SHA613: Developing an Asset Management Strategy School of Hotel Administration, Cornell University Project: Renovating the Hungerford HotelInstructions:1. In what year or years does the holding period IRR for the renovation exceedthe holding period IRR for the base case? Provide evidence for your answer.2. The renovation case shows a significant increase in both occupancy andaverage daily rate (
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SHA613: Developing an Asset Management Strategy
School of Hotel Administration, Cornell University
Project: Renovating the Hungerford Hotel
Instructions:
1. In what year or years does the holding period IRR for the renovation exceed
the holding period IRR for the base case? Provide evidence for your answer.
2. The renovation case shows a significant increase in both occupancy and
average daily rate (ADR) from the base case. For example, in year 4, the
renovation case has a 72.5% occupancy rate and an ADR of $199.39, while the
base case has an occupancy rate of 71.0% and an ADR of $190.02. Provide a
rationale for how the renovation could result in increases in both the
occupancy and the ADR given that these two revenue metrics are frequently in
tension with each other.
3. Consider the base case and the renovation case separately. For each case,
when would you advise a sale, assuming that the goal was to sell the hotel as
long as the marginal rate of return (MRR) is above the hurdle rate of 14%?
Provide a brief explanation of your answer.
4. For the base case scenario, given that the holding period IRR is maximized in
year 1, does it makes sense to sell, then? Assume the hurdle rate is 14%.
Provide a brief explanation of your answer.
5. Assume the Hungerford is renovated. When might it make sense to think
about selling the hotel? Provide a brief explanation of your answer.
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