At Southern Cross, our team can take you from Land Acqusition to Grand Opening. We will also find the best terms for your loan request, giving you a choice of funding sources. Our completed transactions include, hotels , motels and B&B's, flagged or non-flagged. Financing is also available for seasonal operations.

Valuation Factors

• the specific location,
• the market conditions (ADR & Occupancy) where the property operates,
• the current franchise or future franchise possibilities,
• age and condition of the property,
• cost of renovations,
• the reputation of the current or previous management,
• future hotel or motel development in the area,
• future room night demand generators,
• barriers to entry for the competitors,
• financing options,
• functional obsolescence,
• value of the land,

And there may be and more.

Each of these factors must be weighed for every property and in some cases one factor may weigh more heavily than all of the others combined. Additionally the risks will vary with every property. The following formulas must therefore be tempered with these other considerations.
 

Gross Room Revenue Multiplier

This is a popular formula for buyers of motels and hotels that fall generally under $7,000,000. This also varies from region to region. Application of a gross room revenue multiplier of less than 2 times the gross room revenue to more than 5 times the gross room revenue makes using the national or regional average multiplier to be a very imprecise measure of value. If used, it should be considered as one of a number of measures of value. It is best applied to  owner operator limited service properties.
 

Capitalization Rate

R=I/V or Rate = Income (usually accepted as the Net Operating Income) divided by the Value; or to determine Value (V) = Income (I or NOI) divided by Rate. A good measure of value for a consistently performing investment property which the purchaser plans to maintain in the same manner.
 

Price Per Room

This is both a cost of replacement comparison and a sales comparable approach. If a new hotel or motel with the same construction and amenities would cost $45,000 per room and one can purchase an existing property for $25,000 per room plus a renovation cost of $5,000 per room and end up having a motel almost equivalent to a new property, the savings of $15,000 per room makes the existing property more attractive. By finding the price per room at which similar hotels or motels in the same or similar market have sold, one can evaluate the current properties offered for sale. Because markets change over time, sometimes dramatically this is dependable only if the comparables are recent and similar.
 

Discounted Cash Flow

Variations of this method can be very sophisticated, attempting to adjust for new entrants into the market and calculating the percentage of penetration of each market segment which the subject property and its primary competitors will achieve, and then projecting the net cash flow from operations five years out and the expexted proceeds from a future sale as well, determine the value of those profits discounted to today's dollars. Put simply, you project what you think you will make with the property and say what that opportunity is worth to you today.

The  Southern Cross team brings the information resources, knowledge gained from successful transactions, and market experience necessary to assist in evaluating any hotel or motel opportunnity and its financing.

Give us a call to discuss your financing needs.  

t.609.457.8500
f.800.878.8263
funding@southxcapital.com