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Inns
For its owner, an inn is as much a lifestyle choice
as it is an investment. The owners of a hotel may live in ten different
states, none of them the one where their hotel is. The innkeeper, on the
other hand, is at home in the investment, making a living from clients
who fill the bedrooms.
Inns (or "bed and breakfasts"), together with hotels and motels,
have benefited from an improved economy. Nationwide, occupancy in the hospitality
industry is on the rise. John Fox of Pannell Kerr Forster's New York office
reports that occupancy in hotels in Boston has risen from 72.1% in 1992
to 78.4% in 1995, an 8% increase. Over the same period, average room rates
locally have increased 15%. Michael Frucci of the Cape Cod Chamber of Commerce
says that, over the past several years, "room business is up fairly
strongly." Data from the Massachusetts Office of Travel and Tourism
indicates that the Cape, where a high proportion of the region's bed and
breakfasts is located, experienced a 20% increase in room revenues from
1992 to 1995.
Inns have always been abundant where big, antique mansions are located,
in vacation territory, on the coast or in the mountains. In recent years,
inns have sprung up in the Back Bay, the South End, and Cambridge, as well.
Hotels are profit machines that produce prices on the order of $100,000
per room. Inns at prime locations reach similar levels. However, for the
most part, inns are somewhat lower rent and achieve lower prices, with
a high proportion in a range from $30,000 to $60,000 per room. Inns' appeal
is specialized. Where motels offer blandness and no surprises, inns' entire
appeal is their antique charm. Decor varies from room to room. Some inns
ask guests to share bathrooms. Some come paired with fine restaurants.
Where the restaurant at a hotel often has difficulty appealing beyond in
house clientele, the same charm that brings overnight guests brings diners
from elsewhere to an inn. A hotel is firm mattresses, uniformed help, and
televisions. An inn is the guest book with dinner recommendations, a fire
in the fireplace, and a breakfast table you might share. The innkeeper
knows the guests and feels free to decorate with antiques. The motel nails
down whatever might tend to leave.
An inn is more than real estate, and, though its value may be based
in real estate, comprehensive appraisal takes account of the contributions
of the furnishings, fixtures, and equipment and the value of "goodwill."
Together, these make up the going concern. Like a restaurant, a self storage
warehouse, or a gas station, an inn is real estate intertwined with a business.
Because it is income producing, an inn is capable of valuation by an income
approach. Costs of business are deducted from room revenue to produce a
net income, which is capitalized to produce the value of the going concern.
This number may be segregated into values for the real estate, the furnishings,
and the goodwill.
But an analysis based on income alone misses the larger picture. An
inn comes in two parts: the rented space and the innkeeper's quarters.
One is income producing. The other is somebody's home. The same elements
that produce value for a single family house location, architectural appeal,
and privacy (including privacy from one's own guests) are important to
the market of buyers and are part of what produces the value of the whole.
The Reenstierna Associates Report is published as a service to the clients
of Eric Reenstierna Associates and other real estate professionals. The
views expressed are those of the articles' authors and do not necessarily
reflect those of other members of the organization. Copyright 1996. All
rights reserved.
Eric Reenstierna Associates
24 Thorndike Street
Cambridge, Massachusetts 02141
(617) 577-0096
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