One of the most intriguing investment opportunities for private real estate investors all over the world are hotels and other hospitality properties. The primary reason for this is that the hotel industry will become increasingly important as world tourism and travel becomes more affordable and more accessible. As with any investment, there are some "best practices" that should be followed when researching potential hospitality investment options.
A hotel must fit into a predefined slot in the existing market because it is not so much a property as it is a commercial business. Understanding this fact is the most important initial step for the investor. 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). One of the most helpful tools an investor can use in this step is a hotel market feasibility study by an experienced hotel consultant.
Location, Location, Location
The next step, once a niche market in need of a hotel property is identified, is to determine the location of the hotel. While almost any lot can be developed into a hotel property, the success of the property will be fundamentally based on the location of the project.
• 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.
At this stage of the development process, a good hotel broker’s assistance would be very useful.
A concept can be created for the hotel only after the market and location are identified. 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. A critical component of the development team in this phase is an experienced hotel design team.
The selection of the hotel brand or franchise is the next step to take once the concept is clearly defined. Brands are the most critical component of the marketing of the hotel because most of them come with a built-in customer base. In the early years of operation, as the hotel becomes known in the market, this will prove to be especially valuable. The key step to perform during this phase is a careful consideration of the relative strengths and weaknesses of each brand from the dozens of brands available to choose from.
Identifying the most appropriate hotel operator is the final step in developing hospitality properties. Although making this step at the beginning of the development process is not a disastrous decision, it is not the best one, either. Most experienced developers agree that it is not ideal for the operator having undue influence over the aesthetic and service aspects of the hotel. However, in securing both the brand and the financing, it is essential to select an experienced and stable operator. The selection process should be a thoughtful one because of the hundreds of competent and experienced hotel operators available. The project owner should ensure 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.