Hospitality Sector

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Hospitality Sector

In the hospitality industry, realty tax is your second LARGEST expense, 2nd only to wages. With high fixed costs, keeping cash flow up is tough enough, without the thought of overpaying on your property tax. Yet overpaying is exactly what many businesses do. We thrive on helping businesses with volatile revenue streams minimize their costs.

Assessing the value of hospitality properties (like hotels, motels, resorts, seniors retirement facilities) -- where guest contracts are generally SHORT term -- is completely different than an office or retail property where revenue is derived from LONG term leases. But government assessors routinely predict a hospitality property's revenue based on the limited data of short leases and try to convert this into sustainable or what they call "stabilized revenue", which often overstates the potential revenue the property will achieve. Along with economic ups-and-downs, competing properties and inclement weather, the difference between the potential revenue and actual revenue of a hospitality property can be significant which means that assessors are highly likely to use the wrong figures in their calculation, resulting in overcharges that you have to pay for.

 

At AEC, we have a team of hospitality specialists with the required credibility that are willing to go the distance. We are extremely well recognized as having the best Expert Witnesses in the industry and are more than willing to take on a challenge and put our position before a tribunal. This is in contrast to others that don't back up their story and are more "bark than bite" when presenting cases on behalf of their clients. Our experts thoroughly understand the nature of your business, and the tax laws surrounding it. We use that expertise and our credibility with the tax authority to get you results, and improve your bottom line.

 


Case Studies

Hotel and Convention Centre

 


Sample Clients

InnVest REIT
Provincial Long Term Care
Baybridge Seniors Housing
AMICA
Alberta Social Housing Corporation
 

Case Study 1: Hotel and Convention Centre

Issue

The property consists of 8 acres of land, two hotels & convention centre located in an urban area with highway exposure. The client, a national hotel operator, acquired the property in 2005. At time of sale, it consisted of a full service hotel & convention centre. Subsequent to the sale, the client built a limited service, all-suites hotel.

Danger

MPAC’s returned assessment was based on:

  • Pro-forma valuation of a full service hotel including F&B and rental revenue
  • Pro-forma valuation of limited service hotel
  • Convention centre valuation on cost basis
  • Excess land valuation based on residual sales

Why AEC

Our initial review confirmed that rental revenue in the pro-forma was the revenue from leasing convention centre as the client was not an operator. F&B revenue assigned to full service hotel also included portion of F&B generated by the convention centre. This was a clear case of double taxation. The review of costing matrix revealed that the calculations have been done incorrectly resulting in value 40% higher. The limited service hotel was assessed with higher ADR and occupancy than full service hotel.

Client Success

We were successful in persuading MPAC to properly account for revenue generated by convention centre. This resulted in significant reduction of a full service hotel component. MPAC then proposed to increase the value of limited service hotel, convention centre and excess land portion. We responded with counter proposal offering alternative approach to value for convention centre. We analyzed ADR and occupancy rates of limited service hotels in the area and counter with lower valuation. MPAC proposed yet another set of numbers, all backing up the 2005 purchase price. At the mediation meeting we addressed MPAC lack of consistency and presented argument supporting revised value for all components which resulted in significant reduction for the property.

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