LAUSR

Abstract This study investigates the price discounts in financially distressed hotels. Using a sample of 2564 pairs of hotel transactions from 2003 to early 2016, the study employs a repeat sales regression approach to estimate the magnitude of the sales discount in financially distressed hotels. The findings of this study reveal a distressed sale discount of 28%, foreclosure discount of 27%, and a real estate owned (REO) sale discount of 30%, all relative to non-distressed transaction prices. More importantly, these distressed sale discounts are greater than the discounts observed in the existing residential and commercial real estate literature. The distressed prices are consistent with the observation that hotels are risky investments and investors will demand greater discounts to compensate them for acquiring financially distressed hotels.