The Paris Opera Hotel Harvard Case Solution & Analysis

The Paris Opera Hotel Case Solution

1.      What is the value of the property today (November 2010 in the case) and the value of the property three years from now, when it is stabilized (2014 in the case)?

In the today’s market the real value of a property can be difficult. The most of people used different ways to value the property like capital assets pricing model, sales comparison approach, income approach or cost approach. Javier Faus acquired the Paris Opera hotel with $75 million of an 8500-square-meter. According to this case the value of property is calculated on the basis of net operating income.

In 2011, Faus want to convert their new property into a boutique with more rooms and higher price. The NPV of real cash flow is positive which indicated that hotel should restructure and acquired the developed hotel around the word. So that he can get higher return on the investment by increasing the occupancy ratio, decrease cost and reasonable management fee. The net operating profit is calculated on the assumptions that the gross rental income and operating expenses will increased by 3%. The value of the property is find out by using the formula ((net operating profit/ cap rate *100)*100). The cap rate was given in the case that is 5%. While using this cap rate the value of the property in 2014 is 640,800. As the data of 2010 was not given so we calculated value of property in 2012 that is 214,020. The value of property in 2014 is higher than 2012.The real estate market of the Paris, already up over the last few years, it is the good place to buy property, and the price of the property in Paris won’t collapse. According to the professionals they predict that value of property in Paris will continues rise on the average of the 10% over the prior years.

2.      Would you have invested in 2010 at the €75 Million price?

 In 2010, yes I will invest in the Paris Opera hotel at €75 Million of an 8500-square-meter. Paris is the one of the largest leading business and cultural centers and it now infusing on the education, media, fashion and status as major global city. Paris is the one of the most tourist destination in the world; Paris received 45 million annually from tourists. In 2008, Paris had approximately 1,500 hotels and 78,000 hotel rooms. The average hotel occupancy is increased from 2003 to 2008 by 14%, as the occupancy increased the average rates of the rooms increased from $179 to $200.

The Paris opera hotel is different from other type of real estate in management. The Paris opera hotel has 91 rooms with 8500 square meter and he required 120 employees to manage the hotel. And distribute these employees in to two different teams one is the front of the house team and other is the back of the house team. In the front of the house team include bellmen, parking attendants, receptionist, housekeeping and laundry staff, and chef. On the other hand back of the house team include supervisory personal, accounting, marketing, human recourse. As the technology was growing it increased the utilization of the internet and online booking. This hotel makes changes on daily basis in order to attract their customers and provide quality of the product. As the occupancy is increasing along with that hotels are charging more which led the revenue of the hotel.

The Capitalized Value (Sale Price) in 2011 of the hotel is €89 million, it is calculated by net operating income generated in 2011 and it divided by cap rate that is 5%. The Capitalized Value (Sale Price) in 2011 of the hotel higher than the invested price; it means that the value of the hotel is increased by €14 million. In other words we can say it was the good investment...................

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