Investments in the hospitality industry i.e. hotels and resorts, are very unique because of the combination of real estate and business investments. Many attributes of a business is displayed together with a high capital outlay that is a norm in real estate investments. However, rentals of resort and hotel rooms have a short shelf life as guests stay for only a day, minimum. Rental rates can also rapidly increase (ie, during festive seasons.) This varies from other forms of real estate investments. Another factor that is alien to other forms of real estate investment is the management and the amount of labor involved in hotels and resorts. This can directly contribute to the value of the property, offering a fantastic turn around capability and therefore, a potential for real estate investments.
Hotels and resorts though complicated are very high cash-yielding investments that require specialized operation expertise. To help you make a sound hotel investment, we have outlined some basic criteria to ensure that the investment is a true winner.
Varied Market & Geographical Segments. Avoid hotels that depend on just one market segment (corporate, government or leisure). This provides relief from a downturn of either travel sectors. Likewise, ensure the hotel is not overly dependent on tourists from a single region as it runs a risk of low occupancy should any political problems arise.
Varied Source of Business. Ensure there is a varied source of dealers. i.e. from a variety of travel agents, internet engines and direct bookings. Just as above, you do not want to be overly dependent on one source.
Choice of Management Company. In many cases, the investor and the manager are two separate parties. You must fully understand the capability and reputation of the management company. The best way is to request for their portfolio of hotels and analyse the performance statistics i.e. revenue is maximized and expenses optimized.
Thorough Diligence. Caveat emptor and give yourself enough time to thoroughly "understand" the property. Conduct a thorough marketing, financial, legal and property audit that covers all licenses, approvals etc.
Market Positioning. Ensure the property is well positioned and attracts the correct market segment. You might not want your hotel perceived as a 'Meeting & Convention Hotel' when its capacity for such a market is limited or its a purely leisure hotel. You would need to investigate the markets and the properties positioning/branding in the market.
Easy Exit Strategy. Of course as an investor, you must also think of the eventual sale of your property. To attract a variety of buyers, ensure the structure of the purchase entails an easy termination of the management contract./franchise agreement, funding prepayment or assignment and minimal tax exposure.
Other Issues. Other pertinent issues to look at include accounting systems, maintenance and energy management, food and beverage quality and concepts and reporting systems.
But what makes a hotel successful? End users, that is hotel guests, are becoming more sophisticated. In Asia, where majorities of the hotel guests are business travelers, there is a need to tailor products to meet the more discerning and specialised needs of business travelers in order to achieve success. This includes business facilities and services, IT and multimedia facilities.
Other considerations for a successful product include:
- Market driven design which is attractive and efficient
- International accessibility
- Highly service orientated which is personalised
- High quality of facilities and services
- Effective packaging and marketing
- Easy access and egress
- Technology orientation.