Hotel Property Tax Appeals and Valuation for Hotels and Hospitality Properties
Hotel property taxes can represent a significant operating expense for hotel owners and investors, particularly when a taxing jurisdiction does not properly distinguish the taxable value of the real estate from other components of a hotel business, such as furniture, fixtures and equipment (FF&E) and goodwill.
Skoloff & Wolfe, P.C., represents hotel owners and other large commercial property owners in property tax appeals, abatements, valuation analysis, and related matters. Our attorneys and valuation professionals understand the unique characteristics of hotel properties and use data-driven analysis to help clients address potentially excessive property tax assessments.
For hotel owners, developers, REITs, financial institutions, and other hospitality stakeholders, a careful review of the property’s assessment can identify opportunities to reduce property tax liabilities and protect the value of a significant real estate investment.
Understanding Hotel Property Tax Valuation
Hotels are different from many other types of commercial real estate because their value is often closely connected to the income generated by the operating business. When assessing a hotel for property tax purposes, taxing authorities may use valuation approaches that do not adequately distinguish the value of the real estate from the value attributable to FF&E, business operations, or goodwill.
This can result in a hotel being assessed at a value that exceeds the fair taxable value of its real property.
It’s important to analyze the factors that influence hotel valuation and property tax assessments, including hotel income, operating performance, market conditions, and the distinction between real estate and other components of the hospitality business. Our data-driven approach is designed to present municipalities with a clear analysis of the appropriate taxable value of the property.
Property Tax Appeals for Hotels
A hotel property tax appeal may provide an opportunity to challenge an assessment that does not accurately reflect the taxable value of the underlying real estate. Evaluating the assessment, valuation methodology, and relevant financial and market data can help develop an appropriate strategy for the specific property and jurisdiction. This can include:
- Reviewing existing hotel property tax assessments
- Analyzing hotel income and operating data
- Evaluating real estate valuation methodologies
- Distinguishing real estate value from FF&E and business-related value
- Pursuing property tax appeals and abatements
- Analyzing assessments before a hotel acquisition or development
- Conducting property tax due diligence for hotel portfolios and transactions
Hotel Property Tax Analysis Before an Acquisition or Development
Property tax considerations can have a substantial impact on the economics of a hotel acquisition, development, or investment. Understanding the potential property tax liability before a transaction or construction project can help owners and investors evaluate the property’s anticipated expenses and overall value.
By evaluating potential assessments and property tax exposure in advance, clients can incorporate property tax considerations into acquisition, development, financing, and investment decisions.
Reducing Hotel Property Tax Assessments
Skoloff & Wolfe, P.C. has obtained significant assessment reductions for hotel properties and other commercial real estate. Our experience includes matters involving large hospitality properties in multiple jurisdictions.
Some examples include:
- Reduced a hotel assessment from $421 million to $259 million for an Orlando/Disney resort
- Reduced a hotel assessment from $189 million to $131 million for a California hotel
- Reduced a New York City hotel assessment from $82 million to $70 million
- Performed property tax analysis and due diligence for a $300 million hotel portfolio involved in a national transaction
All assessments are rounded to the nearest million. Results may vary depending on the specific facts, property, jurisdiction, and legal circumstances.
Who We Represent in Hotel Property Tax Matters
- Hotel owners and operators
- Hotel developers
- Hotel management companies
- Real estate investment trusts (REITs)
- Private equity firms
- Financial institutions
- Universities and institutions
- Other large commercial property owners
Our understanding of hotel operations, valuation, and property tax assessment issues allows us to address the legal and financial considerations that can affect a property’s taxable value.
Experienced Hotel Property Tax Counsel
Hotel property tax assessments require an understanding of both real estate valuation and the economics of hotel operations. An assessment that does not appropriately distinguish the value of the real estate from FF&E, goodwill, and other business-related components may result in an excessive property tax burden.
Skoloff & Wolfe, P.C. offers a free review of hotel property tax assessments. To discuss your hotel property tax assessment, appeal, acquisition, or development project, contact us to schedule a consultation at 973.992.0900.
Hotel Property Tax Frequently Asked Questions
How are hotels valued for property tax purposes?
Hotels may be valued using approaches that consider the income generated by the property and its operations. A key issue in hotel property tax valuation is distinguishing the taxable value of the real estate from value attributable to FF&E, goodwill, and other components of the operating business.
Why might a hotel be over-assessed for property tax purposes?
A hotel may be over-assessed when the valuation methodology does not adequately distinguish between the value of the real estate and other business-related assets or income. A careful review of the assessment and underlying valuation methodology can help identify potential issues.
Can hotel owners appeal their property tax assessments?
Yes. Depending on the applicable jurisdiction and assessment procedures, hotel owners may have the right to challenge their property tax assessments through an administrative appeal, tax appeal, or other available process. The appropriate procedure and deadlines vary by jurisdiction.
What is the difference between hotel real estate and FF&E for property tax purposes?
Real estate generally refers to the land and permanent improvements that make up the property. FF&E, or furniture, fixtures and equipment, consists of items used in the operation of the hotel. Properly distinguishing these components can be important when determining the taxable value of the real property.
Does hotel goodwill affect property tax valuation?
Goodwill relates to the value associated with a business, including factors such as its reputation, customer relationships, and operating characteristics. Depending on the jurisdiction and valuation methodology, distinguishing goodwill and other business value from the value of the taxable real estate may be an important issue in a hotel property tax appeal.
Can hotel property tax analysis be performed before buying a hotel?
Yes. Property tax analysis and due diligence can be performed before an acquisition to evaluate the property’s existing assessment and potential future property tax exposure. This type of analysis can help investors and owners account for property tax considerations when evaluating a transaction.
Can property tax analysis be performed before developing a hotel?
Yes. Pre-construction property tax analysis can help hotel developers evaluate potential assessment and tax implications before completing a project. Early analysis may allow property tax considerations to be incorporated into development and investment planning.
What types of hotels can benefit from a property tax assessment review?
Hotel property tax reviews may be appropriate for a range of hospitality properties, including large hotels, resorts, and hotel portfolios. The potential value of a review depends on the property’s assessment, jurisdiction, valuation methodology, financial characteristics, and other circumstances.
