Developing and opening a new facility. Stages in hospitality facility development There are five (5) steps in the development of a hospitality facility:

Developing and opening a new facility

Stages in hospitality facility development

There are five (5) steps in the development of a hospitality facility:

1. Defining the product concept

2. Preparing an economic market study and appraisal

3. Financing the project

4. Developing the site

5. Planning the opening day

1. Defining the product concept

Developers must identify target areas and choose a hospitality product with the help of a feasibility study to identify long-term economic trends and the potential for future supply and demand.

A hospitality product concept is more likely to be successful if one of the following market conditions exist:a) The product does not currently exist, but the potential demand is strongb) The product exists, but there is a high level of demand and low levels of competitionc) The product exists, but increasing levels of future demand are foreseend) The product exists, but the existing product suffers from poor location, poor quality of facilities, and/or poor management

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2. Preparing an economic market study and appraisal

If the product concept is promising, then more detailed analysis should be undertaken by hiring a consultant

The consultant will process the market study and appraisal through the following three (3) steps:

A. Fieldwork Data CollectionThe appraiser (the person who sets value to a property) will focus on the site and surrounding land uses, accessibility to transportation systems, the economic and demographic base, and competitive lodging facilities.

B. Project AnalysisConsists of organizing the fieldwork data and stating conclusions regarding the most appropriate type of facility; occupancy and use projections for guest rooms; recommended food and beverage facilities and related amenities; and a ten-year projection of income and expenses through the following:

Market AreaAppraiser will provide detailed information on who lives in the area; if the area attracts the desired market segment; and if the area can support a new facility.

Transportation SystemsNeed to analyze a list of all air carriers and the number of flights presently servicing the market area; government projections on changes in airline traffic in the market area; a description of the network highways with current and proposed traffic counts; a description of anticipated improvements in the transportation network.

CompetitionYou need to know your competition’s themes or concepts, target markets, occupancy rates, average daily rates, availability and types of services, age and condition of facilities, labor issues, market shares, and corporate affiliations.

SiteThe location and its accessibility; its proximity to attractions, business centers, recreational activities; infrastructure including required site preparation, utilities, and transportation access; zoning regulations; an ability to expand; political climate; environmental issues; legal issues.

DemandEstablish the number of guests who would be willing to pay the rate required for the hotel or lodging enterprise to remain profitable and then to attract that many guests.

Facilities and ServicesThe target market dictates the type of facility and services that the project will provide. Is it better to construct a new facility or to purchase and renovate an existing structure.

Projection of Income and ExpenseThe cost/revenue ratio must be profitable enough to attract investors. Revenue projections must include room revenue, food and beverage sales, telecommunications revenue, and income from other departments. Cost include preliminary development costs (cost of building the facility, from groundbreaking to opening) and operating costs (design of facility, salaries and wages, utilities). Most analysts prepare a consolidated operating and development statement that includes an operating cash flow statement, an estimate of total development costs, financing assumptions, depreciation figures, management incentive fees, and loan origination fees.

C. Economic EvaluationCompares the value of the project’s cash flow with the estimated total cost to determine the economic feasibility of the project.

There would be a written report which includes the findings obtained during the fieldwork, the analysis performed of the findings, and the final conclusion and recommendations of the appraiser.

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3. Financing the ProjectA hotel can be financed through a commercial bank, a life insurance company, a credit company, a savings and loan association, a real estate investment trust, or a pension fund.

Many lenders perceive hotel/lodging projects as a high risk.

Location, improvements, management, ownership, economy, and competitive environment are the major categories of risk.

The transaction would include accountants, appraisers, attorneys, title companies, engineers, and property tax consultants.

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4. Developing the SiteThe acquisition is made with the help of real estate brokers

The design is the responsibility of an architectural firm that has been hired by the developer.

Once the design has been completed and approved, the developer must decide if the plans suit the needs of the budget, target market, profit for the hotel, guest satisfaction, employee efficiency and pleasant working environment.

The construction of the hotel will be done through multiple contractors who can follow local regulations as to building codes and directed by a construction manager.

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5. Planning Opening Day

This crucial date must be set with a great deal of care.

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Next steps…

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