Can a Hotel Feasibility Study Help My Community?
WHY DO WE NEED A HOTEL FEASIBILITY STUDY? IS YOUR COMMUNITY LOSING REVENUES?
I recently wrote a blog entitled, “Can Hotels Impact Rural Communities?” where I shared how a hotel development can help communities recapture revenues currently being lost due to lack of overnight accommodations. In that blog, I shared to following information regarding an effective business model for hotel development in rural areas. According to Glenn Haussmann, President of Rouse Media and recognized hotel industry expert, more rooms will be sold in 2016 than ever before. That said, how can small towns capitalize on this boon as well? About right now you may be thinking, hold on a minute Corey; how can a hotel cash flow in a town of under 5,000 in population? That can’t happen.
To some industry experts who feel the same way, you may have a valid point. In fact, one participant in a panel discussion on feasibility during this very conference even said, “good luck trying to get a 30 room facility cash flow.” But to those who are willing to consider something different, daring and distinct; there is a business model for success in rural communities. The investor panel provided proof positive that an effective small town model exists. In fact, when questioned about facility performance, none of the investors on the panel had experienced a cash call and each of the panelists indicated that the operations of their hotels were outperforming their financial projections.
In the blog I went on to share a few ways that hotel developments can impact rural communities. Those of us who live in rural areas are familiar with the concept of leakage. Leakage may apply to various sectors like retail, food and beverage or lodging but whatever the specific industry sub-sector we are familiar with, the general concept remains that people are leaving our communities to transact business in the next community over and our revenues and quite possibly our profits are leaving with them. To that end, I shared four possible impacts from hotel developments for communities; Hotels can help small communities re-capture lost revenues, Hotels provide support for local businesses, families and organizations, Hotels provide meaningful local experiences and Hotels can bring more dollars and cents to your community.
Right now you may be thinking, this all sounds great! What do we need to do to get started attracting a hotel developer to our community? I also shared in my blog, For those who may be apprehensive; what about the business model? Can it really work? As I mentioned earlier, there is a business model that dares to be different from the industry norm. Obviously it is important for both the investors and communities to make sure that a proposed hotel development would be feasible in a given market. Certainly, we need to register more than merely the Gee Whiz factor; Gee Whiz, everyone would like to see a hotel in this community. It’s a business decision and a disciplined approach to determine the feasibility of a hotel development is warranted.
Whether you are pursuing a more traditional development approach with a hotel brand that would come into your market and complete the investment themselves or if you are pursuing the more typical rural business model discussed above, one thing is for certain; you will need a hotel feasibility study. You may be thinking: Why do we need a study? What can a study for us? What types of information are included in a typical study? All great questions that we should investigate.
While hotel feasibility studies vary greatly by vendor and can even be customized by some providers based on the community’s specific needs, in most cases, a typical study will include core elements for potential investor’s consideration. A typical hotel feasibility study includes the following: area analysis, site analysis, economic analysis, supply and demand analysis, financial analysis and conclusions & recommendations.
A typical area analysis includes information regarding historical, current and projected demographic data. In addition, general market information is provided for the subject location as well as the broader market to include the surrounding region and includes a GIS analysis of the market area.
A typical site analysis includes aerial photos of the proposed sites as well as an in-depth site evaluation to include accessibility, available infrastructure, land costs, site prep, visibility, zoning, traffic counts and overall location rating.
A typical economic analysis includes a census profile for the area as well as the state. In addition the report includes a listing of major employers in the area, to include an analysis of the local labor force and unemployment profile. Also a listing of local restaurants and dining options and a complete educational profile are included in the report. The analysis also includes a household income profile, retail leakage factor and retail market place profile. Typically the analysis includes an overview of the transportation and industrial infrastructure as well as the local incentives that may be available to qualifying projects.
The typical supply and demand analysis includes a review of the state, regional and local travel demand. In addition, the report includes a history of the area as well as a listing of area attractions. The report also includes research data related to lodging rate and supply, area market and hotel trend analysis and an area local competitor’s analysis. In addition to the secondary data, the research includes a primary research component with local interviews which blends secondary data with primary local intelligence to verify and confirm information from secondary data sources.
The typical conclusions section details recommendations based on an in-depth analysis of the research sited above to include the overall feasibility of the project. In addition, the optimal site is selected and recommended in order to gather the site specific information needed to complete the financial projections. Property recommendations are also included and based on the research gathered in the process outlined above to include the scope of the proposed project including: size (number of rooms), amenities (pool, bar, elevator, business center, banquet space), recommended average daily rate, brand affiliation and facility classification (economy, mid-scale).
The typical financial projections include capital expenditures for initial land acquisition and project development fees, detailed year-1 operating projections, detailed 5-year operating projections by year, detailed 5-year break even analysis and cash on cash analysis.
In general, a market feasibility study provides a demographic and economic overview of the subject area to determine the overall feasibility of the expansion of an existing asset or a new greenfield hotel development. A written report is provided based on research and analysis of the variables that may impact the turnaround, expansion or new development project. The report will analyze market conditions, economic and demographic factors, and site conditions to determine their impact on the proposed project. The typical market feasibility study report will address the estimated operating performance of the project and will provide recommendations as to size and scope of the development. The report provides owners, investors, operators and lenders with a snapshot of the overall feasibility of the project based on market conditions at the time of the survey.
Is your community losing revenues due to a lack of overnight accommodations? Not just the room revenue but lost revenue from merchants, restaurants and fueling stations? Remember, according to Glenn Haussmann, President of Rouse Media and recognized hotel industry expert, more rooms were sold in 2016 than ever before. This trend is expected to continue in 2017. That said, will your community be in a position to capitalize on this boon as well?
Corey J Mehaffy, CEO
Workforce Intelligence for Growing Business
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