HOTVal Toolkit

**************************************************************************** Scroll down to Additional Files to access the HOTVal Toolkit. **************************************************************************** HOTVal is a hotel valuation spreadsheet based on a regression model discussed in the Center for Real Estate and Finance at Cornell called Cornell Hotel Indices: Second Quarter 2012: The Trend is Our Friend by Crocker H. Liu, Adam D. Nowak, and Robert M. White, Jr. The model which will be continually updated, provides a rough estimation of the value of a hotel property once the user inputs information on whether the hotel is a large or small hotel, the year and quarter of the valuation, the state where the property is located, the number of rooms, the number of floors, the land area of the hotel property, the actual age of the hotel and whether the hotel is located in a Gateway city. For the first three inputs as well as the last input, if the user clicks on a cell highlighted in yellow, a pull down menu will appear to expedite inputting. The model is provided as a free public service by The Center for Real Estate and Finance at the School of Hotel Administration at Cornell University to academics and practitioners on an as-is, best-effort basis with no warranties or claims regarding its usefulness or implications. The estimates should be considered preliminary and subject to revision. *This January 2020 version updates the previous Hotel Valuation model, originally published in 2012, and provides valuation estimates up to and including the fourth quarter of 2019

Is What\u27s Bad for the Goose (Tenant), Bad for the Gander (Landlord)? A Retail Real Estate Perspective

We explore the economic dependence and financial market feedback effects among firms with economic linkages, notably landlord-tenant when shocks occur to the system. In particular, we examine 157 major tenant bankruptcy announcements of retail real estate firms over the 2000 to 2010 period. The contracting mechanism associated with retail leases provides several unique features such as percentage rents and co-tenancy clauses that are absent in other type of leases. We find that in a good economy, a tenant bankruptcy has a less negative or more positive effect on a landlord\u27s stock return, which is consistent with the growth option hypothesis. We also find that landlords who have properties located in markets with a highly diversified economic base are more likely to exercise the growth option given a tenant departure and thus realize higher stock returns

The Predictability of Returns on Equity REITs and Their Co-Movement with Other Assets

Recent evidence suggests that the variation in the expected excess returns is predictable and arises from changes in business conditions. Using a multifactor latent variable model with time-varying risk premiums, we decompose excess returns into expected and unexpected excess returns to examine what determines movements in expected excess returns for equity REITs are more predictable than all other assets examined, due in part to cap rates which contain useful information about the general risk condition in the economy. We also find that the conditional risk premiums (expected excess returns) on EREITs move very closely with those of small cap stocks and much less with those of bonds

Insider Trading as a Signal of Private Information

There is substantial evidence that insider trading is present around corporate announcements and that this insider trading is motivated by private information. Using real estate investment trusts that choose to reappraise themselves as our sample, we establish that the appraisals contain information, but find no market response to the public announcement of this information in these appraisals. We consider two possible explanations for this inconsistency: the first that the appraisal information is not highlighted in earnings reports and hence remains unobserved; and the second that insiders trade on the appraisal information in the time that elapses between the appraisal and its public announcement We find strong support for the second hypothesis, with insiders buying (selling) after they receive favorable (unfavorable) appraisal news, especially for negative appraisals. We also find that positive (negative) appraisals and net insider buying (selling) elicit significant positive (negative) abnormal returns during the appraisal period

Real Assets, Liquidation Value and Choice of Financing

We use real estate firms to examine how asset liquidation values influence a firm’s financing choice, because the productivity and quality of each asset is observable and potential measures of an asset’s liquidation value are easier to ascertain ex ante. We show that compared to firms that issue equity, firms that issue debt have higher asset quality. The effect of their expected asset liquidation value is significant, even after we control for other factors that influence financing decisions. For firms whose assets’ quality is not easily observable, we find that firms’ financing choices depend heavily on conditions in the overall real estate market

The Predictability of Real Estate Returns and Market Timing

Recent evidence suggests that all asset returns are predictable to some extent with excess returns on real estate relatively easier to forecast. This raises the issue of whether we can successfully exploit this level of predictability using various market timing strategies to realize superior performance over a buy-and-hold strategy. We find that the level of predictability associated with real estate leads to moderate success in market timing, although this is not necessarily the case for the other asset classes examined in general. Besides this, real estate stocks typically have higher trading profits and higher mean risk-adjusted excess returns when compared to small stocks as well as large stocks and bonds even though most real estate stocks are small stocks

Interactions with Frontiers of Financial Economic — A Research Agenda for Real Estate Finance

[Excerpt] Recent years have seen the emergence of substantial scholarly research in real estate finance that uses the methodology and paradigms at the frontiers of financial economics. Agency theory, search theory, and signaling have appeared in several models of real estate finance (see, for example, Damodaran, John, and Liu, 1998; Damodaran and Liu, 1993; Williams, 1993a, 1993b, 1995, 1998). Continuous time-valuation models of financial options, real options, and fixed-income securities and term structure models have also been applied in a number of papers on the pricing of mortgage-backed securities with and without sophisticated prepayment structures (for example, see Dunn and Spatt, 1985, 1986; Grenadier, 1995, 1996; John, Liu, and Radhakrishnan, 1997; Stanton and Wallace, 1998; Williams, 1993a, 1993b, 1997). Paradigms of securitization and optimal design of securities and organizational forms have also made their appearance in recent real estate research (see, for example, DeMarzo and Duffie, 1998; DeMarzo, 1998; Shiller andWeiss, 1998; Damodaran, John, and Liu, 1997). The objective of this special issue is to showcase some of this research in real estate and explore additional paradigms in financial economics that would provide the framework for interesting and innovative real estate research

The Quality of Real Assets, Liquidation Value and Debt Capacity

We use real estate firms to examine how asset liquidation values influence a firm’s debt capacity, since the productivity and quality of each asset is observable and potential measures of an asset’s liquidation value are easier to ascertain ex-ante. We show that compared to firms that issue equity, firms that issue debt have higher asset quality. The effect of their expected asset liquidation value is significant, even after we control for other factors that influence financing decisions. For firms whose assets’ quality is not easily observable, we find that firms’ financing choices depend heavily on conditions in the overall real asset market. (JEL: G3, R0, G33

Do Property Characteristics or Cash Flow Drive Hotel Real Estate Value? The Answer Is Yes

Analysts typically use two types of methods to value hotels: comparable sales and the present value of income (sometimes calculated as discounted cash flow). This report explores whether one model is superior to the other, and whether combining both models results in more precise hotel valuations. This evaluation addresses the issue of which property characteristics and income calculations are the most effective in explaining variation in the prices of hotels, how the descending influence of hotel property characteristics and income present value components determine the prices of hotels, and whether hedonic and income-based models produce similar estimates of hotel values. The findings show that using an approach based on comparable sales or one based on incomes results in similar value estimates. Beyond that, the analysis finds that combining both models does not result in more precise hotel valuations

Where Are the Shareholders’ Mansions? CEOs’ Home Purchases, Stock Sales, and Subsequent Company Performance

We study real estate purchases by major company CEOs, compiling a database of the principal residences of nearly every top executive in the Standard & Poor’s 500 index. When a CEO buys real estate, future company performance is inversely related to the CEO’s liquidation of company shares and options for financing the transaction. We also find that, regardless of the source of finance, future company performance deteriorates when CEOs acquire extremely large or costly mansions and estates. We therefore interpret large home acquisitions as signals of CEO entrenchment. Our research also provides useful insights for calibrating utility based models of executive compensation and for understanding patterns of Veblenian conspicuous consumption