For its owner, an inn is as much a lifestyle choice as it is an investment. The owners of a hotel may live in ten different states, none of them the one where their hotel is. The innkeeper, on the other hand, is at home in the investment, making a living from clients who fill the bedrooms.

Inns (or "bed and breakfasts"), together with hotels and motels, have benefited from an improved economy. Nationwide, occupancy in the hospitality industry is on the rise. John Fox of Pannell Kerr Forster's New York office reports that occupancy in hotels in Boston has risen from 72.1% in 1992 to 78.4% in 1995, an 8% increase. Over the same period, average room rates locally have increased 15%. Michael Frucci of the Cape Cod Chamber of Commerce says that, over the past several years, "room business is up fairly strongly." Data from the Massachusetts Office of Travel and Tourism indicates that the Cape, where a high proportion of the region's bed and breakfasts is located, experienced a 20% increase in room revenues from 1992 to 1995.

Inns have always been abundant where big, antique mansions are located, in vacation territory, on the coast or in the mountains. In recent years, inns have sprung up in the Back Bay, the South End, and Cambridge, as well. Hotels are profit machines that produce prices on the order of $100,000 per room. Inns at prime locations reach similar levels. However, for the most part, inns are somewhat lower rent and achieve lower prices, with a high proportion in a range from $30,000 to $60,000 per room. Inns' appeal is specialized. Where motels offer blandness and no surprises, inns' entire appeal is their antique charm. Decor varies from room to room. Some inns ask guests to share bathrooms. Some come paired with fine restaurants. Where the restaurant at a hotel often has difficulty appealing beyond in house clientele, the same charm that brings overnight guests brings diners from elsewhere to an inn. A hotel is firm mattresses, uniformed help, and televisions. An inn is the guest book with dinner recommendations, a fire in the fireplace, and a breakfast table you might share. The innkeeper knows the guests and feels free to decorate with antiques. The motel nails down whatever might tend to leave.

An inn is more than real estate, and, though its value may be based in real estate, comprehensive appraisal takes account of the contributions of the furnishings, fixtures, and equipment and the value of "goodwill." Together, these make up the going concern. Like a restaurant, a self storage warehouse, or a gas station, an inn is real estate intertwined with a business. Because it is income producing, an inn is capable of valuation by an income approach. Costs of business are deducted from room revenue to produce a net income, which is capitalized to produce the value of the going concern. This number may be segregated into values for the real estate, the furnishings, and the goodwill.

But an analysis based on income alone misses the larger picture. An inn comes in two parts: the rented space and the innkeeper's quarters. One is income producing. The other is somebody's home. The same elements that produce value for a single family house location, architectural appeal, and privacy (including privacy from one's own guests) are important to the market of buyers and are part of what produces the value of the whole.

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Eric Reenstierna Associates LLC is a real estate appraisal firm taking on valuation and consultation assignments in Greater Boston, Massachusetts and New England. Eric Reenstierna, MAI, is the office's principal and is a commercial real estate appraiser.


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