Refurbishment value uplift calculator
Weigh the cost of a refurbishment against the uplift it creates in a trading property's going-concern value, with the value before and after the works, the net value created after cost, and the return on the spend.
Refurbishing a trading hospitality property is worth doing when the value it creates is greater than the cost of the works. Because a hotel, pub or restaurant is valued as a going concern, a lift in the fair maintainable operating profit is capitalised into a lift in value that can be far larger than the profit itself. This calculator quantifies that. Enter the current and post-refurbishment operating profit, the capitalisation yield and the cost of the works, and it returns the going-concern value before and after, the uplift, the net value created after cost, and the return on the refurbishment spend. It is the picture behind a case for refurbishment finance.
- Current going-concern value£0
- Post-refurbishment value£0
- Refurbishment cost£0
- Net value created after cost£0
- Return on refurbishment spend0%
Indicative only. Not financial advice or an offer of finance.
How the value uplift works
- Going-concern value = fair maintainable operating profit ÷ capitalisation yield. The value the proven trade supports, before and after the works.
- Value uplift = post-refurbishment value − current value. The increase in worth created by the higher trade.
- Net value created after cost = value uplift − refurbishment cost. A positive figure means the works add value beyond what they cost; a negative figure means they do not, on these numbers.
- Return on refurbishment spend = value uplift ÷ refurbishment cost. The value created for each pound of works.
The arithmetic explains why repositioning a tired hospitality asset can be so powerful, and so risky. Because the profit is capitalised, a modest, durable lift in fair maintainable operating profit produces a value gain several times its size, so a well-judged refurbishment in the right location can create value well ahead of its cost. The catch is that the higher profit has to be real and sustainable: a valuer and a lender will want evidence the trade has landed before they lend against it. This is the case that refurbishment finance is built on, works funded now and repaid by a refinance once the trade is proven. To turn the post-refurbishment profit into the debt it will support, use the debt yield and DSCR calculator, and to size a facility against the new value use the loan sizing calculator.
Refurbishment value uplift: common questions
What is a going-concern valuation?
A going-concern valuation values a trading property as an operating business rather than as empty bricks. The valuer works out the fair maintainable trade the property should produce in competent hands, arrives at a fair maintainable operating profit, and capitalises it at a market yield or multiple. A hotel, pub or restaurant is worth what its proven trade will support, which is why the trading accounts drive the value.
How does refurbishment increase a hotel or pub's value?
Refurbishment lifts the trade. A refreshed hotel can charge a higher ADR and hold occupancy; a reordered pub can grow covers and spend; a new kitchen or extension can add capacity. As the fair maintainable operating profit rises, the capitalised going-concern value rises with it. The value created is the higher profit, capitalised at the yield, which can be a multiple of the profit itself.
How do you value the uplift from a refurbishment?
Capitalise the fair maintainable operating profit before and after the works at the same yield, then compare. Divide each profit figure by the yield expressed as a decimal: 260,000 pounds at a 9 percent yield is about 2.9 million pounds, and 380,000 pounds at the same yield is about 4.2 million pounds. The difference, a little over 1.3 million pounds, is the going-concern value the works create, against which you weigh the cost of doing them.
Does the refurbishment pay for itself?
It pays for itself when the value it creates is greater than the cost of the works. This calculator shows the net value created, the uplift less the refurbishment cost, and the return on the spend. A strong result is what lets refurbishment finance make sense: the higher, proven trade supports a refinance onto a commercial mortgage that repays the works. These figures are indicative and depend on the trade actually landing.
Related calculators and finance
Going-concern value
The yield-capitalisation step behind the values here, set out in full.
Open →Break-even occupancy and ADR
Find the occupancy and rate the higher trade needs to hold.
Open →Refurbishment and bridging finance
How we arrange the finance that funds the works and refinances the proven trade.
Learn more →Repositioning a hospitality property?
Send us the property, the trading accounts and the works and we will arrange the finance that funds them across our lender panel.