Sheraton Hotel Valuation Dispute Centers on Treatment of Food‑and‑Beverage Income and Management Fees

The Board of Equalization reviewed an appeal concerning the Sheraton (account 0113485), a 396‑room hotel, at its June 23 hearing. The assessor’s consistent 2023–24 valuation for the property stood at $29,547,680 for 2024; the owner sought a valuation of $21,099,639, contending the assessor’s income approach improperly included food‑and‑beverage profit and that the hotel’s restaurant and banquet spaces should be valued as leased real estate rather than as operating business income.

The dispute is consequential for hotel taxation because including food‑and‑beverage net income materially raises net operating income and thus indicated value. The owner’s representative said the proper method is to separate out hotel room revenue (a property‑type rent) from the food‑and‑beverage business and then assign lease‑value rents to the restaurant/banquet spaces. The representative reported valuing those spaces at $35 per square foot, using a 9.5% capitalization rate, producing about $1.5 million for the restaurant spaces alone, and said, “I did not include that part because I said that’s a business.”

Assessor staff said they follow a commonly used hotel valuation framework (Rushmore approach) that treats management fees, royalties and food‑and‑beverage activity as part of the hotel’s operating statement and therefore part of the income approach. The assessor walked the board through the property’s 2023–24 operating statements and noted that total operating revenue and EBITDA increased year to year; staff said management fees are paid to a hotel management company (Crescent) that provides staffing and operational services and thus appear on the operating statement. The assessor also provided a line‑by‑line reconciliation and emphasized the office’s view that the food‑and‑beverage contribution to NOI cannot simply be removed as an unrelated business profit.

Assessor staff quantified the impact in their materials: within the assessor’s income analysis the net operating income was $3,392,364, of which $1,572,807 was attributable to food‑and‑beverage activity. Board members queried both sides about how to extract intangible components (brand, reservation systems, franchise relationships) and noted litigation history in other jurisdictions over the Rushmore approach. Both parties acknowledged the issue is complex and contested nationally; the board deferred a final determination and will issue a decision after reviewing the submitted financials and valuation workpapers.