Do not believe in build and they will come. The better approach to project development is to identify and confirm the market opportunity, and then create the product that best satisfies that demand.
The conceptualisation of a new accommodation property is a complex and highly involved process, as there are no such things as standard rules and approaches. Every market is different, and within a given market the location of the proposed development can make or break the development opportunity. Then there is the question of scale, standards, services, facilities, and in the case of mixed-use developments, the integration and creation of synergies with other development components.
Finally, whilst the selection of an operator may be deferred until much later, a property should be developed with the operator in mind, in particular with regards to the proposed property rating and expected operator brand standards.
Every development begins with the securing of an appropriate development site. Whilst the technical evaluation such as development restrictions, permits, and physical site condition can all be easily confirmed, Conrad Hilton correctly identified the three most important site requirements for a hotel development: location, location and location.
Based on our knowledge and analysis of hotel markets, competitive supply, demand sources, accommodation preferences, local transport systems and infrastructure, and any anticipated changes to all of the above, we can prepare a Site Assessment with detailed commentary on the suitability of a site for the development of accommodation product.
Based on our assessment of a development site we can provide recommendations towards one or more suitable development concepts that would appeal to the identified demand opportunity. Our recommendations would take into account any proposed or anticipated changes in the supply of hotel accommodation, demand trends, and changes in local infrastructure and/or new demand drivers.
We would either review or complete a Concept Review based on a suggested development concept and/or prepare Concept Recommendations with regards to the type of product (hotel, serviced apartments), scale (number of rooms or units), standard (room size and grade), amenities and facilities such as food & beverage, conferencing and leisure facilities, and proposed services (full service/limited service). We could also provide recommendations towards suitable brands and/or operators and provide guidance about their brand standards and expectations.
The final step in assessing the development opportunity is the completion of full projections of cash flow from operations. The preparation of a Market Feasibility Study includes the completion of a full Market Outlook and combines this with a Site Assessment and Concept Review or Concept Recommendation.
Building on our projections of room occupancy and average room rate, we develop projections for further revenue streams, including food & beverage, conference & meetings, leisure & recreational and other income. We then estimate the associated departmental, overhead and fixed expense levels and prepare a detailed 10-year cash flow projection, allowing for an appropriate period for the property to establish and mature in the marketplace. We would also make assumptions with regards to an operating and management agreement.
The Market Feasibility Study could form the basis for an assessment of the property’s worth on opening, based on a discounted cash flow (DCF) analysis or a Financial Feasibility assessment and an Internal Rate of Return (IRR) calculation against independently prepared development cost estimates.