2003-02-13
A representative of the HCD Group attended and co-organised a seminar sponsored by the "Society of Russian Appraisers", which focused on valuation techniques used for estimating the market value of hotel real estate in Russia. The seminar was held on February 11-12 at Hotel "Belgrade" in Moscow …
Hotel appraisal methods has become a topic
of controversy among businesses and government circles following the eruption
of a major scandals originating from the privatisation of the Grand Hotel
Europe in Saint Petersburg. The Federal Audit Chamber, Sergei Stephashin sent
shockwaves through the Saint Petersburg City Administration by announcing that
the sale of government shares in the city’s prestigious Grand Hotel Europe has
contained violations. The government’s stake, which amounted to 40.37 per cent
of the shares, was sold for 32.9 Million Rubles or ($ 1.03 million). According
to some analysts, the shares were sold for as little as one fifteenth of their
actual value. As a preventive measure to avoid a similar situation in the
future, the Audit Chamber has frozen the sale of a government stake in another
Saint Petersburg hotel asset, Hotel Moskva, until the shareholding has been
officially evaluated.
Despite the noble intent of promoting the
creation of a modern hotel infrastructure in Russia, the above scandal
exemplifies the difficulties in applying reliable appraisal techniques to hotel
valuations. Much of the initiative in privatizing government hotel assets is
compromised by numerous inconsistencies linked with a lack of hotel appraisal
techniques, rampant corruption and absence of reliable data.
In order to correctly appraise hotel real
estate, one must understand the fundamentals of operational profitability of
the hotel business. One of the most widespread mistakes of the traditional
appraisers is to only consider the hotel building as a common object of real
estate. Thus the main focus is given to the physical condition of the building,
the degree of deterioration, surface area, the quality of construction, but
will ignore the income that is derived from the hotel operations. Because
hotels are income-generating assets, the real estate market value should be
derived from the hotel’s operational cash flows.
As a measure to better understand the
financial mechanisms inherent to hotel valuations, the Russian Society of
Appraisers decided to organize a seminar around this issue. Real estate
appraisers from various parts of Russia attended the venue. Hotel Consulting
& Development Group Consultant, Stéphane Meyrat, opened the seminar
with a presentation of the Moscow hotel market, placing particular emphasis on
the basic problems and tendencies associated with its evolution. The majority of the students, who intend to estimate hotel real estate
assets, discovered the market constraints inherent to the
hotel industry in Moscow.
The second part of the seminar was
organized by Eric Belfrage, Integra Realty Resources, Columbus, Ohio, USA. Mr.
Belfrage, a certified hotel appraiser with MAI accreditation, was invited by the
Society of Russian Appraisers to explain hotel valuation techniques to the
seminar delegates. He noted that it is difficult to carry out an accurate
estimation of a hotel asset in Russia without the support of specialized
consultancies in the Russian hotel market, capable of compiling and analyzing
the performance data that will be used in the appraisal. “I was fortunate that
HCD Group experts agreed to assist me in the organization of the seminar,”
Belfrage said.
In comparison with the United States,
where accurate regional hotel performance data is relatively easy to obtain
from specialised statistic bureaus, such as Smith Travel Research, reliable
hotel performance data in Russia is hard to come by. Despite substantial
improvement in the sharing of competitive hotel data among the four and five
star segment in Moscow, financial transparency of the hotel operations for the
remaining supply is still very much of a problem.
The seminar concluded with reconciliations
between hotel valuations theory as applied by hotel appraisers in the United
States and the obstacles associated with the Russian hotel market. Currently,
Russian real estate appraisers possess the skills to valuate commercial, retail
and residential real estate. Hotels still represent a challenge, since they
require a thorough understanding of market dynamics and operations. Though
without an appraisal license, HCD possesses enough expertise and market data to
perform 80% of the requirements associated with the valuations process,
including the elaboration of the market study and compiling and preparation of
P&L statements of
existing and proposed hotels.
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