The Life Cycle Of Economy Hotels

HVS Report - The Economic Life of Economy Hotels - By Todd Isenstadt and Hans Detlefsen (PDF Download)

This article evaluates the economic life of economy hotels given normal wear-and-tear. The life of these hotels is plotted on a frequency distribution, and an average economic life is found.

HVS Economic life is an important component in determining development feasibility of hotels. Economic life is defined in the Appraisal Institute’s Dictionary of Real Estate Appraisal as “the period over which improvements to real property contribute to property value.” A deteriorating property can lead to a depreciation of the value of the asset, and owners of an aging property may determine that the expenses associated with improving the property cannot be justified. When improvements cease to contribute to value, the property’s economic life comes to an end.

The authors have collected data from approximately 150 economy tier hotel properties from across the United States to determine the average economic life of these properties. Outliers with an economic life of fifteen years or fewer were eliminated from our data set. This study considers only properties that were closed by normal wear and tear associated with age. Other reasons for the closing of properties that are not associated with normal wear and tear, such as natural disasters, have been excluded from our collection. Data on opening and closing dates of properties were gathered through the extensive HVS database of hospitality assets, STR participation lists, and interviews conducted by the authors.

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