For those outside the industry who have successfully reached a point where they have done it all and are now ready to add a hotel or resort asset to their portfolio, road maps can be hard to come by.
Most high net worth outsiders to the business assume an “Easy as 1-2-3” scenario;
- Build a hotel.
- Get a hotel company to invest.
- Reap huge profits.
Unfortunately, Monopoly this is not.
Certain crucial ducks need to be placed in a row before an investor, financier or brand will show any genuine interest in a development project.
Here is a list of some of those things that might be required before signatures (and profits) will start to flow.
- Finalized land documents. Title. Lease. Environmental study. Access & egress. Control by owner/developer.
- Market study and financial projections. A positive, credible market study completed by a recognized and experienced consultant, recommending size, market positioning and average rates. It will review growth plans, supply and demand, historical performance of the competition and will estimate market share.
- Architectural plans and preliminary design. Most hotel groups start with the size of a basic regular room and bathroom module.
- Experienced team. This will include a review of the track record of the developer, builder, architect, interior designer, kitchen & laundry planner, landscape designer, engineers and other specialists.
- Board of Directors. A background check of the Board members will be required.
- Construction permits. A highly complicated process depending on the location.
- Management contract. A signed commitment from a recognized brand or management company.
- Investment Strategy. Equity (25%-50%). Land value is not enough. You must have some skin in the game to show outsiders you are serious and won’t take a walk when the going gets tough.
- Debt (50%-60%). Details of the loan will be important to the equity investors and the operator. The existence of a construction loan under the right conditions may make a big difference.
- Development budget. Many believe that the budget is merely the design, construction & FF&E and forget the financing, pre-opening and other development expenses.
Financing early operating losses needs to be thought through before running into them! Operating losses are almost guaranteed in most cases. We used to guess at five years. Now we guess at three. How much will be dictated by the operator who, accept it or not, does not ultimately control demand.
Asset development in the hotel and resort space today does not start with construction, it starts with ‘Developer Kindergarten‘ where the ten building blocks of development are played with until they are fully understood, rest solidly in the right order, and ends in year 3 when the lucky student graduates into dark, thick oily black ink.
For your set of building blocks for hotel or resort resort development, contact us at email@example.com