Europe has the largest market share of hotel rooms in the world. The Netherlands represents merely 2% of the hotel rooms in Europe and is considered to be a small competitor. In the year 2010 the investment volume for hotel real estate was around 100 million euro. That same year global hotel investments were around 7.5 billion euro. Therefore the Netherlands hotel real estate is considered not easily marketable. A hotel is an unique real estate that has product features that do not exists in other income generating real estate. Since the lack of hotel transactions in the Netherlands, the valuation approaches available for an appraiser are limited. Hotels are ‘exploitatiegebonden’ (bound to their operation) and therefore the value of the real estate derives from the operating turnover. The most suitable approach to value hotel real estate is using the business appraisal instead of the real estate appraisal. With that approach the most appropriate method to appraise hotel real estate is the Discounted Cash Flow (DCF method). This approach provides the best insight in the future operating cash flows of a hotel. However, because of the emphasis on determining the value according to the hotel operating turnover, the relation between the product features of the hotel and the value of the real estate remains vague. So if the approach is considered the best to determine the value of hotel real estate what method can explain the best the relation between this value and the product features? The research question, arisen from the vague relation between value and the product features (location, building and user) of a hotel, is: ‘To what extent it is possible to determine the influence that product features have on the market value of a hotel in order to support the appraisal of hotel real estate?’ In order to clarify the relation between the product features and the value of the hotel, knowledge of this relation is needed. To obtain this knowledge the present business approach appraisal of hotel real estate will be first examined. Furthermore an alternative method will be investigated to clarify the relation between the product features and the hotel real estate value. With this understanding it is attempted to construct a model that shows the tangible relation between the product features and the value of hotel real estate. THE VALUE OF HOTEL REAL ESTATE The business value of a hotel is divided into the value of the commercial operation, the real estate and the physical inventory. In order to calculate the market value of a hotel the appraiser has three main approaches to choose: the cost approach, the sales comparison approach and the income approach. The first approach, the cost approach, does not take into account the operating cash flows of a hotel. Therefore this approach is not suitable for hotels. The second approach, the sales comparison approach is neither suitable. This approach only suits easily marketable real estate where lots of real estate transactions are accessible. The two approaches are based on historical data and do not show changes in finance, income, costs and value growth. Concluding that the income approach, preferable the DCF method, is the most suitable approach to apply for hotels. This method provides understanding of future cash flows of a hotel. The DCF method is applicable in both business as in real estate appraisal. For hotel real estate the most favourable approach is the business approach instead of the real estate approach. The latter provides only understanding of the future rental income and the expected cost of the real estate. However, the rent is derived from the gross revenues of the hotel. Therefore, in order to determine the rent, it is still needed to gain understanding in future cash flows of the hotel operating. The Discounted Cash Flow method The DCF method involves estimating a net cash flow for the operating period of a hotel (10 to 15 years) and calculating the present value of the cash flow by discounting the net cash flow using a discount rate. By subtracting the value of the physical inventory and the value of the business (credited to the management and possible franchise agreements) from the total value of the hotel, the value that remains is attributed to the real estate. For this method a realistic estimate of the future cash flows is needed. Normally the room revenue is the most important revenue for a hotel. The occupancy rate and average room rate are the most important. This is also referred to as RevPAR, Revenues Per Available Room. The balance sheet is used as a guide line. Supporting the estimates of the cash flows has been done by looking at historically financial performances and through an analysis of the hotel market. Within the DCF method the holding period, discount rate and the end value of the hotel are the most important features for calculating the most likely value of hotel real estate. What is interesting, is that despite the real estate is being appraised there is no clear correlation between product features and the value of the real estate. The value for real estate is literally a residue after subtracting the other values. The business approach does not show how the value is constructed in terms of real estate features but shows how it is constructed in terms of future cash flow. In order to make this relation more comprehensible, alternatives will be investigated. The sales comparison approach Huizinga (2002), Beuken (2005), ten Have (2007a) and Geer (2006) state that the sales comparison approach is not applicable to hotel real estate to determine the value. However this approach is the most used method of appraisal for real estate and give insight in how the value is constructed. This research does not attempt to determine the value using this method but is merely interested in a clarification of the relationship between hotel real estate features and its value. Therefore this approach is once more examined. The sales comparison approach compares property's characteristics with those of comparable properties. The approach has four methods of appraisal of which the method of multiple regression analysis is the most interesting. Two main reasons why the sales comparison approach is not suitable for hotels in the Netherlands are: firstly hotel real estate is less marketable and more “heterogeneous” than traditional commercial real estate, making it more difficult to compare and secondly there are no sufficient transactions available making it hard to find data. However during this research several studies overseas have shown that the multiple regression analysis deals with the “heterogeneity” aspect in case of enough hotel transactions. In this approach the value of the combined product features of hotels will be decomposed into separate product features. Subsequently it might be possible to reconstruct the value of any hotel by rejoining the separate values of the product features. The combined product features represent the likely total value of the real estate. Now we have dealt with the aspect of “heterogeneity”, the problem of absent hotel transaction in the Netherlands still remains. An alternative is needed. Rushmore (2002), Huizinga (2002), ten Have (2007b) and Beuken (2005) proclaim that the operating turnover of the hotel are the best indicator for the market value. O'Neill and Mattila (2006) even claim that the RevPAR is the best indicator of the market value of hotels. If we assume that this relation is correct, than we have an alternative for the absence of hotel transactions. So therefore in this research it is assumed that the relation between the value of the real estate and the hotel product features can be clarified by using the RevPAR as an alternative. Value adding product features It is obvious first to explore possible relations between the hotel product features and the hotel operating turnover before a multiple regression analysis can be conducted. Factors that influence hotel operating turnover are divided in macro-economic factors, relevant industry factors and micro-economic factors. It is common knowledge that there is a clear relation between the global economy and the market of hotels. The volatile character of the hotel industry indicates that economic, political, demographic, technological, social and climate changes are important. Nonetheless the industry itself has no influence on important factors such as consumer price indices or inflation rates. Developments within the industry determine the ratio between supply and demand of hotel rooms, hotel room price differences or trends in hotel real estate. These are aspects on which hotels can take action by adjusting company objectives or reinventing marketing strategies. The micro-economic factors can be divided in location, building and user. They are more directly connected to the RevPAR and therefore need further elaboration. For location aspects the nearby facilities to attract guest are important. Aspects such as business districts, congress centers and nearby leisure activities can have a positive influence on the operating turnover. Furthermore, accessibility with private and public transport is an import location aspect, especially the proximity of the airport. Hotels are unique and none are the same. A hotel consists of three types of spaces, lodging area, public area and service area. The presence of hotel facilities, the rooms, the quality of the FF&E (Furniture, Fixtures and Equipment) and the (technical) condition of the hotel are important aspects in order to gain high occupancy rates and favourable high room rates. The user of the hotel consists out of the hotel operator and the hotel guest. Research shows that branded hotels with excellent management contribute largely to successful operating turnover. Guests are willing to pay more for a hotel with high standards. But how these guests perceive quality remains an abstract idea. Much has been written about hotel experiences but it remains marketing terminology that is hard to grasp. Social media is a helpful tool in order to make hotel guest experiences tangible. Reviews and ratings of hotels seem to become an important tool for hotel guests to communicate about the immaterial aspects of the hotel product. The multiple regression analysis In order to gain knowledge of the relation between hotel product features and the RevPAR of the hotel, a multiple regression analysis has been conducted. This analysis has been carried out on 100 hotels in the city of Amsterdam. By conducting a multiple regression analysis only on hotels in the city of Amsterdam, a level playing field is created in which the macro-economic and industrial characteristics are identical for every hotel. With this approach the analysis is limited to the location, building and user factors in relation to the RevPAR. The result is model that can predict 64% of the RevPAR: RevPAR = 8.878 + (.53 * booking.com) - (.66 * Schiphol) + (.31 * A10) + (.18 * Station) + (1.08 * Zuid As) - (.33 * Stationcentraal) + (.18 * vergaderfaciliteit) - (.92 * RAI) + (.40 * NHCmiddensegment) + (.28 * NHChoogsegment) This research demonstrates that if hotel transactions are not available, information about the RevPAR is an excellent substitute. By a statistical comparison of hotels on the basis of the RevPAR, further understanding is given into the hotel product features that are adding value to the RevPAR and with that the value of the hotel real estate. In an appropriate manner the value of hotel real estate is further explained. Assumptions made by appraisers about this relation are now supported by a more objective statistical analysis of hotel product features and their value.