How Much Is My Hotel Worth? A Data-Driven Guide for Independent Owners

Why valuation matters (and why it’s slippery)

If you’re selling, refinancing, buying out a partner, or planning a major renovation, you’ll need a credible view of value. Unlike an apartment building where leases are long and predictable, a hotel re-prices itself daily. That makes valuation both mathematical and operational: the same asset can be worth meaningfully more (or less) depending on how effectively it’s run and how demand is captured.

This guide is for owners who want a clean, defensible estimate - not hand-waving. We’ll walk through the three standard valuation lenses, show you how to “normalize” NOI, and then pressure-test value with scenario analysis so you know which levers move the number fastest.

The three lenses of hotel value

1) Income Approach (most important)

At its core:

Value = Stabilized NOI ÷ Cap Rate

• NOI (Net Operating Income) is your hotel’s earnings before debt service, income taxes, depreciation/amortization, and after a market-rate management fee and FF&E reserve (typically 3–5% of total revenue).

• Cap rate is the market’s required yield for your risk/asset type in your geography.

Buyers pay for cash flow they believe is repeatable. If your NOI is inflated by one-time events—or depressed by temporary issues—value will be misread.

2) Sales Comparison (per-key and revenue multiples)

Here you benchmark against recent, comparable sales:

• $ per key: sale price ÷ number of rooms.

• EV/Revenue or EV/GOP: sale price ÷ trailing/stabilized revenue (or GOP).

• Adjust for location, condition, brand/flag, renovation status (PIP), and seasonality.

Why this matters: It grounds your estimate in what buyers actually paid, but it’s only as good as the quality and comparability of the comps.

3) Cost Approach (replacement less depreciation)

Estimate what it would cost to build the same hotel today (land + hard/soft costs) minus physical and functional depreciation.

Why this matters: It sets a ceiling in some markets (why pay more than replacement?) and protects downside on newer assets. Less useful for older or highly unique hotels.

Getting NOI right: normalize, then capitalize

Before you apply any cap rate, get to a stabilized, market-conforming NOI:

1. Start with TTM (trailing-twelve-months) P&L.

2. Normalize revenue: remove one-offs (e.g., city-wide event that won’t repeat), adjust for rooms out of order, restore “missing” revenue if demand has already returned.

3. Normalize expenses:

   • Remove one-time repairs, disaster costs, litigation.

   • Add back owner perks not required to operate (excess auto, travel, above-market owner salary).

   • Insert a market management fee (even if you self-manage).

   • Insert an FF&E reserve (3–5% of total revenue).

   • Update property tax to a post-sale assessed value if your jurisdiction reassesses on transfer.

   • Use current insurance and labor rates (not last year’s if they’ve stepped up).

4. Stabilize: if you’re mid-renovation or just re-opened, build a supported pro forma (month-by-month ramp) to reach steady state, then use that stabilized NOI for the cap rate method.

Hypothetical Example

Asset: 80-room independent boutique
Market: secondary urban, good weekend demand, steady midweek corporate

Operating snapshot (TTM):

• Rooms: 80 rooms × 365 × 70% occ × $165 ADR = $3,372,600 rooms revenue

• Other revenue (parking, minibar, event): $300,000

• Total revenue: $3,672,600

Operating expenses (normalized):

• Operating costs (dept. + undistributed + fixed): 60% of revenue = $2,203,560

• Management fee (assume 3%): $110,178

• FF&E reserve (4%): $146,904

Stabilized NOI ≈ $3,672,600 – 2,203,560 – 110,178 – 146,904 = $1,211,958

Value via cap rates:

• 7.5% cap → $16.16M

• 8.5% cap → $14.26M

• 9.5% cap → $12.76M

Per-key sense check (80 keys): ~$178k/key at an 8.5% cap. If local, similar sales are $170–$210k/key, you’re in range; reconcile up/down for condition and renovations.

PIP/CapEx: If a $1.8M brand-mandated refresh is due imminently, most buyers discount the price or escrow it. Adjust your value accordingly.

What moves value fastest? (sensitivity that actually helps)

Because value is NOI ÷ cap rate, every bit of NOI you create is magnified by your market cap rate.

Using the 80-room example (cap rate 8.5%):

1. ADR +$10 (same occupancy)

• New rooms revenue: 80 × 365 × 70% × $175 = $3,577,000

• Increment revenue: +$204,400

• After variable costs (assume 30% variable on rooms), incremental NOI ≈ +$143,080

• Value impact ≈ +$1.68M

2. Occupancy +2 pts (70% → 72%) at $165 ADR

• Increment rooms revenue: +$96,360

• After higher variable costs (assume 40% variable), incremental NOI ≈ +$57,816

• Value impact ≈ +$680k

3. Shift 10 pts of bookings from OTA to direct

• If OTAs take 15% and direct costs ~3%, shifting 10% of rooms revenue saves ~12% on that slice

• Savings on $3.3726M rooms revenue: ~$40,471 NOI

• Value impact ≈ +$476k

Takeaway: in many independents, rate integrity and channel mix deliver bigger valuation gains than chasing raw occupancy—especially once you include flow-through and distribution costs.

Reconciling the three views (and avoiding traps)

1. Income Approach says $14.3M at 8.5% cap on stabilized NOI.

2. Sales Comps show $170–$210k per key recently; your modeled $178k is inside the band.

3. Cost to build a comparable 80-key boutique in your market is, say, $300k/key all-in—significantly higher—supporting value (assuming land/entitlements are scarce).

Traps to avoid:

• Applying a cap rate to pre-reserve/pre-management-fee NOI.

• Using pre-renovation comps to justify post-renovation value (or vice versa).

• Mixing best-month performance with a market-average cap rate.

• Ignoring post-sale property tax reset in reassessment states.

• Treating one-time city-wide events as if they’re permanent.

A quick owner’s checklist

• Data you need: TTM P&L by department, last 24 months of ADR/Occ/RevPAR, channel mix & commissions, payroll detail, utilities, insurance, property tax bills, CapEx schedule/PIP.

• Normalize: remove one-offs, insert market mgmt fee & FF&E reserve, update tax/insurance.

• Stabilize: if you’re mid-ramp, build a credible pro forma to steady state.

• Cap rate: source a realistic range for your asset class and market; test ±100 bps.

• Comps: 3–5 recent, truly comparable sales; adjust for condition and flags.

• Cost: sense-check against replacement (especially for newer assets).

• Sensitivity: model $5 ADR, ±2 pts occupancy, and channel-mix shifts; note value deltas.

Special cases you should sanity-check

• Resort & seasonal: use a seasonally weighted pro forma; do not annualize peak months.

• Newly renovated: adjust NOI to stabilized post-renovation performance; include PIP already paid vs required.

• Under-managed gems: if your RevPAR Index trails the comp set by 10–15%, build an improvement case - but support it with evidence (market STR data, demand mapping, pricing experiments).

• Small F&B program: separate F&B P&L; as a rule, buyers give full credit to repeatable outlet profits and discount loss-leaders.

A simple template

• Rooms revenue = Rooms × 365 × Occ% × ADR = __________

• Other revenue (parking, fees, events) = __________

• Total revenue = __________

• Operating costs (normalized) = __________

• Mgmt fee (x% of revenue) = __________

• FF&E reserve (3–5% of revenue) = __________

• Stabilized NOI = Total revenue – costs – mgmt fee – reserve = __________

• Value at cap rate = NOI ÷ (cap) = __________

• Per-key = Value ÷ Rooms = __________

• PIP/CapEx adjustment = – __________

• Reconciled value range = Income (low/high), Comps (low/high), Cost (ceiling)

Final thought

Hotel value is not a mystery; it’s a math problem with a few judgment calls. If you build a clean, stabilized NOI, apply a market-sensible cap rate, and cross-check with good comps and replacement cost, you’ll have a number you can defend—to buyers, lenders, or your own investment committee. And if you want that number to go up, you now know which levers move it fastest: rate, channel mix, and disciplined cost control—with proof in the sensitivity.