Abstract
The traditional approach to valuing lodging properties, using discounted-cash-flow techniques, makes sense because hotels can furnish a history of financial performance. While it is true that the discounted-cash-flow approach yields a reasonable approximation of value, other factors can be applied to refine property valuation. When lenders consider a property's value as potential collateral, for instance, they augment their analysis of a property's value to take into account loan-to-value and debt-service-coverage ratios. Investors, meanwhile, may consider the effects of taxes on cash flow and cash reserves in their estimate of a property's value. The effects of taxes and lender criteria are modeled to show the resulting changes in a property's estimated value. One conclusion that is possible when the effect of taxes is considered is that tax laws tend to boost the return on, and therefore the possible purchase price of, hotel properties.
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