallel is what creates competitive tension. The chosen buyer carries out legal, tax, technical and lease due diligence through a data room. The parties then sign the preliminary contract (CPCV), normally with a deposit, and complete the sale with the public deed.

Next step

If you are considering selling a hotel, Harbor Partners prepares an indicative valuation, with no commitment. The guide to selling commercial property describes the full process.

Considering selling a commercial property?

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