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Faculty & Research

Hospitality Leadership Through Learning
Faculty & Research

New Beats Old Nearly Every Day: The Countervailing Effects of Renovations and Obsolescence on Hotel Prices

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Vol 8 No 13
By: John B. Corgel Ph.D.

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Executive Summary: As is the case with other commercial real estate types, hotels begin to depreciate from the time they open, in a process largely driven by functional obsolescence. Unlike other asset types, however, hotel values hit an inflection point at which they begin to rise again. Average annual depreciation for the 3,810 chain-affiliated hotels in this sample was within the range found in other commercial types of real estate. Depreciation rates start off relatively brisk in the first few years, because hotel owners typically do not begin renovations until around year ten. When owners do begin renovation, those expenditures slow but do not stop the decline in the typical hotel’s value. Then, around year twenty-eight, the depreciation reverses for hotels that are still in business. Not only have renovations stabilized the loss in value, but other, unknown factors promote the hotel’s value­—a phenomenon that could be called a vintage effect. Such fully depreciated properties may be located in particularly favorable sites, or they may have architectural or other features that make them attractive to investors.

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About John B. Corgel Ph.D.

Jack Corgel holds the Robert C. Baker Chair of Real Estate and is a full professor at the School of Hotel Administration. He served as the first director of the school’s Center for Hospitality Research from 1992-1994. After receiving undergraduate and PhD degrees from the University of Georgia in real estate and corporate finance, he taught at the University of Florida, Georgia State University, and the University of Connecticut. During the academic year 1985-1986, he was a visiting scholar at the Federal Home Loan Bank Board in Washington, DC. He is a fellow of the Homer Hoyt Institute. Corgel also maintains a consulting relationship with PKF Hospitality Research where he is helping to develop new products for the hotel industry based on property-level financial performance information. Corgel has published over 65 articles in academic and professional journals, mainly on the subjects of real estate finance, investment, valuation, and hospitality real estate. He has published in the most prestigious journals in real estate (Real Estate Economics), urban economics (Journal of Urban Economics), insurance (Journal of Risk and Insurance), business law (Journal of the American Business Law Association), and Hospitality Management (Cornell Hotel and Restaurant Administration Quarterly and International Journal of Hospitality Management). In addition, he has written for nearly every national journal read by real estate professionals. His textbook, "Real Estate Perspectives" (with Smith and Ling) was used throughout the nation for introductory real estate courses.

For more information visit http://www.hotelschool.cornell.edu/research/facultybios/faculty.html?id=114