ITHACA, N.Y. — The lodging industry has long used the general rule that a hotel should be able to command an average ADR of $1.00 for every $1,000 per room in property value.
A new analysis of this rule, published in the August 2003 issue of the Cornell Hotel and Restaurant Administration Quarterly, confirms that this convention remains remarkably accurate for many types of hotels. Moreover, the analysis by John W. O’Neill, a professor at Pennsylvania State University, confirms that a hotel’s valuation is driven primarily by its ability to bring in gross revenue, rather than its net income. O’Neill points out, however, that some hotel classes—notably, aging mid-market properties—are unable to achieve the dollar-per-thousand standard.
O’Neill reports that the key attributes that determine how closely a hotel’s valuation fits the dollar-per-thousand standard are the number of guest rooms, occupancy levels, ADR, and age of the facility.
On average, the ratio for the entire 327-property sample was $1 of ADR for every $800 in room value, a bit short of the dollar-per-thousand convention. Examining the segments, the all-suite properties without F&B hit the dollar-per-thousand standard, while full-service (business-class) hotels and all-suite properties with F&B came close, by drawing $1 in ADR per $900 in value (rounded) per room. The ratio for economy hotels is $1 in rate per $700 in value, and midscale hotels struggled to an average of $1 in ADR for $600 in room value.
O’Neill observes that the relatively low ratio for midscale hotels reflects the fact that the median age of this segment’s properties is the highest of all five segments in his sample, and the expense of running F&B and meeting space “results in a relatively inefficient business model.” The full article is available in the August 2003 issue of the Cornell Hotel and Restaurant Administration Quarterly and is available on The Center for Hospitality Research at the following address: http://www.hotelschool.cornell.edu/chr/pdf/showpdf.. To order a subscription to the CQ, please click on the following: http://www.hotelschool.cornell.edu/publications/hraq/subscription.html.
Cornell and The Center for Hospitality Research at Industry Events
The Center and the Hotel School will be exhibiting at the International Hotel/Motel & Restaurant Show, November 8-11, 2003, at the Javits Center in New York. Please stop by our booth, #2646 on level 3.
The Cornell Hotel Society, New York Chapter, will be hosting the annual Hotel Show Reception on November 10th.
Location: Westside Ballroom, Marriott Marquis, 1535 Broadway
Time: 6:00 - 9:00 P.M.
Contact: Pamela Sole 94 at 212-319-1444, or email at pamelasole@hotemail.com.
About The Center for Hospitality Research at Cornell
The Center brings together the best insights of scholarship in hospitality and industry expertise. Research efforts are augmented by an industry perspective from the CHR’s advisory board and industry corporate partners. The Center is supported by 29 leading organizations in the hospitality industry which includes the following: Partners - AIG Global Real Estate Investment Corp., Bartech Systems International, Cornell Hotel Society Foundation, Four Seasons Hotels and Resorts, Marsh’s Hospitality Practice, Willowbend Golf Management, and Wyndham International; Friends - ARAMARK Corporation, D. K. Shifflet and Associates Ltd., ehotelier.com, Gazelle Systems, Inc., Global Hospitality Resources, Inc., Hospitalitynet.org, Hospitality Initiatives India, Ltd., Hotel Asia Pacific, Hotel China, Hotel Interactive, Inc., Hotel Resource, Lodging Magazine, Lodging Hospitality, National Hotel Executive Magazine, Resort+Recreation, RestaurantEdge.com, Shibata Publishing Co., Ltd., Smith Travel Research, The Hospitality Research Group of PKF Consulting, The Lodging Conference, TravelCLICK, and WiredHotelier.com.
As a partner, one key role your organization will have is a voice in prioritizing research conducted by the Center's international research fellows. If you are interested in becoming a corporate partner, please contact the Center at 607-255-9780 or via email at js343@cornell.edu.
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