by Gleb Lerman
Having appraised almost every property type in NYC it appears that the value erosion was greatest for hotels. In many cases hotels are worth less than half of peak pricing. Here are some factoids to support these value drops:
-Aby Rosen is reportedly buying back his first mortgage debt at 65 cents on the dollar. Assuming the first mortgage was originally issued at 80 LTV.  This debt repurchase values the property at 51.4% of the original valuation. I know this is an overly simplified analysis and one would need to look at the loan terms: interest rate, term, the existence of cross-collateralization, or personal guarantees.
-In September 2010 the W in Union Square traded for $685,926 per room, that’s a 34.3% decline since its prior purchase in 2006 for $1,044 per room. Taking into consideration that prices for hotels continued to appreciate since 2006, in line with continued RevPAR increases through the 3rd Quarter of 2008 the recent trade is likely closer to 50% of its peak valuation.
Why such volatility?
Hotels are usually operated with very thin margins i.e. high operating expense ratios 70-80%. Also, a large chunk of these expenses are fixed so when your occupancy and ADR dips your NOI plunges. On the other side of the equation when your ADR and occupancy rise your NOI soars. Given that recent hotel performance has been positive, brighter days may be ahead for hotel owners.
