This article focuses on some of the challenges
and opportunities independent hoteliers face
when contemplating the addition of residences
to their current business structure. As major
brands are already heavily investing in the
residential market – backed by well-known
brand promises as well as global support
structures – listed below are some important
factors confronting non-branded hotel
organisations.
Just to emphasise the economic power, the
branded sector currently features over 55,000
apartments in 406 global schemes, served by
over 70 different hotel operators, built in over
180 locations in 64 countries – with Marriott,
Accor and Four Seasons accounting for over
half of them between them.
It is therefore very tempting to non-branded
operators to jump on the bandwagon of
residential property, but it pays dividends to
ensure that all the pros and cons of such an
investment are thoroughly investigated to avoid
a copy-cat situation that instead creates a load
of problems.
At first glance there are a lot of advantages
to embarking on a residential project as an
independent operator:
• Hotel development cash flow – the ability
to sell residences off-plan to fund at
practical completion via capital payments.
Also, there is the potential of substantial
management fees if you self-manage the
project afterwards.
• Residences with hotel access command
premium –recent studies by Knight Frank,
Savills and Graham Associates (https://
gagms.com/) all put the premium at around
30% by established operators compared
to non-branded residences, however huge
fluctuations need to be acknowledged
depending upon the location (i.e. -15%
discount in NY to +60% in Bangkok).
•
Avoid cyclical or seasonal variations – an
occupied residence creates cash flow
throughout the year, via service charge
and/or residential service consumption.
• Premium valuation of own brand – a
successful project allows for heightened
visibility of the hotel project, as well as
showcasing service excellence.
• Value-Cost benefit –on a per square
foot capital value residences can
deliver higher values than normal hotel
accommodation.
• Binding loyal customers even more – hotel
services delivered at the same standard as
well as maintenance & caretaking entices
extra spending from loyal customers.
• Lock and Go piece of mind – customers
enjoy carefree usage of their property,
when in residence or not.
• Market differentiation – allows new prices,
branding standards and services to be set to
compete in difficult or saturated markets.
Whilst this all sounds great and logical, if you
don’t look behind the curtain you might be
in for a rather rude surprise, putting your
customer’s goodwill and your financial health at
risk.
One of the major factors of branded hotel-
residences being so successful lies in their
structure; they are part of a mature global
operation and, due to their size in portfolio,
cash flow and reach, they are not only able to
attract the required capital more easily, but also
have the operating knowledge as well as staffing
expertise and service standards gained over
years of experience.
Let’s have a look what pain points you might
experience when jumping onto the residential
bandwagon:
•
Cash flow – the process of cash-flow is
different here as you only receive monies
after hand-over of the apartment that
is after a successful sale. Also, you must
account for expenditures such as one or
two months of staffing cost, up-front
insurance payment for the building, pre-
opening operational equipment etc. which
can cause a strain.
ILHA 73