Should Hotel Owners Brace For Higher Tax Assessments?

The hotel and hospitality industry was among the most severely hit at the onset of the global pandemic.

Business and leisure travel came to an abrupt halt, devastating the industry. When everything dropped off the cliff with COVID, assessors worked with owners and representatives to mitigate taxes.

As we emerge from the global shutdown, the hotel and hospitality industry is coming back strong. Today there is a significant amount of liquidity in the market, resulting in greater competition and higher sales.

Areas including Austin, Texas; Nashville; Florida in general; California in general; and coastal markets ranging from Georgia to Maine are all experiencing a tremendous rebound in activity, as evidenced by a year of staggering trades topping $500,000 per key and even going as high as $850,000 as in the sale of the Diplomat Beach Resort in Hollywood, Fla.

As a result, the reprieve in tax cuts is quickly coming to an end. The question, however, then becomes: Will the assessor treat these sales as viable comps or will they be disregarded as one-offs? This is particularly concerning in hot markets such as Miami.

There is also a growing sentiment among assessors throughout the country that COVID is over and we are quickly returning to prepandemic economics. This, too, can have a significant impact on assessed values. In some cases, they could double.

Sales, however, don’t always tell the whole tale. It all comes down to economics, some of which can and should be offset to better tell the real story. For example, there may be items within the revenue stream that are not directly related to the bricks and mortar of the property, such as a high-end restaurant, which can skew the food-and-beverage line items.

Brand recognition can also drive up revenue streams and outperform the building’s shell. The name on the marquee can be a deciding factor for many business and leisure travelers who book a room for the points and confidence in the service, staff and accommodations.

As we enter 2022, hotel owners in hot markets need to brace for large increases to pre-COVID levels or higher and find ways to mitigate those increases, if feasible. As a general rule, taxes should run concurrent with the owner’s projections of revenues and net income. If the hotel is doing well, the assessor is going to find a way to increase assessments to mirror that growth. However, that doesn’t mean there aren’t areas to challenge.


Source: Hotel Management

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