Tax Guide
Is Your Hotel’s Real Estate Assessment Accurate?

Hotel and resort properties present unique valuation challenges, even for experienced assessors. Valuing hospitality assets means accounting for more than just the real estate—hotels generate income from complex operations, brand affiliations, service offerings, and substantial investments in personal property. These elements introduce complications that are often overlooked in mass appraisal models or standardized valuation approaches.

Inflated assessments that don’t reflect a property’s true taxable value may remain on the books for years if not challenged. A single overstatement can lock in inflated tax liability until the next lien date—potentially affecting your bottom line, investment performance, and cash flow for years at a time.

Non-Taxable Intangible Value

When hotel valuations don’t separate real estate from intangible business income, the resulting property tax assessments may significantly overstate the value that is legally taxable in many jurisdictions.

Many hospitality properties are assessed using the income approach, which estimates value based on net operating income (NOI). However, NOI for hotels reflects more than just real estate performance—it includes a range of income streams, brand-driven premiums, and other non-real-estate elements. These often non-taxable intangibles should be carefully identified and excluded as dictated by jurisdictional law.

Examples of commonly misclassified intangibles include:

• Franchise or flag affiliation and associated brand value
• Brand-paid incentives and affiliate agreements (e.g., management contracts, franchise agreements)
• Revenues from amenities like spa services, valet, and food and beverage
• Loyalty programs and reservation systems

While some valuation methods attempt to account for these components by deducting franchise or management fees, courts have increasingly found those approaches insufficient. Deducting only the cost of such components—without accounting for the broader value those arrangements create—does not remove the full economic value attributable to brand, service, or operator strength.

Because these intangibles are deeply embedded in hotel operations, they can be difficult to isolate without specialized valuation expertise.

Personal Property Value

Hotels are capital-intensive operations, often involving millions of dollars of investments in furniture, fixtures, and equipment (FF&E)—from guest room furnishings to kitchen appliances and lobby décor. These assets are usually taxed separately as personal property (in applicable states), and their value should be excluded from the real estate assessment. In many cases, that separation doesn’t happen, either partially or entirely.

There are several ways this issue can arise:

Including FF&E Value Embedded in the Income Stream

In hospitality properties, FF&E doesn’t just sit on the balance sheet—it generates revenue. From in-room furnishings to commercial kitchens, these assets contribute directly to the income reflected in a hotel’s financials. Yet income-based valuation models often treat all operating income as real estate-derived, without isolating the portion attributable to personal property.

When FF&E-generated income is left in the NOI calculation, the resulting real estate value reflects more than just the real estate—it incorporates the economic contribution of assets that should be taxed separately (in jurisdictions that tax personal property). Unless these income streams are properly identified and removed, the assessment will overstate real estate value and expose the taxpayer to inflated property tax liability.

Oversimplified Modeling of FF&E Value

Even when assessors attempt to adjust for FF&E, they often do so incompletely. Many models fail to remove both the value of the personal property and the return on that property, meaning the income generated by FF&E is still being used to support the real estate assessment. This is particularly common in jurisdictions where assessors lack hotel-specific valuation expertise or rely on mass appraisal templates not tailored to complex hospitality assets.

Inadequate FF&E Subtraction from Going Concern Value

In some jurisdictions, assessors begin with a Going Concern value—which includes real estate, personal property, and business enterprise value—and attempt to isolate the real estate portion by subtracting the FF&E value listed on the personal property tax return. In reality, that reported value is often based on accelerated depreciation schedules that don’t reflect fair market value. Consequently, the deduction is insufficient, and personal property value remains embedded in the real estate assessment.

These modeling flaws are often subtle and difficult to detect, yet they can materially inflate your annual tax burden.

Misapplied Income Assumptions

Property tax assessments are meant to reflect a property’s market value as of the lien date—typically based on its actual financial performance. For the hospitality sector, however, assessors and appraisers often rely on stabilized income projections, brand-wide benchmarks, or even historical peak-year performance to estimate value. The result is a valuation based on unrealized potential, rather than the hotel’s actual financial performance at the time of assessment.

This approach may be appropriate for investment analysis, but it can lead to inflated assessments in jurisdictions that require as-is valuation (i.e., market value as of the lien date). For these valuations to be accurate, any future recovery period, absorption period, or rent loss until the point of projected stabilization must be deducted to properly reflect net present value.

Relying solely on trailing actuals isn’t always the right answer either. In some cases—such as post-renovation ramp-ups or temporary operational disruptions—reasonable forward-looking adjustments may be warranted. The key is expert judgment backed by data. A well-supported NOI model should consider actual financials, industry benchmarks, and management-provided insights to reflect what a buyer would reasonably expect as of the lien date. Done correctly, this approach distinguishes between short-term volatility and long-term income potential—producing a fair and equitable valuation.

Without a credible, jurisdiction-specific appeal, these inflated assessments can lock in higher liabilities for years to come.

What You Can Do

A targeted review of your hotel’s assessment can uncover hidden tax risks and help you correct them before they compound over time.

DMA’s property tax team helps hospitality clients:

• Analyze assessments and identify overvaluation triggers
• Separate real estate from non-taxable business and personal property value
• Build jurisdiction-specific appeal strategies grounded in legal precedent and valuation best practices
• Identify and correct overstatements rooted in valuation or classification errors

We’ve supported hospitality portfolios of all sizes—bringing technical depth and hospitality-specific insight to every engagement.