Even the IRS Says State & Local Valuations Are No Danger to REIT Status

By David Chitlik Vice President - Hospitality Tax, Altus Group | April 02, 2017

The value of Real Estate Investment Trust (REIT) status can't be overstated. By meeting quarterly asset and income tests, REIT dividends can pass through to investors without running a federal corporate income tax gauntlet.

It's the reason for REITs in the first place. It's why Ashford Hospitality Trust owns more than 25,000 rooms, and why Apple Hospitality REIT owns 236 hotels operating under Marriott or Hilton flags. And why Hilton recently split into Park Hotels, owners; and Hilton, managers.

The advantages of REITs have created a dominant force in hotel ownership, as well as taxable REIT subsidiaries (TRS) to manage hospitality venues, but those advantages also have created windfalls for state and local tax jurisdictions because of lost opportunities to establish proper real estate values at point of sale.

Local and state officials are quite happy to accept the extra tax revenue, even if they wonder why it's being paid.

In many cases, accountants, chief financial officers, advisors and others' fear of losing REIT status is holding state and local tax filings hostage, costing hospitality companies and their investors hundreds of thousands – and, in some cases, millions – of dollars in overpayments. Many REIT consultants consider that money a form of insurance against jeopardizing investors' tax advantages, but it's unnecessary coverage with premiums that can be paid in perpetuity. It can be the gift that keeps on giving to state and local tax jurisdictions.

Here's How to Remedy the Situation

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Sales & Marketing: Selling Experiences

There are innumerable strategies that Hotel Sales and Marketing Directors employ to find, engage and entice guests to their property, and those strategies are constantly evolving. A breakthrough technology, pioneering platform, or even a simple algorithm update can cause new trends to emerge and upend the best laid plans. Sales and marketing departments must remain agile so they can adapt to the ever changing digital landscape. As an example, the popularity of virtual reality is on the rise, as 360 interactive technologies become more mainstream. Chatbots and artificial intelligence are also poised to become the next big things, as they take guest personalization to a whole new level. But one sales and marketing trend that is currently resulting in major benefits for hotels is experiential marketing - the effort to deliver an experience to potential guests. Mainly this is accomplished through the creative use of video and images, and by utilizing what has become known as User Generated Content. By sharing actual personal content (videos and pictures) from satisfied guests who have experienced the delights of a property, prospective guests can more easily imagine themselves having the same experience. Similarly, Hotel Generated Content is equally important. Hotels are more than beds and effective video presentations can tell a compelling story - a story about what makes the hotel appealing and unique. A video walk-through of rooms is essential, as are video tours in different areas of a hotel. The goal is to highlight what makes the property exceptional, but also to show real people having real fun - an experience that prospective guests can have too. The June Hotel Business Review will report on some of these issues and strategies, and examine how some sales and marketing professionals are integrating them into their operations.