Hospitality & Gaming

Our clients are typically dealing with large holdings and uncommon situations, including:

• The possible purchase of a horseracing venue on speculation that further gaming would be allowed
• The financing for a proposed underwater resort in the middle of an ocean
• Purchase price allocations, impairment tests and valuations for corporate reorganizations for a leading provider of lottery and gaming technology solutions worldwide
• A change in corporate structure involving several hundred hotels
• Purchase price allocations and property insurance appraisals for major casino hotel companies

American Appraisal has provided valuation and consulting services involving all of these and more.

Who We Serve
Our hospitality and gaming clients include owners, operators, developers, financiers, investors, government jurisdictions, consultants and attorneys across a wide range of property types and businesses, including:

• Hotels and resorts
• Land-based casinos and casino hotels
• Racetracks
• Golf courses and country clubs
• Stadiums
• Marinas
• Health clubs
• Theaters
• Ski resorts and slopes
• Native American casinos
• Riverboat and cruise ship casinos
• Lotteries
• Gaming equipment manufacturers
• Interactive gaming

What We Do
American Appraisal’s experienced consulting staff provides hospitality and gaming assist clients an array of services:

• Purchase, sale or lease, including
  • Purchase of strategic or sale of excess assets
  • Leasing of excess assets or unused space
  • Fair rental rate and royalty rate studies
• Financial reporting, including
  • Purchase price allocations under US GAAP and IFRS
  • Impairment testing of long-lived assets, indefinite-lived assets and goodwill
  • Fresh start accounting
• Federal tax reporting, including
  • Cost segregation
  • Purchase price allocation
  • Donation
  • Corporate reorganization
• Financing
• Fairness and solvency opinions
• Real estate and related assets advisory services, including feasibility studies
• Local property and transfer tax issues
• Appraisal reviews
• Litigation support
• Insurance valuations, including annual updates and advice on management of post-loss claims
• Fixed asset inventory and reconciliation
• IT asset inventory
• Lifing studies

Our analysis of hospitality and gaming holdings often begins with estimating the value of the assembled group of assets as a single economic unit.

We estimate the value of the holding for various purposes, and consider:

• Its highest and best use
• The holding’s likely pool of buyers and their purchasing power
• The likely timing of a transaction 

Consideration of these factors helps to ensure that a property’s value is not understated or overstated.

Our consultants routinely provide the contributory values and, if appropriate, the remaining useful lives of the various assets and liabilities that make up a specific holding.  This may include providing values for:

Experience
American Appraisal’s recent hospitality and gaming experience includes:

• Valuation of operating horse racetracks in the US for possible purchase or sale
• Valuation of two major resorts in the Maldives for financing purposes
• Insurance valuations for all major Caesars Entertainment properties worldwide 
• Valuation of a major hotel in Kosovo for feasibility and financing purposes
• Valuation of a sub-concession (gaming) license in Macau for strategic assessment purposes
• Valuation of a partially completed US oceanfront resort for feasibility and financing purposes
• Purchase price allocations, impairment tests and valuations for corporate reorganizations for a leading provider of lottery and gaming technology solutions worldwide
• Purchase price allocation services for a Las Vegas Strip casino hotel
• Appraisal review of a valuation involving a hotel in Yemen
• Valuation of a proposed resort condominium complex in Belize
• Cost segregation studies and allocation services associated with a major casino hotel company involving properties worldwide

Industry Conditions and Outlook
The nature of the current hospitality and gaming market is location specific. The markets in the gaming jurisdictions of Las Vegas or Atlantic City are substantially below their prerecession peaks, whereas the Washington DC hospitality sector remains relatively strong.  This demonstrates the old adage that there can be hot spots in generally cold markets and cold spots in generally hot markets.  In the gaming markets, activity hinges on the current and proposed jurisdictional laws regulating gaming. 

Valuations take into account the basics – highest and best use, buyer pool, purchasing power and time frame. These are critical when gauging a specific market’s condition and potential. In distressed markets, the purchasing power of the buyer pool and the necessary timing of a deal can be significantly important factors. 

Arriving at a specific value for a property should include consideration of a realistic cash flow analysis, in the context of comparable transactions that have occurred demonstrating the amounts at which similar holdings are being sold, as well as the property’s depreciated replacement cost to gauge the barrier to entry by future market competition.

American Appraisal understands the base economic drivers and location-specific attributes of an asset assemblage and applies the relevant approaches to value to assist clients with making confident and logical buying or selling decisions.

Hospitality
According to Ed Watkins in Lodging Hospitality, a recent conference suggests genuine optimism.  He noted that many of the 300-plus hotel owners, operators, lenders, brand executives and consultant attendees believe the lodging industry has turned the corner, and opportunities for acquisitions and repositionings are either already here or right around the corner. 

This optimism is in stark contrast to previous industry conferences. However, one conference does not mark a turnaround, and Watkins suggests that until the economy and unemployment levels improve, the hotel sector recovery will remain shallow and perhaps even stall. 

Others in Lodging Hospitality note that, in general:

• Hotel demand continues to grow.
• Construction financing is still scarce.
• There will be limited growth in new supply and an extended period of increasing hotel values.  

However, there are still opportunities to purchase hotels at prices below their replacement cost - a lagging indicator of just how hard this sector was hit.    

Capitalization rates, key to the valuation of hospitality properties, can range widely – up to several hundred basis points - within the marketplace for a specific property type.  Therefore, it is important to be able to reconcile the range of capitalization rates to the rate that is most appropriate for the risk inherent in the specific holding’s projected cash flow.

Many characteristics impact and are responsible for the wide range of capitalization rates.  For a hotel property, American Appraisal considers characteristics including:

• The buyer pool and its purchasing power and access to financing
• Neighborhood nuances within the specific market
• Whether the underlying land is owned or leased from others
• The nature of the property’s reserve for replacement policy
• The functional utility of the property
• Whether the likely property tax burden is considered in the cash flow projected or within the capitalization rate selected
• Whether there is additional competition in the pipeline or certain competition will be eliminated
• The nature of the property’s reputation, guest mix and management
• Whether the property has been renovated recently or will require renovation soon
• Potential growth in future net operating income
• Proper consideration of these characteristics allows American Appraisal to estimate an appropriate capitalization rate for each holding. 

Gaming
A hot topic in the gaming sector is the needed revamping of gaming floors.  This includes casinos’ architecture as well as the games themselves. As Las Vegas-based architect Barry Thalden, AIA, points out in Casino Journal, “The casino industry is not changing as quickly as the customer, the competition, and technology demands.” 

American Appraisal’s consultants note that gaming revenues used to generate the vast majority (60% to 70%+) of a property’s revenue.  Recently, however, Las Vegas gaming often generates less than half of a property’s revenues.  According to Thalden, “More than half our revenue has been shifted from a ‘high margin business’ to ‘marginal businesses.’”  He suggests that it will take a re-orientation to focus the casino floor design on the customers and start making money.  In addition, he indicates that recently, casino projects have allocated the least money (less than 5%) and devoted the least attention to the casino floor, where most of the profits are generated. 

While most casino floor architecture is uninspiring, outdated gaming devices are another issue.  John Acres, president of Acres 4.0, suggests in Casino Journal that server-centric games are the next generation - nothing is in the box.  Similarly, Thalden suggests that change is coming - and it’s right around the corner. 

American Appraisal understands and considers the impact of these items of functional obsolescence - and the capital expenditures required to address them - on a property’s value.

Why American Appraisal?
American Appraisal’s consultants understand the hospitality and gaming industry. We have completed valuations and consultations from Hawaii to the Las Vegas Strip to Macau, and addressed our clients’ valuation and consulting needs through various economic cycles. Clients have direct access to lead consultants, and our senior staff includes qualified expert witnesses. 

Due to the typically large-scale, portfolio or complex nature of hospitality and gaming holdings, our work efforts and client reports are tailored considering the purpose of each analysis. 

Our hospitality and gaming consultants at American Appraisal have diverse education backgrounds (including engineering, real estate, and accounting/finance) and diverse professional backgrounds. Consultants hold various professional designations (MAI, ASA, CMI, CFA, P.E. and MRICS) as well as state- and country-specific licenses and certifications, and undergo frequent continuing education courses involving real property, personal property, intangible assets and going concerns.

Our consultants utilize major income, transaction and cost analysis software programs. We conduct extensive research and our proprietary databases are international in design.  Our global footprint ensures that local insights and accurate market data are incorporated into our valuation analyses. 

As a multiservice provider with longevity, American Appraisal provides clients an array of cost-effective, timely and efficient services for a variety of purposes for any specific holding over its entire life or ownership cycle.