Motel valuation formulas developed by an expert panel of industry professionals are boosting investment confidence for all stakeholders and providing a secure footing for growth in the motel sector. 

The breakthrough, providing systematic calculations to determine a fair price for motel lease extensions and to value short-term leases, was jointly developed by Resort Brokers Australia, specialist law firm Hillhouse Burrough McKeown, and accountants Holmans.

The issue of diminishing lease terms had come to the fore as the years on many older motel leases were counting down.  We came up with logical models that finally put some certainty behind these grey areas of motel valuation.

As the accepted standard, they strengthen the position of both leaseholders and landlords, while creating a sound, uniform approach that is easily understood by everyone from professional advisors, financiers and brokers to vendors and buyers.

Such a formula is vital because the motelier’s business is inextricably linked to the premises.  The new model recognises the unique nature of a motel lease, compared to other commercial property leases.

A motel freehold can really only have one purpose – operation of a motel.  The goodwill of the business is location-specific, the tenant has goods and chattels tied up in the premises and, at expiry, they can’t simply move and start up elsewhere.

It is vital leaseholders have a sound basis for negotiating with landlords for an extension.  An extension has value to the operator because it provides them with the opportunity to generate additional profits over the period of the extension.

So the amount they pay must be a direct function of the value the extension creates in terms of future profits and current capital appreciation, not simply a random amount nominated by the landlord.

The price must also fairly recompense the landlord, recognising there is an opportunity cost to them for granting the extension, while providing sufficient financial incentive for the tenant to proceed with the lease extension.

Adoption of our formulas for motel lease valuations has been a catalyst for improved relations between lessees and landlords.  With price consistency comes options for everyone.  It also means short-term motel leases remain viable and valuable because our formula protects capital investment and returns, while allowing for goodwill or capital growth.