• Finding value in a recession

Fixing value in a downturn is not an easy business, with a risk of tarring good assets with the same brush as distressed sales.

This challenge meant speakers at the Henry Stewart conference in London on hotel valuation were reluctant to pin a precise number on how far values have declined.

But there are some clear figures on aggregated sales, albeit that they might distort perspectives because the sales being done are not of the best quality.

Investment Property Databank shows that capital values at hotels shrank by 15.3% during 2008 which compares to the 26.4% suffered by the index for all commercial property.

Richard Candey from DTZ commented that this reflected the fact that the hotel sector typically lags the wider property market into a recession. And he added that IPD is predicting a drop of 25% for this year for hotels.

Philip Johnston, director and head of hotels at Savills, said that hotel values were typically down between 10% and 20%. But he warned be careful on using such yardsticks as the IPD predictions as the hotel market was split three ways between investment, going concerns and, now, distress.

There was a strong demand for luxury product. He was in the process of selling a hotel off a 5% yield for close to £750,000 per bedroom.

The demand for the right leased property was also there. The Travelodge in Brentwood was recently signed at a 5.6% yield, he said.

"There are signs that the stand-off between buyers and sellers is ending, with sellers dropping their price," said Johnston.

He cited the return of high net worth individuals into the residential market, a trend picked-up by Savills research, as further evidence that things have nearly bottomed.

Off market was the favoured approach but some buyers choosing to go directly to banks. In such cases they were asking to buy debt for as little as 50 pence in the pound and demanding yields of as much as 10%.

Julian Troup, corporate director at Colliers Robert Barry, disagreed with the IPD projections for going concerns. He did not believe that a drop of 45% from the peak was likely.

"You should not use distressed sales as a benchmark as goodwill has been removed. There are still successful businesses out there and prices should not be depressed unnecessarily," added Troup.

Stephen Richardson, a director at Cushman & Wakefield Hospitality, said that there was frustration with valuers at present because agents had struck deals which have subsequently been spiked by the value placed on the property during the financing process. "Some of the process of valuation is absolute, some of it is intangible," he added.

*The Henry Stewart event, How much is my hotel worth?, took place in London on April 27.

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