What is challenging for a hotel investor when planning a hotel?

The truth about hotel planning and development.

Hotels are highly complex real-estate projects involving high risk and often consuming a prodigious amount of time, energy, and capital. 

A combination of extreme uncertainty, an extensive and ever-shifting array of market segments and high expectations from the parties involved, frequently makes hotel development a more exciting challenge than any other kind of real estate development.

A hotel is, in fact, an unusual type of business formula, combining a form of real estate with an ongoing service-orientated business. And this is what makes it complicated to develop a successful property.

Due to the high capital investment often required in hospitality projects, it is critical to manage and reduce the developer’s risk and deliver the resources needed to assist decision-makers in determining whether the project is financially viable or not, and if so, how to best move forward.

As a consultant, I have been hired to deliver expertise and advice on several hotel projects. I had a situation here in Poland, where the investor got very upset with the outcome of my study, because he couldn’t understand that his great idea, and stunning concept could have not been a success.
The thoroughly prepared feasibility study that I did submit was showing a negative return of investment. The main reason for that was that the selected location could have never supported the achievement of the RevPAR needed to achieve a profit out of that project.

I did back up my study by including a detailed analysis of every aspect of the business, operationally and economically. I did examine macro conditions such as destination trends and demographics, I did review the site location, assessed development costs, analyzed the market demand, determined, and tested projected occupancy and average daily rates, outlined financial analysis, competitor analysis.

My advice to any investor is to include in the development team right from the beginning a professional consultant, that will assess the validity of the selected location for that project. 

This will reduce the risk of investing money into a sandcastle.

Author – Emanuele Dalnodar