Hotel Revenue Glossary · Financial

Capitalization Rate (Cap Rate)

The ratio of a hotel's NOI to its market value or purchase price, expressed as a percentage. A hotel generating $2 million NOI valued at $25 million has an 8% cap rate. Cap rates reflect the market's assessment of the property's risk and growth potential.

Why it matters: Cap rate is one transaction and valuation input. Holding a selected cap rate constant, value equals NOI divided by that rate, but market yield, capital needs, risk, financing, growth, and buyer assumptions can change; incremental NOI does not guarantee a 10-15× value increase.

All glossary terms NOI (Net Operating Income) IRR (Internal Rate of Return) Asset Value Per Key