hotels built and sold and sold again

[renferme]

What is the "theory" behind the building and selling and re-selling of hotels.
Seems to me that a hotel chain will build a new hotel somewhere, open it, run it,
never do any maintainence or upkeep, then just before it becomes a dump, they sell it. The "new" company will make the required upgrades/maintenance, open it,
run it, never do any maintainence or upkeep, sell it and the whole process continues over and over. Am I right and why ?
.
Lots of examples come to mind; one in this area was initially a high rise Mariott.
Very nice to begin with; then became run down and was sold to another chain.
Now it's back to being a Mariott again !

 

[mickeyd]

I have also noticed this hotel selling phenomina and I notice that a REIT seems to usually be involved with one or both ends of the sale. I think what is happening here is that REIT A buys it, holds it for a few years when the tax laws become less favorable and sells the property, often improved, to REIT B who continues the process.

 

[2B]

The reason is simple -- money. Our tax code allows depreciation on the building/assets and it can be accelerated so most of the benefit is gotten in the first 5 years or so. When it's resold, the depreciation starts all over again for the new owner.

Letting them run down is just good old fashioned corporate cost cutting.

Without our tax code incentives, the REIT industry would take a serious hit.

 

[Craig]

They aren't necessarily selling ... sometimes just changing management companies for the same property / owner.

 

[Alex]

90% of the time when a hotel changes names it is not due to a sale. Most hotels are owned by individuals and LLC's. Hilton for instance, only owns a handful of hotels, the rest are franchises that pay a fee for the Hilton "flag". The franchisee's are required to maintain certain standards and to purchase from 'approved' vendors. When it comes time to update or re-model a hotel the owners will shop amongst the various franchise offerings and will often switch in conjunction with the remodel. Companies like Cendant, own literally dozens of brands. http://hotelfranchise.cendant.com/our_brands/

here is the data for Hilton:

As of December 31, 2005, Hilton Hotels Corporation had 2,388 properties containing approximately 375,000 rooms, which included 84 owned and operated hotels, 6 leased hotels, 210 managed hotels owned by others, and 2,054 franchised hotels.

 

[saluki9]

The reason is simple -- money. Our tax code allows depreciation on the building/assets and it can be accelerated so most of the benefit is gotten in the first 5 years or so. When it's resold, the depreciation starts all over again for the new owner.

Letting them run down is just good old fashioned corporate cost cutting.

Without our tax code incentives, the REIT industry would take a serious hit.

There is no (meaningful) accelerated dep for RE