4th Mar 2014
All over the world, hotels and other hospitality properties remain one of the most intriguing investment opportunities for private real estate investors. As world tourism and travel becomes more affordable and more accessible, the hotel industry will become increasingly important and valuable. As with any investment, there are some “best practices” that should be followed when researching potential hospitality investment options.
The most important initial step for the investor is to understand that a hotel is not so much a property as it is a commercial business, and as such, must fit into a predefined slot in the existing market. This in turn requires a thorough understanding of the market itself, including the different types of hospitality properties already operating (the existing supply) and the niches they service (the demand for lodging). A hotel market feasibility study by an experienced hotel consultant is very helpful in this step.
Location, Location, Location
Once a niche market in need of a hotel property is identified, the next step is the location of the hotel. While almost any lot can be developed into a hotel property, the location of the project is fundamental to the success of the property. The following aspects of any lot must be considered:
- Visibility: The building should be prominent and easy to locate, especially by visitors from other areas who are not familiar with the locale.
- Accessibility: It should be easy for people to get to the hotel from the sources of demand, and the main areas of the city (airport, downtown, business district, convention center, etc.).
- Neighborhood: The location should afford access to high-quality amenities, including restaurants, nightlife and other support services.
A good hotel broker would be very useful at this stage of the development process.
Only after the market and location are identified should a concept be created for the hotel. In some ways, the concept should be shaped by the location selected and the market being served – e.g., for a small but affluent market of young professionals traveling for business, an “edgy” or funky design with an emphasis on intimate gathering areas for personal meetings could be the focus. An experienced hotel design team is a critical component of the development team in this phase.
Once the concept is clearly defined, the next step is the selection of the hotel brand, or franchise. Brands are the most critical component of the marketing of the hotel, and most come with a built-in customer base, which is especially valuable in the early years of operation, as the hotel becomes known in the market. There are dozens of brands available to choose from, so a careful consideration of the relative strengths and weaknesses of each brand is the key step to perform during this phase.
Finally, the last step is to identify the most appropriate hotel operator. Often this is the first step, which while not a disastrous decision, often results in the operator having undue influence over the aesthetic and service aspects of the hotel, which is not ideal. However, selection of an experienced and stable operator is essential to secure both the brand and the financing. There are hundreds of competent and experienced hotel operators available, so the selection process should be a thoughtful one, ensuring that the selected operator’s goals are as closely aligned with the owner/developer as possible.
There are a lot of important steps in the hotel development process, and having the right team of professionals on hand will increase the chances of a successful process.