Hotel valuation: how brokers put a price on a hotel

If you own a hotel and are thinking about selling, the first question is simple: what is it worth? Hotel valuation is less mysterious than it looks from the outside. A broker asks for a short list of documents, reads how the hotel performs against its market, rebuilds the profit figure a buyer would actually take home, and then applies a multiple.

The approach described here comes from Théodore Boschmans, a hotel broker who sells hotels in France. In his words, the job is close to that of a house broker: somebody wants to sell, somebody wants to buy, and the broker has to find out who that buyer is.

What a broker asks for before a hotel valuation

A price estimation starts the moment an owner signals that they would like to sell. Before any number goes on paper, the broker needs documents. In Boschmans' practice the core set is:

• Profit and loss statements, to see where revenue comes from and what the costs are.
• Activity reports with the occupancy rate and the average daily rate (ADR).
• In France, the security commission report, which states whether the building is currently allowed to operate as a hotel.

The security report can come back as favorable, meaning nothing needs to change, or as favorable with prescriptions, meaning the hotel may keep operating but has to adjust a few things to fully meet the guidelines. His example is accessibility. In France a hotel with fewer than 50 rooms needs two rooms that work for a guest in a wheelchair, plus wider parking spaces. A missing requirement can be resolved, but it is a cost that a buyer will take into account.

Reading performance against the market

Occupancy tells you how many of the available rooms were sold. ADR is total room revenue divided by the number of rooms sold. Neither number means much on its own; the point is the comparison with competitors.

“Using this information, we brokers can see is this hotel currently over performing its competition or the market or underperforming its competition markets.”

Théodore Boschmans, 9:48

The profit and loss statement then shows the revenue mix. Most hotels have room revenue and some miscellaneous income, such as parking. The other large categories are food and beverage, a spa if there is one, and conferences.

The type of hotel matters as well. Boschmans distinguishes between hotels with only rooms and a buffet breakfast, and hotel restaurants. In his view the second type carries more risk, because a buyer who does not know how to run a food and beverage business can lose a lot of money on it. Buyers who take that risk need a clear plan for turning a loss-making hotel around.

How hotel valuation works with an EBITDA multiple

Brokers in his team use three to four methods to arrive at a price estimation. One of them is an EBITDA multiple, and the interesting part is not the multiple itself but how the EBITDA is reworked first. The goal is to show what a new owner would really earn. Three items are added back:

• Internal rent. A hotel is real estate plus a business, and the two often sit in separate companies. If the operating company pays rent to the property company, a buyer of both keeps that rent. Adding it back turns EBITDA into EBITDAR.
• Depreciation and amortization. These are costs on paper, spread over the years, not money that leaves the account.
• Management fees. Owners who run the hotel themselves often pay themselves a fee. A buyer who operates the hotel gets that money too. In hotel groups, that oversight often sits with a cluster manager instead.

The adjusted figure is then multiplied to reach a value. For an owner preparing a sale, the practical lesson is to keep figures that show rent, fees and depreciation separately, so that a buyer can see the real earning power of the hotel.

Asset deal or share deal

Once there is a price, the structure of the sale becomes the next discussion. In an asset deal the buyer purchases the assets of the company: the real estate and the business. In a share deal the buyer purchases the shares of the company that owns the hotel, the real estate and the business. Boschmans calls this a huge dilemma, because an asset deal is good for buyers but not for sellers.

Financing is a major reason buyers push for assets. Banks would rather finance assets than shares, so a buyer who acquires the assets can get a longer loan, and get it more quickly.

“Usually loans for businesses are seven to ten years and loans on real estate, which is a tangible item, are ten, fifteen, twenty, maybe even to thirty years.”

Théodore Boschmans, 15:38

How property and business are split also differs per country. In France they are two separate entities with separate owners; in Spain, he notes, the setup works differently. Anyone pricing a hotel abroad should check this first.

What banks and buyers look at today

Boschmans describes the hotel market as resilient. After COVID, with the start of the war in Ukraine and the inflation that followed, interest rates went up, transactions dipped and banks declined more loan requests. That is now easing. A newer factor is sustainability: he sees banks declining finance because a hotel is not green enough, or has no plan of action to reach a green label. Staying silent about real progress, known as greenhushing in hotels, does not help either.

In his experience the sellers fall into a few groups:

• Investment funds that buy and hold a hotel for several years and resell it as part of their cycle.
• Owners who sell because new restrictions are coming, such as rules around energy labels.
• Owners who have run their hotel for fifteen or twenty years and want to retire.

Brand is part of the conversation too. Franchise contracts take a percentage of total revenue, and a buyer will ask whether the current brand suits the location. Leaving a franchise agreement is possible, but in his experience it means waiting until it ends or usually paying three times what you paid the year before. That cost belongs in any hotel valuation.

From pitch to offer: the steps of a sale

The selling process itself follows a clear order:

• A pitch to the owner, covering the hotel, the area, the estimated price and the broker's commission.
• A mandate: the contract that allows the broker to sell the hotel on the owner's behalf.
• An investment memorandum for investors, with more depth on the asset, the staff, the contracts, the current loans and, usually, a price.
• A non-binding offer from a buyer who wants to continue.

The pitch exists to earn the owner's trust.

“It's really to show him, hey, we know the hotel, we know the area, we have sold similar hotels, and that's why we think this is a market price.”

Théodore Boschmans, 28:36

Some brokers use AI to summarize documents, but in his view the work relies on human contact: visiting hotels, meeting owners and seeing the property with your own eyes. You can watch the full conversation for his complete account of how hotels change hands.

Frequently asked questions

How does hotel valuation work?

A broker collects the profit and loss statements and activity reports, compares occupancy and ADR with the market, and studies the revenue mix. He then uses three to four methods to estimate a price. One is an EBITDA multiple, where internal rent, depreciation and amortization, and management fees are added back before the figure is multiplied.

What is the difference between an asset deal and a share deal?

In an asset deal the buyer purchases the real estate and the business as assets. In a share deal the buyer purchases the shares of the company that owns them. According to the broker in this conversation, an asset deal favors the buyer, partly because banks prefer to finance assets and lend longer on real estate than on a business.

What documents do you need to sell a hotel?

At minimum the profit and loss statements and the activity reports that show occupancy and average daily rate. In France the broker also asks for the security commission report, which confirms whether the building may operate as a hotel. Later, the investment memorandum adds details on staff, contracts and current loans for potential buyers.