Luxury Hoteliers Magazine 3rd Quarter 2019 | Page 73

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