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2009 was a challenging year for hotels and motels nationwide and the latest data shows no signs of recovery for the near future. The forecast for 2010 is particularly dismal for hotels in the Houston metropolitan area.

If the bad-news predictions pan out, property tax values may not fully capture the ongoing market downturn. Real estate taxes are one of the largest expenses for hospitality properties, so owners and managers must aggressively appeal their tax assessment if it is too high.

RevPAR Plunges Almost 43%

Houston posted the largest decrease ever reported in Revenue per Available Room (RevPAR) late last year. RevPAR dropped 42.9% from October 2008 to October 2009, according to Smith Travel Research. During the same period, average daily rates (ADR) declined 16.1% and occupancy fell 31.9%.

Analysts believe the ADR and occupancy declines have not yet stabilized, even compared against the lower basis established by last year’s precipitous drops. They say the longer the decline continues, the longer it will take the industry to recover lost ground.

Tax Revenues Also Drop

The loss of business is hurting Houston area taxing jurisdictions just as much as hotel owners. Taxable receipts from 3Q/2008-3Q/2009 were down 31.41%. This translates to $61.2 million in lost sales & occupancy tax revenue. These losses put added pressure on assessors to maintain higher property tax values despite the downturn.

There are several key strategies that hotel owners should consider to avoid over assessment:

1. Timely review all filing deadlines so that your rights are protected.

2. Become knowledgeable of valuation methodology used by assessors and how declines in your hotel’s performance can be factored in to reduce value.

3. Make sure that any physical conditions are factored into the assessor’s valuation.

4. Ensure that adjustments are properly made to remove any intangible business value.

5. When necessary, retain a skilled advocate to negotiate and resolve your property’s unique tax issues.

When presented with a factual appeal, assessors are willing to make adjustments for a hotel’s economic performance and condition. The failure to appeal typically sends a message that the owner agrees that the assessment is market supported. That in turn, leads to an even greater likelihood that future assessments and resulting property taxes will increase.

As it becomes tougher for hotels to turn a profit, the need for proactive assessment appeal is essential. To remain competitive in the current market, hotel owners can’t afford to overpay their property taxes.