hotel property tax

Conversions Due To COVID Changed The Game

Recent changes in both the housing and hospitality space led to an increase in mixed-use hotels. With decreased demand for hotels, and a housing shortage – a conversion of some units to long term rentals or condos made sense for many hotel operators.

A mixed-use hotel is one that has a combination of occupant owned, short-term and long-term rental units in addition to traditional hotel resort use. These conversions have proven profitable in environments where real estate development is constrained, and prices are high.

With characteristics similar to old-school time shares, these mixed use hotels are often overassessed for property tax purposes.

In most cases, hotels are assessed based on a combination of factors – including an income derived methodology. This calculus changes significantly when parts of the hotel are converted to residences – particularly long term rental residences, which should be assessed more like a condominium than a commercial hotel.

We have seen cases where assessments have been reduced by 10% or more on hotel properties that converted a portion of their room count to long-term rentals. In one case, it saved the operator over $15,000 in taxes per year on a hotel in Colorado.

If you have converted a portion of your facility to long-term rental or condo units, make sure that those units are being assessed as residential units and not commercial hotel units. It could save thousands.