Hotel industry
Anyone here familiar with hotels/hospitality industry? I've been put on a project of my firm of maximizing the value of a hotel we just purchased right nearby our corporate campus. I will be working with others to provide a business case on the best way to operate this non elite chain hotel. I'm not too familiar with the industry at all, and wanted any advice on how to go about this? I will be getting info from our broker soon so I can then dive into the type of cash flow this is bringing in and see areas they need to improve in generating revenue.
How did your firm get this assignment?
I think bringing on a consultant like HVS would be a good start, they are pretty good from my limited exp workin with them
I second this, their market research is great.
A lot of investors and lenders are a lot more comfortable when they get reports from them for hotel deals as well. Make sure you get a PKF report and put together a good, reasonable comp set for your STR reports.
I assume that you would have to see what the market/demographic for that specific hotel and area is like then cater to it. If its in a large corporate park is the majority of the guests business men/women? are they extended stay? do they need a shuttle to airport, office etc? any other amenities or services that would cater to demographic?
identify your target then find ways how to max revenue from that target.
Person leading the deal wants me to first look at how much our company is spending there on travel between rooms and food vs other hotels in area. Then he wants me to basically make a cost analysis model assuming we achieve 100% occupancy as we would make the hotel exclusive to our company (but managed by third party) and just fill up the rooms with our company by maybe forcing people to stay at this hotel.
very interesting idea. what is the purpose of this, just to cut on your companies hotel expenses?
Hire a marketing consultant if occupancy is slow or hire a new operator if the problems are really bad (i.e. management of staff, maintenance, marketing/sales, budgeting/finance, etc.)
First and foremost, hotels make money off the rooms. While there are some hotels that make sizable (and possibly the majority of) income from other areas, most hotels make money off the revenue stream associated with rooms. So assuming the hotel is a standard or somewhat standard hotel, these are the following basics.
Hotels are generally divided up between limited and full service hotels. While there are some textbook definitions which divide the two, the simplest manner of categorizing a hotel is whether or not it has a restaurant and/or room service. That is not the entirety of it, but it's the simplest answer in my opinion. Hilton and Marriott flagged hotels are full service hotels (as examples), and Holiday Inn Express and Courtyards are limited service hotels (again as example). This is important to understand the revenue streams the hotel has.
To manage your revenue side, filling the hotel with people is the primary goal. Simply put a good hotel needs to balance between having a lot of people staying at the hotel (occupancy) and the rate that these people are being charged (ADR). Charge too little and you'll fill the hotel, but not make enough to pay for them to be there. Charge too much and you'll never get enough bodies into the hotel to pay for the hotel. This balance is crucial. Failure to get this right or even close to right will basically assure a hotel's failure.
After that, the target audience and dates will be the next major revenue factor. Is the hotel targeting the business traveler and therefore needs to charge a higher weekday ADR? Or does it attract the tourist and weekend getaway, so needs to charge higher Thursday, Friday, and weekend rate. You stated a the hotel is located by a corporate campus [It said "our corporate campus". That can mean a lot of things.] , so I would easily assume the first one. Maximizing the relationship between the nearby companies with group rates and group contracts, which may involve selling a minimum number of rooms at a fixed and possibly lower ADR, will be vital for the performance of the hotel. Who is traveling to the local businesses? Is it internal people or is it clients/sales people? Hiring a PKF or HVS will certainly make this a lot easier, but it is not a necessity. If the hotel is a full service hotel, ancillary revenue streams (such as Food & Beverage or Meeting Space) should be tailored for the needs of the local businesses, but again are probably around 20-25% at most of the total revenues.
On the expense side, this all comes down to who is running/managing the hotel. Is the brand/flag (Hilton, Marriott, IHG) running the hotel; is there a separate third party running the hotel; or is your own company running the hotels. In my opinion, the skill of the hotel's management typically shows in the Departmental Expenses (expenses directly associated with revenue streams such as rooms expense which include bedding expense and house keeping staff). Assuming the Departmental Expenses are running at reasonable/market levels, typically, if a hotel struggles, it is a result of the "Undistributed Expenses" (expenses that cannot be easily associated with the departments such as G&A, marketing, utilities, or repairs & maintenance) being out of line. Getting the right sales & marketing solutions (typically sales people to sell chunks of rooms to tour groups, companies, and or organizations), and if you have it franchise expense (costs associated with carrying a Hilton, IHG, or Marriott flag to access their respective loyalty networks, sales teams, and advertising budgets), is probably the toughest part.
While I think the above overview is helpful, in no way is it going to make you an expert on how to own/operate hotels.
The simple answer is if the hotel is under performing you need a new operator/manager. Go interview/hire one.
This is a homework assignment or interview case study. Nice try.
How accurate are management's NOI projections usually? Especially in ramp up periods
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