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New Fundamentals of Hotel Development

New Fundamentals of Hotel Development

Getting a new hotel project off the ground has always been a painstaking process, and the slow economic recovery hasn’t made it any easier. Your property location and financing options continue to be limited by a complex array of external forces. And new construction projects only come together under the right set of conditions. For hoteliers looking to roll the dice on an expansion opportunity, it helps to know the lay of the land, particularly when it comes to site selection and financing options.

Post recovery, the new fundamentals of hotel development rely just as heavily on finding the right location as the old ones did, but they also require nearby businesses and community growth trends to play an increasingly important role in getting the right site to build a business on. In fact, breaking down reams of data on various area development metrics now comes long before breaking ground on a new property. Finding a suitable site location requires research on area trends, a close eye on local businesses, and a tight relationship with local officials and the community. Even then, it may take a little finessing to get to the starting line.

Know Your Demand Generators
Properties should look to put down their foundations near businesses that consistently draw a crowd, says CA Anderson, vice president of development for Choice Hotel’s Cambria Suites brand, in Rockville, Md. “It’s all about demand generators.” He says owners can expect a bump from hospitals, medical office parks, corporate training sites, colleges and universities, and clean manufacturing and production facilities.

Other go-to demand generators include professional sports teams, government offices, research facilities, and large finance, insurance, real estate, and biotech companies, says Bruce Baltin, senior vice president of PKF Consulting, in Los Angeles. Conversely, owners should stay away from businesses that emit noxious fumes, Baltin says. “You don’t want to be in the middle of a bunch of oil refineries.”

Anderson agrees, adding certain transitional neighborhood to the list, which he dubs tenderloin districts. “They’re changing their face, but you don’t want to get in there too quickly,” he says. “It’s great to be the point of the spear as long as you don’t take the arrow in the back.”

Look Before You Leap
Anticipating up-and-coming spots can be tricky, Anderson admits. He recommends sitting down with the city’s development office to get a general sense of the area’s outlook: How many developers are in town, and what incentives help people to make the move there; which Class A offices, high-end condos, and fine-dining restaurants will replace the car dealerships or come into the old warehouse district.

Bob Olson frequently sees people jumping in before a market has fully developed. “You want the demand generators to be in place—not coming soon,” says Olson, president and founder of RD Olson Development, in Irvine, Calif., noting that a promise of “someday soon” can equal a big risk. “Who’s going to pay for substandard performance as the area ramps up?”

To avoid being on a lonely island, Olson offers this quick example. Build by large hospital already under construction, not next to a site where a seller says a hospital will be in five years. “That’s just too far out,” he says. “I’d wait.”

Prepare for Pushback
Even though projects vary in size and scope, most share one common thread: pushback from the community. “People don’t like change,” Anderson says. He suggests surveying the area’s political dynamic to find the pro- and anti-development groups, and when they discover the latter, “How can we help to swing them over to our side? What can we do as a corporate citizen to make your life better?” Anderson says. “It’s about winning over the hearts and minds of people by trying to address their concerns and needs.” Listening to the issues will more often than not help to overcome obstacles, Olson says.

One common complaint he hears is the inaccurate assumption that properties will create massive traffic snarls. “It’s not like everyone is lining to get out of the parking lot at 8 a.m. and then coming back in at 5 p.m.,” Olson says. “It doesn’t work that way.”

The second frequent issue revolves around obstruction of views, especially in coastal regions. There’s a balance here since neighboring residents don’t necessarily own that view, Olson says. “As a land owner, you have rights as well.”

FIVE MORE FACTORS TO CONSIDER
1. Property Occupancy Trends
If a market is running at 55 percent, building there may not be the best move, Bruce Baltin advises; however, if the market is at a 75 percent occupancy rate and growing at 3 to 5 percent clip a year, that’s probably worth a closer look.

2. A Sense of Place
Whether guests are commercial or leisure travelers, they need to arrive at a property feeling comfortable and safe, CA Anderson says. If they don’t, that first negative experience will likely carry throughout the trip.

3. Communicate with Each Other
Competing properties can coexist in the same area as long as there’s room for them. “All too often when developers come to a market, no one is talking to each other,” Bob Olson says. “Suddenly, you have eight hotels in the planning stages, and you’re going to have too many rooms coming online in the same place.”

4. Ample Parking
Having a site that allows for ample parking is more important for the leisure traveler than the business client, who would likely arrive via a private car or cab, Anderson says. Also, properties near an airport will require less space for parking than those on a highway, Olson adds.

5. Forms of Entertainment
While not as crucial to business customers, close proximity to a variety of restaurants, nightclubs and bars, shopping destinations, and attractions will be a strong selling point to leisure travelers, Baltin says.

Photo Credit: Groundbreaking via Bigstock

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