The ADR rule-of-thumb as predictor of lodging property values

In a positive context, asset valuation models may be judged on the basis of their predictive ability rather than on the number and elegance of the underlying assumptions. The Average Daily Rate (ADR) rule-of-thumb has been used for decades as a quick way of estimating hotel and motel room rates and, more recently, as a simple gross-income multiplier model for predicting values of lodging properties. This study examines how well the ADR rule-of-thumb model predicts property values. The results of our comparative analysis of estimates from the ADR model with those from a hedonic valuation model indicate that the ADR model performs well in the aggregate, but is an inconsistent estimator at various levels of disaggregation, such as when property subsamples were organized by number of rooms, age, occupancy rate and number of restaurants.     

A protocol for reviewing hotel anchored Public Private Partnerships

This article examines public subsidies used to encourage hotel development and proposes a robust protocol for their review by authorities having jurisdiction. The article begins by examining the size and scope of Public Private Partnerships to encourage hotel development in the United States, and with a discussion of the rationale for and against the subsidies. It goes on to provide an overview of typical subsidy financing arrangements and presents a methodology for the evaluation of public subsidies for proposed hotels. The case is made that publicly subsidized hotels can create benefits for both private developers and sponsoring governmental units which can include local, state, and federal levels. However, there is often an asymmetry of political power and data that favors private developers over those negotiating on behalf of taxpayers (Laslo and Judd 2004, Perry 2003). The article examines typical processes used to review subsidy proposals and recognizes the challenges of overcoming the significant political momentum behind them that favors developers at the expense of taxpayers. The framework will assist authorities in their economic review of proposed subsidies for hotels by providing a template useful for addressing what is oftentimes an imbalance of information that favors developers over those representing the interests of the public sector.     

Diversification Benefits of REIT Preferred and Common Stock: New Evidence from a Utility‐based Framework

We study the diversification benefits of REIT preferred and common stock using a utility‐based framework in which investors segment based on risk aversion. We examine optimal mean‐variance portfolios of investors with different levels of risk aversion given access to different classes of assets and establish three main results. First, REIT common stock helps low risk aversion investors attain portfolios with higher returns, while REIT preferred stock helps high risk aversion investors by providing a venue for risk reduction. Second, REIT preferred stock has a risk‐return profile not easily replicated by other asset classes. Finally, conclusions drawn from the empirical analysis are markedly different under these constraints compared to the classical unconstrained setting.     

Recovery of Real Estate Returns for Portfolio Allocation

Appraisal-based return indexes may not approximate the true real estate return distributions because of understated return volatility. Recovery of returns from reported, appraisal-based returns may be possible by evoking models to correct for appraisal-based smoothing of the second moment. Because recovery intentionally alters the volatility of the reported return distribution and the correlations among assets in the portfolio, the weights to real estate are likely affected. Our examination of the portfolio implications of altering the return distribution indicates that weights may be quite sensitive to the effects of recovery across a reasonable range of correlation regimes. A comparative analysis of several recovery models reveals that all models achieve the objective of inflating the volatility of reported returns. However, the models also change the mean of the return distribution, which either counteracts or magnifies the effect of the volatility change on allocations. These findings bring into question the applicability of recovery models in their current form.