I’m seeing a lot of questionable CAP rates quoting 17 to over 30 in on Loopnet in Florida under Commercial. Has anyone looked into these? Any idea why they are so high?
Also I was wondering about CAP rates for hotels. I have seen a few at 20 and guess due to it being a business and requiring various staff to run you would tend to see much higher CAP rates in hotels. What are some common CAP rates in the Hotel industry? Do they vary a lot?
I work with a few hotel buyers, high cap rates are not common and I would question them. Ask for the numbers and come to your own conclusions.
Hi,
The higher the hotel cap rate the more the housekeeping, maintenance and replacement are being neglected.
A really efficient properly run class A hotel like other commercial properties should have a 4 to 7 cap rate, class B hotels should have a 8 to 10 cap rate and class C should run a 11 to 12 cap rate. Class D property 13 to 16 cap rate. (A real dog)
Class A and class B hotels will be flagged properties like Hilton, Sheraton, Holiday Inn, Days Inn, Best Western, Red Roof, etc.
Most class C properties lose their franchise flag and are equal in a lot of ways to motel properties!
A high cap rate indicates poor management and differed maintenance, lack of replacement and long term repair, reserves and problems with cleanliness and usability issues. They are sucking money into cash flow and neglecting their property!
Now this sometimes offers opportunity if you can find a professional turn around manager but could be a major initial cost to restore property back to good condition, replace outdated non working components and create proper long term reserves while fixing out of pocket major items.
Major cost could destroy any earnings from the upside of a turn around!
GR