Feasibility studies for hotel projects, whether involving a destination resort, a condotel, a commercial hotel, or other form of lodging, are based on analysis of a series of essential aspects of the underlying business operation.
In the following, parts of a typical hotel feasibility are described:
Project Site Plan and Design Review – The hotel project site plan and facilities program and design are reviewed, for reasonableness for development.
Project Development Costs – The hotel project development budget is reviewed, including direct (hard) construction costs, and indirect (soft) development costs. Off-site master infrastructure requirements may also be included in tallying Project development costs.
Market Demand Factors – Historical, current and estimated future demand for room-nights at the project site, based on market area-wide factors, are evaluated. Room-night demand generators as well supply-pull considerations are usually reviewed. Supply-pull refers to the phenomenon of new hotel facilities being placed in markets that have little or no historical basis for their demand – and essentially meet previously unmet demand. Room-nights of demand by guest market segments â€“ including Free and Independent Travelers (FIT), Group Tour, Association, and any other relevant sub-segments that may exist in the Norfolk marketplace, are included.
Market Rooms Supply – The existing stock of competitive hotel facilities in the competitive market area is reviewed, as well as proposed facilities, and areas of likely development of new facilities should the area prosper as a location for new hotel development. Various barriers to entry for other competitive hotel projects, including entitlement, location, and historical development direction-of-growth factors, are evaluated.
Economic Demand Factors – Outside the specifics of room-night supply and demand, overall regional economic factors that may impact hotel development at the Project site are studied. Such factors can include major employer downsizing (or upsizing), new regional developments that may impact local business, and other such factors.
Fractional Ownership, Second Home, Timeshare, Condotel, and other Project Land Uses – There are alternative forms of ownership and operation for a lodging product. A best product and financing strategy for a project, including both transient visitors (hotel guests) and buyers of individual homes and fractional interests is important.
Opportunities and Constraints – all issues that may impact Project feasibility – these typically include project site build-ability issues, any known environmental issues, soils, or such other factors that become apparent to Consultant in the course of the assignment. Important to any enterprise, as well, is what Peter Drucker has called “sustaining competitive advantages” – factors that may provide a unique competitive posture for a subject hotel facility over and above its competition.
Estimated Operating and Financial Performance – estimates of hotel operating performance (EBITDA), including gross sales and operating costs of fractional ownership or timeshare programs if included in the Project program. The detailed results of each operated hotel department are included, using the Unified System of Accounts for Hotels, as promulgated by various accounting and hotel associations. By definition EBITDA is a pre-finance, pre-tax estimate of operating earnings for a facility.
Other factors typically reviewed during feasibility, are attractiveness to the hotel as planned, to investors and tour operators, as well as hotel management companies.