CapEx, Taxes, and the Assessor's Perspective

By David Chitlik Vice President - Hospitality Tax, Altus Group | November 11, 2018

Co-authored by Renea Linton, Director - Hospitality Tax, Altus Group

In the hotel industry, capital expenses (CapEx) projects are driven by numerous factors, such as improving, maintaining, or repairing a property, or fulfilling the requirements of brand standards. For owners, CapEx are necessary to preserve the property's competitive edge. But assessors often misunderstand the function of CapEx and see reserves and CapEx as interchangeable when applying adjustments to assessed value.

In the June 10, 2018 edition of the Hotel Business Review, we explored the relationship between CapEx and tax assessments from the owner's perspective. In this article, we'll focus on the assessor's point of view. Understanding both perspectives is the first step toward reaching consensus on the role of CapEx in valuations and assessments.

Permits, Property Valuations, and Supplemental Assessments

As a hotel owner or manager, you will have a multiple year plan to spend CapEx on property renovations, repairs, or improvements. In contrast, assessors learn about the scope and cost of your project at the time of the project or even after through one of several means, such as the annual income and expense questionnaires required by jurisdictions, articles in the media, or construction equipment onsite.

However, the most common way assessors are notified is when a building permit is issued for renovations or improvements. The permit process is similar in each of the 8,000 taxing jurisdictions nationwide, but how and when the assessment will be impacted can be vastly different. Assessments of two comparable properties in two jurisdictions only a few miles apart can differ by thousands of dollars, and taxes by as much. So, before you get the permit, make sure you understand the tax implications.

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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.