Sheraton Hotel Redding At Sundial Bridge - Redding Record ...

12. Cost Approach
Development Budget
The cost approach reflects a set of procedures through which a value indication is
derived for the fee simple interest in a property by estimating the current cost to
construct a reproduction of, or replacement for, the existing structure; deducting
accrued depreciation from the reproduction or replacement cost; and adding the
estimated land value plus an entrepreneurial profit. Adjustments may then be
made to the indicated fee simple value of the subject property to reflect the value
of the property interest being appraised.
Because the subject property is proposed, the cost approach has significant
applicability. In this report section we will estimate the replacement cost as new of
the improvements, review the hotel’s construction budget, estimate the market
value of the site, and add an entrepreneurial profit incentive to arrive at the total
cost new to develop the subject property. The total cost new to build the facility is
often used by hotel buyers as a benchmark against the income and sales
indications – particularly for new hotels.
As a check against this estimate, we have also reviewed the construction budget
for the subject hotel, which is illustrated in the following table. The developer’s
construction budget equates to $21,204,303 or $163,110 per room. Note that the
developer’s budget includes the contribution of the visitors’ center, which
accounts for $2,000,000.
February-2011 Cost Approach
Sheraton Hotel Redding At Sundial Bridge – Redding, California 106