A three-star hotel in one of Italy’s historic spa destinations was initially valued by the court at €996,000. After three failed auction rounds, the reserve price fell to €89,000. This is not simply the story of a distressed property. It is a documented case showing how valuation approaches based primarily on price per square metre and depreciated replacement cost can diverge dramatically from the economic logic professional investors use to underwrite hotels.

And it raises a question that should concern banks, servicers, courts, owners and investors alike:

what is a hotel really worth if nobody measures its ability to generate income?

The facts, in numbers

The case concerns Enforcement Proceeding No. 89/2021 before the Court of Siena.

The asset is a three-star hospitality property located on Viale Guido Baccelli in Chianciano Terme, Tuscany. It is registered under Italian cadastral category D/2, the classification generally used for hotels and boarding houses operated for profit, and extends across seven levels.

The appraisal report indicates an adjusted floor area of 1,957.26 sq m.

The auction history, however, tells the most revealing story:

Auction round Reserve price Outcome
3 December 2024 €996,000 no sale
11 March 2025 €747,000 no sale
9 June 2026 €158,000 no bids
29 September 2026 €89,000 minimum bid €67,000

In less than two years, the reserve price therefore fell from €996,000 to €89,000.

Expressed in real estate terms:

  • initial appraised value: approximately €509/sq m;

  • current reserve price: approximately €45/sq m;

  • minimum admissible bid: approximately €34/sq m;

  • reduction from the initial appraisal to the current reserve price: approximately 91%;

  • current reserve price as a percentage of the €2,435,559 replacement cost stated in the appraisal: approximately 3.7%;

  • current reserve price relative to the €105,000 land value stated in the same appraisal: approximately 0.85x.

The last figure deserves particular attention.

The entire property — building, systems, ancillary areas and outdoor space — is now being offered at a reserve price below the value that the same appraisal attributes to the underlying land alone.

This does not mean the market has already assigned a negative value to the building. €89,000 is an auction reserve price, not an achieved transaction price.

But it does mean something equally significant:

after three unsuccessful auction rounds, the process has brought the reserve price for the entire asset below the appraised value of the land itself.

The documents also indicate a mortgage-backed claim of approximately €1.8 million.

Even assuming a gross recovery broadly in line with the current reserve price, proceeds would represent less than 5% of the secured claim, before considering enforcement costs, creditor ranking and other recovery expenses.

The real issue, however, is not what the final sale price will ultimately be.

The issue is why an initial valuation of €996,000 failed to attract sufficient demand even after substantial price reductions.

The methodological flaw: the asset was valued as a building, not as a hotel business

The appraisal relies on two principal approaches.

Comparable approach

1,957.26 sq m × €600/sq m = €1,174,356

Depreciated replacement cost approach

Replacement cost: €2,435,559

Depreciation: €1,265,327

Resulting value: €1,170,232

The average of the two figures produces a value of approximately €1,172,294.

A further 15% reduction is then applied to reflect the lower guarantees associated with a forced sale, resulting in a rounded final value of €996,000.

The arithmetic is coherent.

The problem lies elsewhere.

A hotel is not a square metre. It is a cash flow that happens to occupy square metres.

And cash flow is precisely what is missing from the valuation framework.

At least from an economic underwriting perspective, the appraisal does not develop:

  • ADR;

  • projected occupancy;

  • RevPAR;

  • rooms revenue and ancillary revenue;

  • operating cost structure;

  • GOP;

  • normalized EBITDA;

  • capitalization rates;

  • DCF analysis;

  • a reopening business plan;

  • the return required by an investor.

In other words, it does not answer the question any professional hotel investor would ask before committing capital:

how much income can this property generate after the required investment, and how much capital is it rational to deploy in order to achieve the target return?

Replacement cost answers a different question:

how much would it cost to rebuild the property?

That metric can be useful.

But it does not automatically determine what an investor will pay for that building in that location, with that level of demand, that capex requirement and those operating prospects.

The PropCo/OpCo issue: buying a building is not the same as buying an operating hotel

There is a second structural issue.

The real estate and the hotel business are not the same thing.

From an investment perspective, a clear distinction must be made between:

  • PropCo, the entity owning the real estate;

  • OpCo, the entity operating the hotel business.

Acquiring the property does not automatically mean acquiring a fully operational hotel complete with goodwill, organization, employees, operating permits and business continuity.

For an investor, that distinction can fundamentally alter value.

A building originally developed as a hotel but requiring:

  • administrative reactivation;

  • operational restart;

  • technical upgrades;

  • commercial repositioning;

  • a new operating structure;

  • relaunch across distribution channels,

cannot be valued as though ownership of the walls alone automatically produced hotel earnings.

The classification, operating permits and actual ability to reopen the property must all be verified against the regulations applicable to the specific case.

For a professional buyer, these are not secondary considerations.

They are part of the price.

Capex omitted from the valuation reappears as a discount in the investor’s bid

The appraisal does account for certain upgrade items, including works to the building envelope and energy systems.

But an investor looks at a far wider scope.

Before submitting a bid, a credible hotel capex plan may need to include:

  • guestrooms;

  • bathrooms;

  • MEP systems;

  • lifts;

  • public areas;

  • kitchens and F&B facilities;

  • fire safety compliance;

  • accessibility;

  • energy efficiency;

  • furniture and equipment;

  • FF&E;

  • IT systems;

  • signage;

  • façades;

  • outdoor areas;

  • professional fees;

  • contingency;

  • pre-opening expenses;

  • initial working capital.

Because the figure that matters to the investor is not the purchase price alone.

It is:

purchase price + taxes + professional costs + regularization costs + capex + pre-opening + working capital.

The return must be assessed against that total investment.

A hotel bought for €89,000 may therefore be extraordinarily cheap — or surprisingly expensive.

It depends on how much capital must still be invested before the asset can generate sustainable income.

Asset-specific risk cannot be captured by a standard haircut

Risk is another critical area.

The standard reduction typically applied in forced-sale contexts broadly reflects the lower guarantees attached to the process.

But a distressed hotel carries risks that must be assessed individually.

In this case, the documentation also points to physical overlap or integration between certain external areas and the neighbouring property.

For an investor, issues of this kind need to be translated into:

  • technical risk;

  • legal risk;

  • potential regularization costs;

  • impact on future operations;

  • reduced exit liquidity.

Asset-specific risk is not a standard percentage. It is an economic variable.

And professional investors reflect that variable in the price they are prepared to pay.

The market has not yet said the hotel is worth €89,000. It has said something potentially more important

It would be incorrect to claim that the market has already established the asset’s value at €89,000.

On the basis of the documents considered, there has not yet been a sale at that price.

But three unsuccessful auction rounds already tell us something important.

At the price levels previously offered, there was not enough demand to complete a transaction.

That matters in any valuation.

Because an appraisal can be perfectly coherent on paper and still be economically irrelevant if no rational buyer is willing to turn it into a transaction price.

The gap between appraised value and transactable price sits at the heart of every distressed deal.

In hotels, that gap is magnified because the investor is not simply acquiring real estate.

The buyer is simultaneously taking on:

  • destination risk;

  • operating risk;

  • capex risk;

  • regulatory risk;

  • execution risk;

  • future liquidity risk.

Why the issue extends beyond Chianciano Terme

It would be easy to dismiss the case as the consequence of weakness in a mature spa destination.

But the local picture suggests something broader.

Several hospitality properties in the same municipality are simultaneously being marketed through enforcement proceedings, some of significant size and at highly compressed price levels.

The local market is therefore not being asked to absorb one distressed hotel.

It is being asked to absorb several at the same time.

That is the point at which an individual asset problem becomes a market problem.

First consequence: distressed sales can influence the observable comparable set

When a destination contains a high concentration of enforcement sales, judicial transaction prices begin to represent a larger proportion of the observable market evidence.

The problem is not the existence of distressed comparables.

The problem is using them without proper normalization.

A price arising from:

  • a forced sale;

  • a closed property;

  • major capex requirements;

  • the absence of an operating business;

  • constrained sale conditions;

  • documentation issues;

  • a limited buyer pool,

is not automatically comparable with the value of a fully operational, well-maintained and profitable hotel with business continuity.

Yet where judicial transactions become concentrated at extremely low values, they can progressively reshape the set of observable comparables.

And if those figures are not interpreted correctly, distressed pricing can indirectly begin to influence valuations of healthy operating assets as well.

Second consequence: even performing hotels may lose financing capacity

The issue becomes even more serious when real estate value is used as collateral for bank lending.

Banks also look at the collateral value of the asset.

If that value declines:

  • debt capacity falls;

  • required equity increases;

  • capex becomes harder to finance;

  • generational transfers become more complex;

  • refinancing existing debt becomes more difficult.

A potentially self-reinforcing cycle can emerge:

lower values → less credit → less investment → weaker competitiveness → lower profitability → further value erosion.

This is not merely a real estate issue.

It is an industrial one.

Third consequence: hotel-use restrictions can shift from protecting value to destroying it

There is also an urban planning dimension.

Hotel-use restrictions are generally designed to preserve hospitality stock and accommodation capacity.

That principle may make sense in destinations where hotel supply is scarce and demand remains strong.

But what happens in a market where hotel capacity structurally exceeds economically sustainable demand?

The restriction can begin to produce the opposite effect.

It blocks the exit.

It prevents conversion.

It shrinks the buyer pool.

It keeps properties locked into a use that the market may no longer support.

A restriction designed to preserve value can end up preventing value from being recreated.

This is an issue affecting many mature Italian hotel destinations, including spa towns, mountain resorts, inland areas and secondary seaside markets.

The cost of waiting: when an investment property becomes a liability

One further element is often underestimated.

A closed hotel continues to generate costs.

Property taxes.

Maintenance.

Security.

Insurance.

Deterioration.

Urgent works.

Administrative expenses.

Progressive degradation of building systems.

Loss of marketability.

Buying at an apparently negligible price therefore does not necessarily mean acquiring an asset that can simply be held until values recover.

Without a strategy defined before acquisition, hotel land-banking can quickly turn into negative carry.

This is one reason why assets that appear to be almost free can continue to attract no buyers.

The market is not only asking how much it costs to enter.

It is asking how much it costs to stay.

What should change in distressed hotel valuation

The case suggests at least four methodological improvements.

1. Make income-based analysis a standard component of hotel valuation

For a D/2 property used as a hotel, floor area, age and construction cost are not enough.

The asset’s economic performance must also be assessed.

Depending on the circumstances, that may involve:

  • direct capitalization;

  • normalized EBITDA;

  • DCF analysis;

  • reopening business plans;

  • residual value;

  • alternative-use scenarios.

The asset-based approach remains relevant.

But it must be reconciled with income.

2. Clearly separate PropCo from OpCo

Any documentation presented to the market should allow investors to understand immediately:

  • which real estate is being transferred;

  • whether an operating business exists;

  • which contracts survive the transaction;

  • which permits must be renewed or independently verified;

  • which activities are excluded from the acquisition;

  • which entity will actually be entitled to operate the hotel.

The difference between buying walls and buying a business can be worth more than the property itself.

3. Estimate the capex required to bring the asset genuinely back to market

Estimating construction repair costs is not enough.

What is needed is a proper hotel capex plan.

The investor must understand the total investment cost required to reach the first euro of sustainable EBITDA.

Capex is not an ancillary item.

It is part of value.

4. Combine real estate valuation expertise with hotel-sector expertise

A real estate valuer is expected to understand:

  • floor areas;

  • compliance;

  • building dimensions;

  • age;

  • maintenance condition;

  • property values.

A hotel advisor is expected to understand:

  • demand;

  • segmentation;

  • ADR;

  • occupancy;

  • RevPAR;

  • GOP;

  • EBITDA;

  • distribution;

  • operating costs;

  • positioning;

  • capex;

  • management structures;

  • franchising;

  • exit strategies.

These are different skill sets.

On a complex hospitality asset, they need to work together.

The objective is not to criticize the individual professional.

It is to build a multidisciplinary valuation process that better reflects the way professional capital actually decides whether or not to acquire a hotel.

The other side of distress: where value can be created

So far, the problem.

But this is also where the opportunity begins.

At €45 per sq m, you are not necessarily buying a hotel. You are buying a strategic option.

The value may not lie in the existing building as currently configured.

It may lie in the ability to transform it.

At least three strategies may deserve consideration.

Portfolio aggregation

When several hotels within a small radius are available at extremely compressed prices, the individual asset may make little sense.

The portfolio may make much more sense.

The investor is no longer buying five obsolete hotels.

The investor may instead be acquiring:

  • critical mass;

  • floor area;

  • development rights;

  • potential synergies;

  • negotiating leverage;

  • the ability to reshape part of a destination.

But this strategy only works if the investment thesis is developed before acquisition.

Planning rules, alternative uses, infrastructure, demand and institutional engagement must all form part of the due diligence.

Conversion

Senior living, healthcare-related uses, temporary residential models, mixed-use concepts and other formats may in certain circumstances represent more rational alternatives to conventional hotel use.

Not because every hotel can or should be converted.

But because the first question to ask about a structurally unprofitable asset should not be:

how do we turn this building back into the hotel it used to be?

It should be:

what is the highest economically sustainable use for this property today?

Senior living, in particular, is one of the structurally interesting demand segments worth testing in locations whose demographic, healthcare and territorial characteristics are compatible with such a model.

Every conversion hypothesis must, of course, be subject to prior planning, technical and regulatory verification.

Strategic acquisition by a neighbouring owner

There is another category of transaction in which value is not generalizable to the wider market.

It is special value.

A property may be worth very little to one hundred investors and substantially more to one specific buyer.

The neighbour.

Where two properties involve:

  • shared spaces;

  • physical overlaps;

  • complementary access;

  • opportunities to expand parking;

  • additional room capacity;

  • operating economies of scale;

  • the removal of a competing use,

the natural buyer may be the owner of the adjoining asset.

Strategic value is created by synergy, not by price per square metre.

And this is often where the largest gap emerges between auction pricing and economic value for a specific buyer.

The real question is not how much the hotel costs

A price of €89,000 may look absurdly low.

But that is the wrong question.

The right question is:

how much total capital must I invest, what use can I realistically implement, what EBITDA can the asset generate, and what exit value can I achieve?

That sequence completely changes the way a hotel auction should be analysed.

Because a hotel bought for €89,000 can be expensive.

And a hotel bought for €3 million can be cheap.

It depends on the relationship between:

purchase price + capex + risk + prospective income + exit value.

Everything else is simply price per square metre.

Advisory on distressed hotels, auctions, NPLs and conversions

Investhotel.it and Hotel Management Group advise investors, family offices, hotel owners, operators, creditors and other stakeholders involved in distressed hospitality transactions.

Our work includes:

  • independent review and counter-valuation of hotel appraisals;

  • income-based hotel valuation;

  • pre-auction due diligence;

  • capex and total investment cost analysis;

  • PropCo/OpCo assessment;

  • evaluation of conversion scenarios;

  • economic and financial feasibility analysis;

  • acquisition structuring;

  • analysis of loans secured by hotel real estate;

  • restructuring and operational repositioning;

  • investor and strategic counterparty search.

Further analysis on strategy, market dynamics and methodology is available on RobertoNecci.it, while InvestimentiAlberghieri.it covers transactions, owners, investors and structural changes in the Italian hotel market.

Commercial analysis, market positioning and demand assessment can be integrated through HotelMarketingLab.it, while VertexExecutiveSearch.it focuses on executive and management search.

Specialist training for hotel owners and management teams is provided through RobertoNecciAcademy.it.

For hotel acquisitions, disposals, debt restructuring, hotel auctions or distressed hospitality assets:

r.necci@robertonecci.it

If you are assessing a hotel in enforcement proceedings, an NPL secured by a hospitality asset or a distressed hotel portfolio, send us a summary of the transaction and the available documentation. Identifying a problem before submitting a bid is far less expensive than financing it after acquisition.

Further reading

Methodological and editorial note. This article is based on publicly available documentation relating to Enforcement Proceeding No. 89/2021 before the Court of Siena, including the appraisal report, sale notices and auction history available through the legal-publicity channels reviewed by the author. The analysis concerns exclusively the valuation methodology, transaction economics and hotel-market dynamics and does not express any judgment on the conduct of any individual or legal entity involved in the proceeding. An auction reserve price does not necessarily correspond either to market value or to the eventual sale price. References to other proceedings in the same area are included solely to provide market context and should be independently verified against the relevant primary sources before any investment or commercial decision is made. Any conversion scenario requires specific planning, administrative, technical and regulatory due diligence. This content is provided for information purposes only and does not constitute an invitation to invest or legal, tax, financial or valuation advice.

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