Selling Hotel Kinara: Valuing Commercial Property During an Economic Crisis

Hotel Kinara is a newly built, well-functioning 4-star hotel in Ahmedabad. But the hotel owners desire an exit from the market. A transaction advisory consultant values the hotel right before the COVID-19 pandemic. However, as happens with big-ticket transactions, the sale is delayed. The hotel is revalued after the first wave of COVID-19 subsides. The valuation is substantially below the original estimates. The consultant contemplates the valuation two years later. The case is centred around valuing a commercial property asset in different market conditions using the discounted cash flow method. Students develop a cash flow pro forma on the basis of market information. The case exposes students to several nuances of pro forma development. Students are sensitised to the idea that valuation is about not just cash flows but also the perceived risk in cash flows. The perceived risks may result from investors’ overreaction to market conditions and irrational sentiments. The discount rate, capitalisation rate, etc., must be revised carefully as the market cycles change.