You’re in hotel development to make money. From Step 1 when you build or purchase your hotel to the Final Step when it comes time to cash in your chips, there are critical steps you must take to maximize your ROI and your hotel’s resale value.
- Choose the perfect location
- Develop the land
- Invest wisely in FF&E components and other physical assets
- Time your grand finale
Of course, there are a million-and-one smaller other actions that take priority in the years between. Those decisions also involve strategic planning and wise day-to-day oversight.
But Here’s the Big Picture of Managing Hotel Development
A Great Location: Starting Strong in the Real Estate Game
You may be building from the basement up or retrofitting an existing structure to suit your hotel brand. In a nutshell, you’re concerned with these factors:
- Ease of public access
- Measurable and predictable cycles of travelers
- Growth potential at your location
- Proximity to nearby attractions/shopping/dining
While anyone can point to a beautiful beachside oasis as the perfect spot for success, competitive market trends have a huge impact over time. How would your brand adapt to an increasingly saturated market or significant demographic changes? Those questions have always burned in hospitality investors’ minds, but they’ve caused them in recent years to rethink how they spend their money.
(Helpful hint: Setting up shop along a major highway isn’t as impactful as it once was.)
Land Development: Building Your Investment
You can do simple landscaping upgrades to spruce up your hotel’s external appeal for guests (and curb appeal for potential property investors). You can go a step further by performing large-scale land-altering overhauls:
- Additions for more guest rooms/facilities
- Accessory structures like parking garages
- Pools, spas, golf courses, and other recreational facilities
If you can accommodate the upfront capital investment, breaking ground for such improvements could pay untold dividends in the end.
FF&E Components: Stacking the Deck in Your Favor
FF&E components (that’s short for furniture, fixtures, & equipment) are pieces installed but unattached to a hotel’s formal structure. These assets include (but are not limited to):
Taken collectively, FF&E pieces are pervasive throughout any hotel brand, adorning each room with potentially thousands or even millions of dollars in added value. Upon resale, a new brand may opt to install its own FF&E components, but your pieces certainly will have value somewhere and in some form.
Each asset can carry a price, however depreciated, to prop up your hotel’s resale value in smaller increments.
(Remember: FF&E components are worthless if they’re damaged. Choose an experienced FF&E installation team to ensure they’re moved safely from A to B and assembled with a professional touch.)
Exit Strategy: Riding the Market to a Smooth Landing
Buy low and sell high, right? While the market can be cyclical, we all know predicting those ups and downs is easier said than done. But as a general trend, hotels reach optimum trade or resale value 3-5 years after opening.
But you must also consider the surroundings - the writing on the wall, if you will. What’s going on around your hotel property? What’s the word in travel? What’s happening in the political realm?
- A new airport or tourist attraction could increase hospitality demand (you may want to stick it out a bit longer)
- A new hotel nearby may siphon your guest pipeline (you may want to get out early)
- Political upheaval or dangers may deter travelers briefly or indefinitely (you may want to cut losses and run)
- New taxes or tariffs could hinder future growth (you may want to analyze their impact before acting)
A working crystal ball would be wonderful. Unfortunately, none exists. Staying on top of market trends and analyzing SWOT (strengths, weaknesses, opportunities, and threats) will help you make informed decisions.
Hotel Development Insights for Maximizing Your Property’s Resale Value
The hospitality industry in recent years may seem a freewheeling game of ownership poker. That’s because it is. Today’s hoteliers, in both the franchise and boutique sectors, have a strong emphasis on growth by brand and property acquisition.
In the grand scheme, you must:
- Make wise location decisions
- Play the asset game and effectively manage your inventory
- Make appropriate land improvements
- Analyze the market and react accordingly
- Strategize your exit
A well-placed hotel with strategic property perks to improve the guest experience now will mean greater ROI later when the time comes to sell.