Whether you work for yourself or for a company of 5,000...the question is the same. This is the simplest form of the annual performance review. If you're honest with yourself, you can get a lot from the answer. If you think you might cheat a little, ask five or ten other people that are close to you. By the way, the same principle can and should be applied to how you did with friends and family.
How Do you Know When to Build a Hotel?
At the outset, it's actually quite simple. The first question to ask...do the existing hotels lead a healthy life, are they enjoying high occupancies? And, are they profitable? If the answer is yes...proceed with a detailed project analysis, develop a meaningful concept, find a site and some money. If the answer is no (or, there aren't any hotels to start with), the market has a demand problem. And, that needs to be fixed first, before giving any thought to adding hotel rooms. In rare cases, the hotel development itself generates incremental demand. They did that in Austin by expanding the convention center and adding an 800 room Hilton to attract larger groups. They did it in Greenwood by adding the Alluvian Hotel, spa, cooking school and retail to a small town in the middle of the Mississippi Delta. It's also done with water parks and golf resorts. But, more often than not, demand problems are solved primarily with experiences incidental to the hotel component. And, that's a much tougher problem to solve because it demands risk taking, collaboration between people with differing world views, passion for new ideas, unpopular decision making and a willingness to place a higher importance on long term benefits...characteristics not often used to describe community based development. So, these efforts often get stuck...because there's no leadership and no commitment to being remarkable.
Sometimes, an argument is made that "new" will improve the neighborhood and everyone will benefit. New is always nice, but, that lasts maybe a year...then, you still have a demand problem. If the existing hotels are struggling, people aren't coming. And, if people aren't coming, there's a reason...or, two, or three.
Some of the things I look for when sizing up a market for hotel and tourism development:
- Is it clean?
- Is there enough to keep someone busy for 3-5 days?
- Is there reliable and attractive public transportation?
- Are the locals proud?
- Is there good food? Do locals send you to a chain or fast food when asked for a restaurant recommendation?
- Are community leaders passionate? Is there a "hair on fire" attitude about them? Do they rally around a cause?
- Is there a clear story?
- Are people happy?
- Do kids leave or stay once they grow up? If they leave, do they come back?
- Do projects get killed for short sighted reasons, i.e., architectural components, zoning requirements, etc.? Or, do leaders find a way to compromise and get things done?
- Is there a homeless and panhandling problem? This is a real tourism killer.
- Is quality education available through the secondary level?
- Are the arts established and supported?
- Are there ample parks and green spaces?
- Do the locals understand the impact and want tourism in their community?
I know there are many more...but, it's a start.
Do something meaningful. Do something spirited. Do something people want.
Making More Average
One of the main reasons average products fail is that they’re easy to duplicate…it’s easy to offer more choices of the same thing. So, if the numbers look right to the developer and the bank, the development of average stuff can get out of hand in a hurry. For example, take our little town of Pagosa Springs. There are a number of average hotels here. But, to me there are indications we need more rooms to satisfy the exponentially increasing visitor traffic, especially during the summer. One trip to the local grocery store in July is all the research you need to validate my hunch. I’ve heard talk about more hotels…but, there’s a problem. All of the talk is about building more of the same, likely because it can be done fast, it’s not as complicated and it’s much easier to explain to the people footing the bill. This approach is fine if you believe there’s an insatiable desire for more average hotels…and, that this desire will last a while. But, it’s dangerous if you believe people really want something better, and when you're finished, you’re one of the many average choices. It’s especially bad for the person saddled with paying the mortgage.
Your challenge in developing a new hotel (or any product or service) is to build an experience that will last. You need to anticipate what people want and will want…for a long time. Then, bring something to market that 1. satisfies those desires, and 2. is extremely difficult if not impossible to replicate…build something remarkable. Yes, it’s harder and more expensive up front. But, it pays-off later when you’re the only one giving people what they want.
Hotel Conversions
Converting an existing building into a hotel is not for the faint of heart. Number one, it’s darn expensive. And, number two, which likely leads to number one, the process is full of surprises.
The best case scenario is that you are changing something that already smells like a hotel, a hospital, apartment building, etc., and that it’s been around for less than twenty years. The next best option is that you’re renovating an existing hotel to dramatically change its identity and/or condition. The more you stray from either of these scenarios, the more costly the project, and the more important the next paragraph becomes.
When you buy a property with the prospect of converting it into a hotel, you are not buying an office building or a warehouse…you’re buying an opportunity to create more value. And, that value almost always depends on two things: location and story. Location is extremely important if you’re going to ride someone’s coat tails…take the Hilton Austin Airport for example. This property was converted from an Air Force command post (once instrumental in running Operation Desert Storm) and is now the only hotel located on the airport. While more costly than building a new structure, the obvious intent was to secure the location as well as preserve military history…both elements give the hotel a significant advantage over the competition. However, as I’ve said before, the best prospect for success is to have your own story, and preferably one that’s already built-in. That’s why historic buildings in high profile areas are such popular conversion properties…the stories are often timeless, making their value far greater than the initial purchase price of the building. If you’re lucky enough to find a reasonably priced, run-down castle on the Cliffs of Dover, I’d say you have a pretty good shot of seeing a respectable return, no matter how many change orders you see from your contractor.
Again, conversions are costly. Consequently, they take more time to pay-off. So, be sure the initial evaluation considers more than the sticker price of the real estate and the expense of getting it to meet code. The intrinsic value is what drives demand…and revenue. If that’s not obviously superior, don’t spend too much time on how much it’s going to cost.