EAGLE: I have shown you on the hotel operating statement that net income from the parking operation arises from leased land, which is not part of the ownership’s parcel. The parking operation is enterprise related, not real estate.
PHAIR: But you also contend that expenses attributable to the parking operation are valid for inclusion in the realty valuation equation.
EAGLE: Well, certainly, operation of a hotel of this quality requires huge expenditure in support of the entire operation… one of the reasons these properties are so risky!
PHAIR: So to be clear, you want to count expenses but not income? You contend that only parking-related expenses, but not parking income, should be included in the calculation of value?
EAGLE: Exactly! The parking expense serves to cure the functional obsolescence of not having parking facilities. But the parking income arises from the skill of the enterprise component.
PHAIR: Well certainly every operating function contributes to net income; from room provision to laundry to food service. All expected operating functions in this type of lodging property contribute to the bottom line of the real estate value.
EAGLE: But those other functions are performed on the site owned by the hotel, not on somebody else’s property.
PHAIR: Hotels largely sell location, as in proximity to what their guests want to access. It makes no difference to the guest if the parking or the pool is owned or leased. Guests select a hotel’s package of location and amenities that best match their desires, and they agree to pay for it through room rates and service charges. We stand by our position that both parking income and parking expenses apply to valuation of this hotel, and will defend this position in any further proceedings.