30th Jan 2014

hotel-developmentWhether you are developing a boutique hotel or a luxury hotel, the process for hotel development follows the same basic path, although there are some aspects that can change based on the individual circumstances of your hotel development.

The first step is choosing where you are going to put your hotel.  This is two-fold.  You want to choose the destination, meaning which city the hotel will be located in, as well as determining where in that city the hotel will be located.  This depends on what kinds of customers you are catering to.  If you are looking to focus on business customers, you most likely want to have a hotel located in a city which is a center for many businesses, and be located at a place in that city where the headquarters for the businesses are.  If you want to start a tourist hotel, you will want to be located in a place that is a tourist destination, along with having a location that provides easy access to those attractions.  For the most success, you should strike a balance between business and vacation travelers, so that you can have the highest occupancy.

Getting financing is also important when it comes to hotel development.  To do this, you need to come up with a strong business plan that includes things like the cost per room for building and operating the hotel, the expected occupancy rates, and what types of rates you plan to charge per room.  You need to have a thorough idea of what your expenses are going to be, so that you know how much money you need to secure, and take into account the cost of the land you are going to build on, legal fees associated with the development, general construction costs, and the costs of things like furnishing the hotel.  You can finance the building of the hotel either through investors in that hotel or through getting a business loan, although a combination of both can be preferable.

After securing financing for the project, there will still be things to do such as purchasing the land and getting any zoning variances that are required, securing a franchise, and hiring a contractor.  Some things you most likely would have already dealt with when developing the idea for your hotel such as whether you would build a new building from scratch or remodel an existing building and what the look and feel of your hotel is going to be.  If you are going with a national brand to market and manage your hotel, the brands can provide designs for their prototypes, which will save you a lot of design fees, and also be more attractive to your lenders.

Please be aware that hotel development and operation is a very risky proposition, and you must have sufficient capital reserves to be able to fund development cost over runs and periods of operating cash shortages. Hotels are among the riskiest type of real estate development because of the short-term nature of the leases, and the amount of management needed to run them properly. However, the hospitality industry can be very rewarding as well. Obtaining experienced advisors and partners are your best bet to ensure a successful development.

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