TAKING THE FIRST STEP ON THE ROAD TO SUCCESS
studies help hoteliers and lenders determine the viability
of hotel and condo hotel projects
By Steven J. Belmonte
Riding the coattails of a slow, but
sure, return to economic stability, the lodging industry
is making a comeback. And we all know what that means
- more and more developers and owners will be looking
for real estate on which to build hotels and condo
However, despite the upswing, lending
institutions are still wary about loaning their money.
Thus, before any funding will be approved, lending
institutions will want to know detailed information
about the investment they're being asked to make -
essentially they will want to know if such an investment
will make money or lose money. In order to determine
this, many banks are requiring thorough feasibility
studies on hotel projects.
Today's lenders want experienced,
knowledgeable feasibility consultants who will do
a thorough, painstaking study that researches the
market and its characteristics, the competition, business
versus leisure travel, labor availability, and all
the details that, taken together, can accurately forecast
a project's potential for success or failure.
For developers, especially those new
to the hotel business, the shortest route to success
for a project is to retain an experienced, knowledgeable
and thorough research team to do a feasibility study.
This holds true not only for new construction projects,
but also for purchasing existing properties.
Professional feasibility consultants
can assist new owners in analyzing a host of factors:
identifying whether a hotel is reaching full yield
and market penetration, determining whether it's been
missing business opportunities, and judging how well
a hotel has maximized revenue through both traditional
marketing and the increasingly crucial e-marketing
efforts offered by the Internet.
A feasibility study is attained to
reaffirm the hopes and dreams of an owner and to ensure
other investors that the project will be a success.
Whether a feasibility study is used to receive a loan
from a bank or to convince your family or business
associates to join you in your endeavor, it is an
excellent way to assure everyone involved that the
project will be a money-making development. A typical
feasibility study paints a picture of the proposed
development and the area around it. A study generally
has the following five objectives:
Evaluate the market potential of a
lodging facility on the proposed site.
Comment on the appropriate size of development that
would best serve the needs of the market.
Project the level of market penetration
by analyzing proposed occupancy and average room rates
for the first five years of operation.
Prepare a detailed projection of cash
flow from the operation before fixed charges for the
first five years.
Provide a written report with conclusions
and the present financial projections for the proposed
To fulfill these objectives the Hospitality
Solutions team takes the following steps:
An economic evaluation of the market area is determined
by interviewing area government officials and businessmen,
compiling market data and reviewing relevant economic
The suitability of the proposed site
is determined by evaluating the site for accessibility,
visibility and proximity to demand generators.
The primary competition of the proposed
hotel is determined by evaluating existing and proposed
hotels in the area.
The overall market demand, the number
of rooms in the subject area and the share of the
market demand that is generated by tourists, commercial
travelers and group meetings or conventions is determined.
The growth rates for that particular
market are evaluated to determine the future demand
for hotel rooms.
An evaluation of the projected hotel
supply and demand relationship is done to determine
the market support for the proposed hotel.
Comments are made on the proposed
facility regarding types of guestrooms, number, mix,
recreational amenities and the style and size of the
The occupancy, average room rates
and the mix of guests are determined.
The projected cash flow from the operation
is determined before fixed charges for the first five
years of operation.
The final report of the study sums
up all of the information gathered and is broken down
into the following categories:
- Market area analysis - community
profile, business climate, transportation, education,
attractions and the overall quality of life of the
- Site and area evaluation - maps,
site pictures, traffic counts, accessibility and
- Supply and demand analysis - pictures
of competitive hotels, occupancy graph, an ADR graph,
trend graph, business traveler demand and leisure
- Proposed facilities and services
- room mix, food and beverage facilities, meeting
facilities, prototype rendering and fold-out drawing.
- Projected utilization of the proposed
hotel - competitive set average room rate and projected
average room rate.
- Financial analysis - financial
proforma, costs of repairs, maintenance and utilities;
and a proforma payroll recap.
- Brochure pouch and franchise information.
In today's hotel industry, you can't
argue with results - and you certainly can't afford
to argue with lenders. Trust me, whether you're a
long-time hotelier looking to expand your existing
operation or an industry newcomer looking to develop,
a professional, thorough feasibility study is your
first step on the road to success.
Steven Belmonte is
the president and CEO of Hospitality Solutions LLC.
Hospitality Solutions LLC, Randolph, N.J., provides
new franchise agreement negotiations, franchise termination
and liquidated damage claim negotiations, mediation,
expert witness, litigation support, motivational speaking,
market studies, feasibility studies, on-site analysis,
ownership and development assistance, and tax credit
and benefits services to the hospitality and service
Company President and CEO Steven
Belmonte, former President and CEO of Ramada Hotels,
also served as Chairman of the American Hotel &
Lodging Assn.'s Educational Foundation and serves
on the Board of Directors of Arlington Hospitality
Inc. and the Industry Relations Committee for the
Asian American Hotel Owners Assn. For more information,
call (973) 598-0839, email firstname.lastname@example.org
or visit www.stevenbelmonte.com.