There has been an increasing number of hotel investments in Italy in which the price paid appears not in line with current market levels. The Milan Four Season, for example, has been recently purchased by the Statuto group for 221 million Euros; the seller, Quinlan Partnership, had paid 80 million in 1996.
The value of a hotel investment is derived by capitalising the rent receivable at a market yield and deducting from the resultant figure stamp duty and land tax. Yields may vary considerably. At the moment an investor should expect a 6 to 8% yield from an hotel investment in Italy.
Investors who overpay hotels risk seeing their asset depreciate in the long run, especially when the passing rent is considerably above market rental levels.
Rents will be typically based on a percentage of gross turnover of the hotel, between 21% and 25%, with a percentage garanteed and a percentage based on performance.
Broadly, rents can also be determined on a per room basis with budget operators paying between 2,500 and 4,000 Euros per letting bedroom, rising to around 10,000 Euros for 4 and 5 star hotels.
For a developer looking to hold and optimise his income from an hotel it might be worth considering a management contract with an hotel operator. A fee will be charged by the hotel operator based on a percentage of gross operating income and EBITDA (Earnings before Interests, Taxation, Depreciation, and Amortisation). This is likely to show the best return although with limited guarantee from the operator.