Hotel development in three steps

To put it bluntly, the process of initiating a new property is not for the faint of heart. It takes an excruciating toll on all those involved. Many have asked me if there is a formula for success, to which I reply with a simple — yet pervasive — three-part answer:

1. Vision

It starts with a vision from the developers — what they hope to deliver to the marketplace. For a hotel/resort this includes the market segment and target audience; competitive rationale; and independent or branded flag (and which flag). Central to a vision are the elements that will differentiate the property, helping it successfully launch into what will likely be an already crowded market.

Each project needs an elevator speech — a means of describing the project’s vision in 10 seconds or less. I often aim for six words or less. Think of it like a game of broken telephone; if the message takes longer than 10 seconds to convey, the meaning is much more likely to get lost in subsequent reiterations.

Vision, expressed this way, creates a unique positioning and helps keep everyone working toward a common goal. An example of an elevator speech from a current project: “Entertainment and luxury together.” When in doubt, keep it simple.

2. Site

A property cannot exist in thin air! As in all real-estate transactions, location is critical. This not only means the macro-location (city/region) but also drilling down to the specific micro-location (city block/neighborhood). Both macro and micro issues will have a bearing not only on revenue streams, but also on the entire context of the property’s product delivery and brand positioning.

Site planning requires a good “lay of the land” — ideally with a solid local knowledge component. I have looked at properties that are trying to set pricing based upon a downtown competitive set when they are situated far outside the city core. I have also experienced hotels that claim water views but have them only if you crane your neck out over a balcony. Banking on geographic fabrications is a recipe for disaster.

If the property is to be flagged, the location of all current branded properties needs to be identified. Multiple properties that feed from the same reservations system will lead to cannibalization of rooms and unwanted price competition. What’s worse, as the newest member of a chain, you will be the beneficiary of all the forthcoming loyalty redemptions — business that is not overly profitable.

3. Finances

Generally, if you have a clear vision and a site that can justify the green light, finding financing will be a lot easier. Salesmanship will still be required, though, and there are never any guarantees. Getting financial backing is the last hurdle and the ultimate validation of your vision for a specific property.

Apart from a fiscally prudent proposal, a lender is going to want to see your commitment to the success of the venture. Put yourself in the lender’s shoes and ask the question, “Why should I invest in your idea/property?” With confidence, your response should reflect how your vision, properly translated into reality, will generate the required ROI to meet the lender’s standards and then go beyond the initial expectations once operations are running smoothly.