Experience Guides Critical Considerations for Successful Hotel Development
There are several core factors to look at when planning for hotel development. Project location, brand choice and accurate financial modeling are critical considerations in hotel planning. Successful hotel properties will have paid due diligence to these factors at the outset. Developers working independently or with a hotel management company like American Resort Management, then utilize these findings during the construction and marketing phases to maximize return on investment for the developer. Developers that ignore the importance of project location and brand choice or skip details during the financial modeling process may find themselves at a disadvantage from the onset.
American Resort Management’s Co-Founder, Jeffrey D. Mona has partnered with hotel owners and developers for over 30 years leading their efforts of successful hotel development. His thoughts about the nuances of project location, brand choice and accurate financial modeling combine with an extensive knowledge of best practices through a vast array of practical experiences.
Ask any hotel developer what the number one critical consideration in hotel development is and they will undoubtedly point to location. As the primary determiner of success, this does not mean that every location will be in a swanky zip code. Clearly, there is a need for hotel properties in less high-end locations. Within any given market, feasibility can be projected for occupancy demand, market and the commanding room rate. These insights balance location choice against the known needs surrounding hotel room demand.
This phase of planning is where questions and answers develop about how the proposed hotel will fit into and function within the existing marketplace. Location feasibility for the type of project planned can be broken down to indicate if the investment makes sense within the proposed market. For example, a resort style property would be completely inappropriate in a largely business-centered locale.
Companies like American Resort Management make financial projections using occupancy and rate data leading to conclusions about a possible return on investment. These projections allow developers to assess the site’s market capabilities which provides valuable insights into projected success.
CHOOSING THE BRAND
Another critical factor in hotel development involves choosing a hotel brand. The vast number of brand choices can complicate a developer’s decisions. With a multitude of corporate brand families and even more sub-families available, hotel development projects can benefit from brand specific experience in similar markets for several reasons.
In today’s complex marketplace, consumers are more brand savvy than ever. Not only have guests come to rely on brand consistency, but they highly identify with brand loyalty and reward programs. Consumers will lean toward certain hotel brands as they recognize that those brands meet their travel needs. Mr. Mona offers this explanation regarding consumer brand behavior: “Hotel development can be drastically aided by the correct choice of brand for the market. Each hotel brand targets specific primary and secondary customer segments. Aligning those segments with a property’s location study is imperative. A project can be pushed toward success or failure based on brand choice.”
In addition to consumer preference, each brand comes with an expected price tag for development and operating costs. These costs are predetermined and can be balanced against future revenue projections. The valuation of brand in terms of per room costs versus hotel construction budgets and franchise costs must fit within the market for future success to be possible.
During the consideration of location, a prospectus of occupancy and rate yield should be vetted by the developer. Project experience and correct brand selection from the onset will play out to a property’s long term success in the market.
The Financial Model is where hotel development considerations of location and brand come together for future success. Financial modeling via 5-year pro-forma is a critical facet of the hotel development process. It is here where concrete projections can be made at high and low ends of the sales spectrum, determining the rates of return on investment. Experience with location and brand also lends significant advantage when looking at sales and revenue forecasting which is a critical component of the project development phase.
The constant relationship between cost of goods sold and accounts receivable determine whether a project is feasible from onset.
Solid financial models lead the development process and contribute to a well-founded project. “We know that experience with financial modeling is critical. A company or developer that can call on past experiences with similar locations, as well as a vast knowledge of brand scenarios, has the advantage here,” Mr. Mona explains. “We have substantial experience with a multitude of flags and we dedicate our top management into the feasibility process with each development project. We believe our hands-on model produces the greatest results for our clients. We prefer dedicating our top leadership to the process versus providing cookie-cutter reports and handing such vital determinations off to less experienced analysts.”
American Resort Management works with our clients to address critical concerns for hotel development projects. Call us today to see how we can assist in making your hotel development projects a success.”