Property Taxes
Change from 2021 to 2022
Total Operated Revenue
EBITDA *
Property Taxes
by-county . We found an inverse relationship between changes in EBITDA and changes in taxes . In general , hotels located in states that have enjoyed the most favorable recoveries in EBITDA ( Fla ., Colo ., Texas , Ill ., N . Y .) have benefited from continued lags in property tax payments . Conversely , hotels located in some states where their respective EBITDA ’ s still lag 2019 such as Calif ., Mass ., Pa ., and D . C ., have seen their property tax payments either increase or decline at a slower rate than the drop in profits . This suggests that there may be room for further reductions through tax appeals .
TRENDS BY PROPERTY CLASS We found that properties that rebounded fastest during the COVID years also saw reflexive changes in their respective tax burdens . Specifically , after seeing profits fall by over 90 %
-
-15 % -10 % -5 % 0 %
Note : * Earnings before interest , taxes , depreciation , and amortization Source : CBRE Hotels Research , Trends ® in the Hotel Industry , Sample of 3,255 that reported property taxes 2019 through 2022 between 2019 and 2020 , in 2021 resort hotels realized EBITDA gains of almost tenfold that of 2020 and a further 50 % -plus bump in 2022 . Property taxes initially dropped by 7.5 %, but saw modest gains of more than 3 % in 2022 . Through May of 2023 , CBRE has tracked resort profits sliding 8 % year-over-year . Yet in the same period , property taxes increased by more than 3 %.
In comparison , the fullservice class of hotels , often found in urban settings , realized profit gains of more than 12 % year-over-year through May 2023 but only realized tax increases of just under 3 %. This appears to be more of a function of the timing of new assessments being released as many cities do not send out assessment notices until midyear and tax bills are not due until sometime in the third or fourth quarter .
3.0 %
1.7 %
10.8 %
EXPECTATIONS FOR 2023 Through May 2023 , CBRE ’ s sample of 2,500 properties that provide monthly operating performance data have reported an increase in property tax payments of 1.0 % compared to the first five months of 2022 . While the 1.0 % increase is minor , it does reverse the trend of two consecutive years of property tax declines in 2021 and 2022 . Fortunately for hotel owners , EBITDA levels for this sample of properties are up 4.1 % year-to-date through May 2023 , perpetuating the recent national trend of property taxes increases lagging changes in property values .
According to the PWC surveys , cap rates rose by 40 to 62 basis points between Q1 2019 and Q3 2023 . The RERC survey shows a much larger spread , of 60 to over 100 bps . Therefore , capping the same dollar with a 100 bp results in more than a 10 % decline in value . Thus , even if the 2023 EBITDA is slightly ahead of 2019 , it does correlate to an increase in overall property value or that property taxes should exceed 2019 levels .
As of July 2023 , CBRE is projecting a decrease in operating performance in the latter part of the year as GDP growth decelerates and prior year comparisons become less favorable . This could result in property tax moving in the opposite direction of profits . Therefore , hotel owners should closely monitor their published tax assessments in 2023 and 2024 . The CBRE Hotels Property Tax team is available to help guide and serve our clients throughout the appeals process to ensure their assets are being assessed fairly and equitably .
David Fuller , national hotel property tax practice leader , CBRE Hotels
Nov / Dec 2023 hotelsmag . com 63