Thursday, February 16, 2017

What does it take to start a hotel?

Money. Of course.
Unfortunately, way too many hotels are 'started' by people who are completely unmindful of the fact that they could need anything more than that. Even more unfortunately, the ending is frequently a disappointing, if not unhappy, one in such cases.
Image result for hotel construction
You posted this question - whoever you are - anonymously, so I'm going to make certain (hopefully accurate) assumptions about you, in an attempt (hopefully appropriate) to make it a little easier for me to answer your question intelligently.
  • You are looking to 'start' your hotel in the USA.
  • You have capital, or access to adequate (although not unlimited) capital, and financing won't be a problem.
  • You have limited, if any, hotel experience.
  • You're sensible when it comes to business, you're not expecting to get rich quickly, you're in it for the long haul, and your expectations about life are generally realistic.
  • You're a respectable, decent person who desires to be part of a respectable venture in which you can take pride; not someone who's in it for the fast buck, who just wants to launch it next year, hoping to sell it off the following year for a quickie profit, and/or who'd just be trying to milk the last five dollars out of a $3.98 investment for however long it took to find some sucker to buy it.
  • Since you're asking, how does one 'start' . . . you're probably contemplating new construction, not acquiring an existing hotel. (I have a suggestion. Please consider it carefully. If it's your first time, and you have no construction or real estate development experience, consider the acquisition route, at least starting out. New construction requires somewhat more of an investment, it'll take awhile before you get a payout [where, with an existing property, you're getting at least some cash flow the first night after you take possession], and there is more risk involved [e.g., unforeseen cost overruns]. You can always do new hotels later as you gain experience and confidence - as well as revenue streams from your existing properties.)
  • Accordingly, I'm going to assume that you're someone I should advise conservatively.
If my answer doesn't come even close to what you need, it'll be because a dialogue would be more appropriate and we need to have a talk. Please feel welcome to contact me.

Let's start with your location. Give it a rest for now about streets, thoroughfares, zoning, traffic counts, etc. First, we want to make sure you're in the right town. But before we do even that, let's make sure you have the right kind of hotel in mind. Go to Hampton Inn's website, and while you're there, open the sites for Holiday Inn Express and Marriott in tabs. Start a reservation online for the city in which you'd like to build your hotel, on each of the three websites.
  • If you're contemplating building something more downscale and economical, with more spartan amenities (e.g., a Super 8 Motel) - my best advice is, don't. It is very difficult to get a good return on new construction with an economy property in most places. You can price your rooms at sixty five bucks a night, but your competitors at that price and amenity level will be people with older, more worn properties in which don't have nearly as much invested, and perhaps a much lower mortgage payment; who can always undercut your price by about ten bucks.
  • If you're contemplating something more upscale, with food and beverage service, unless you yourself have restaurant management experience and can market a restaurant location in that spot successfully from scratch, my best advice is - again - don't. I can get you a good restaurant manager who can keep your food and staffing costs down, but certain minimums will have to be spent anyway no matter what she does; and unless we have a way to get people into that restaurant on a daily basis (do not assume that all hotel guests will eat there), either by keeping our meeting and banquet facilities just that busy, or making your restaurant the favorite eating place of a sufficient mass of people in town; then that food and beverage operation is going to be a monster to feed in terms of operating overhead, and will run in the red and perhaps even cause your entire hotel to do so, by eating up all of your room profits and then some. Drury Hotels (The Drury Story - Drury Hotels ) no longer operates hotels that have restaurants, for precisely that reason: losses on the restaurant in their first hotel, a Holiday Inn, ate up the profits from their rooms.
So, we're going to use hotels like Hampton Inn, Holiday Inn Express, Courtyard by Marriott and Fairfield by Marriott as our model. (At least, starting out. As you'll see, this may change. The important thing to remember is that we want to have a reason for any departure we make from that kind of hotel.)
If those hotels in the town you selected aren't offering their rooms for at least $119 per night 'Best Available Rate' (the Fairfield might rack slightly lower, but the Courtyard should rack a little higher), then why do you want to be in that town? Seriously?
You may have a subjective, emotional, or personal reason for wanting to be in such a market (e.g., it's your hometown, and you want to have a nice hotel there, your significant other lives there, it's where you want to retire, all the hotels you've seen there are crap and anyone with half a brain can do better, etc. . . .). There's nothing wrong with that, and if you're willing to accept a lower return, that's okay - but go in understanding that that's the choice you're making. You could probably do better elsewhere.
Why? Hampton, Holiday Inn Express, Fairfield and Courtyard are very consistent franchises, with very strict operating standards. Even though he's no doubt used to something more posh and service-intensive, Donald Trump could rough it in one for a night or two if he had to. A welfare recipient could afford one for a night or two if he or she had to and saved ahead.
We call this type of hotel a Class A mid-market property (Beechmont's market tier classification system by Michael Forrest Jones on WWMD: What Would Mike Do? The hotel blog ). This sort of property is 'everyman's good hotel'. For any deviation from that in the type of hotel you want to build, you'll want to have a reason for it that will justify the increased investment, and/or the increased risk.
A room in a Hampton Inn comes pretty much one way, whether you get one in Natick, Massachusetts ($169 per night), or Branson, Missouri ($89 per night), you're going to get the same room, with the same furnishings and amenities. This goes for Courtyard, Holiday Inn Express, and Fairfield as well. There will be some, but not that much, difference in your construction costs. Your overhead may be a little higher but not that much (most of any difference will occur in prevailing wages and utilities). You have the same food on your complimentary breakfast. But you're getting $60 per night more for your rooms. Multiply that times, what, 15,000 rooms per year? (That works out to about 41 rooms per night, and you have absolutely no business building a new hotel in a place where you cannot rent 41 rooms per night.) $900,000 more revenue - adding, by one crude but popular and generally reliable metric, about $2,700,000 to the value of your hotel - just by putting your hotel in one town rather than another, even if doing so added $600,000 to your initial costs.
It's a basic law of business - if you give people what they want, they will give you money. So, whatever we go with - in terms of type of hotel, the brand, etc. - we want it to be whatever shows up as missing in that town.
Full service; upscale ('big box' Hilton, Sheraton or Marriott), Class A mid-market (full service Holiday Inn), or otherwise?
Food and beverage, meeting and banquet? Remember my warnings about food: you're launching not one venture (a hotel) but two (with that restaurant), maybe three (if there's a lounge), and it acquires that many more degrees of complexity. Meetings and banquets? Make it four. A spa? One more. A resort location? The possibilities are endless. (Indoor water parks? Forget it - I have friends who are lawyers, but that doesn't mean I want to send their kids to Duke on the money I'd be constantly paying them to defend against liability claims.)
If one, two, or even all of the above work for you, if you can organize it all and hold it all together, great. But complex things that work well usually start out as simple things that work well: this includes a hotel management organization.
I'd love to build the Best Western 'Atrea' prototype (Best Western Hotel Development ) in several locations I have in mind, and run them. That - with some modifications and design changes that I drew up myself, some operational, some cosmetic - is my dream hotel. But for now, my company doesn't have the kind of sales and marketing staff that could properly market it, support it, and keep those meeting and banquet spaces in acceptably constant use, at least not enough to justify the investment. In a few years down the road . . . well, maybe. I'll have to keep working on it.
The same applies, even more. Whatever you build, wherever you build it, you can make it as posh as you like, you can include as many amenities and services of any kind at all as anyone could want, you could make it a veritable Fantasy Island, heaven on earth even . . . but there's a catch: it has to make money. Otherwise, you - or whoever's subsidizing you and your operation - are spending more money than you're taking in and no one, not even the United States Government, can do that but for just so long.
Extended-stay, all-suite?
Close and re-open your browser, and this time, open websites for Homewood Suites, Residence Inn by Marriott, TownePlace Suites by Marriott, Staybridge Suites, and Candlewood Suites. Do the same thing: check your rates for one night. Then - since we're dealing with all-suite, extended stay properties - do it again, only check the rates for a two-week stay. If the one night rate at such properties is much higher than the nightly rate at the more conventional hotels (Hampton, Courtyard, Holiday Inn, etc.); and there's not much of a drop in the rate between a one-night rate and a two-week rate, you’d think an all-suite property might be the way to go.
At one time, this was the deviation from Class A mid-market I'd have most likely gone with, in a town where all-suite properties show up as lacking. But we've since had occasion to reconsider.
Why do we need them? Each one represents a lot of added investment and effort into a capability of doing something that isn't really all that unique, and that most any good hotel can do quite effortlessly. Any good hotel is going to have at least some suites.
The all-suite, extended-stay concept makes perfect sense in theory: a guest who stay for several days, or a week or more, would like a little more space, added amenities to accommodate a longer stay (such as a kitchenette), and would like somewhat of a discount off what he or she would have to pay for it if he or she occupied it for just one or two nights.
But in real life, while all-suite, extended-stay properties do enjoy a higher occupancy and slightly lower operating costs by contrast to comparable, conventional hotels; they're much more costly to develop and build -- and they have a business and pricing model that quickly breaks down.
These properties are marketed, theoretically, to extended-stay guests. But when they have empty suites, they sooner or later start renting them on a nightly basis, as any other hotel will -- and renting the suites at the higher, one-night-at-a-time rate is simply more profitable. And it's easier to find customers for one or two nights at a time than it is for an extended stay. So, guess what the hotel's management is going to continue to do? (We're not going to sit on a bunch of empty suites, and turn away anyone who isn't staying three days or more, out of misguided loyalty to a pricing model that is giving us a bunch of empty suites.)
This is why, when you book a room at a Residence Inn or a Candlewood Suites for several days, maybe even a week or two. you're not assured of getting that much of a discount; either because the pricing model has broken down for that property, or because availability of a particular type of suite for your extended stay is disrupted by prior bookings of that type of suite by guests staying only one or two nights.
It's why, in places like south Florida, the pricing model at the most 'extended-stay' extended-stay brand of all, Value Place (which is currently but slowly changing its brand identity to Woodspring Suites) — famous for its one low weekly rate and seven-day minimum length of stay — has collapsed completely and their Fort Lauderdale-area hotels are offering their suites night-by-night at close to a hundred dollars a night.
(After a trip to Fort Lauderdale in early 2016, and seeing a couple of Value Place properties advertising suites at $109 per night on their electronic marquee, we made the decision to declare that business model dead and be done with it.)
Upscale select service:
A Hilton Garden Inn, a Hyatt Place; a Courtyard by Marriott if you could get one? I'd think twice. In most places, you're not going to get that much, if anything at all, more for your rooms than with a more modest Class A, but you must offer that cooked-to-order breakfast -- and have the kitchen, the kitchen staff and the overhead that goes with that.
Even if you could get an extra twenty bucks per night for your rooms, could you recover - and justify - the investment?
Of course, if you rent 60% of your 158 rooms every night, and everyone in the hotel shows up and pays the ten bucks to eat the cooked-to-order breakfast, and it all comes together and works for you, great . . .
I like Hotel Indigo and aloft, but in each case, we're going with a much larger investment - ten million for an aloft, according to someone with whom I spoke at Starwood a few years back - and here again, we're getting into food and beverage, in the same way as we are with upscale select service. (And frankly, while I like their aloft, W Hotels and element products, I think Starwood's 12% royalties are insane and exorbitant . . .)
As an added twist, you've got a lobby bar . . . an added 'investment opportunity' and an ongoing overhead item and management challenge. If it works for you, great. If you have to keep a bartender on the payroll seven afternoons and evenings a week so just one or two guys can sit there and nurse their drinks and passing guests can see them half buzzed and hear them hitting on your bartender (assuming you can keep a bartender who doesn't steal you blind, because she won't be getting much in tips), not so . . .
A more modest, Class B mid-market property?
Class B mid-market would include Days Inn, Quality Inn, Baymont Inn, Microtel by Wyndham, Sleep Inn, some Ramadas, some Howard Johnson's.
Generally, with some exceptions (Microtel by Wyndham, Sleep Inn), you don't build these, you buy them. Except for Microtel and Sleep, they're 'conversion' brands: you buy and maybe renovate an existing hotel and operate it under that brand, and the standards are a bit more relaxed and flexible - too flexible, I feel, in the case of way too many owners. (Product consistency is a problem that we'll address later.)
This might be an option for you - you really should consider going the acquisition route if you're a first time investor, although I would try to find a Class A property available at a good price. On the other hand, if a Class B can be acquired and renovated at a good price, be run profitably afterward, and has another twenty years or so of life left in it, something like that might be ideal for a first time owner.
As for building a Class B hotel . . . . .
Microtels (Maximizing the Microtel by Wyndham prototype and Architecture & Design | Microtel Inn & Suites by Wyndham | Get Started! ) and Sleep Inns (Hotel Franchise Opportunity, Development, Motel Franchises For Sale ) have smaller rooms; a smaller, more efficient building footprint, and are designed to operate profitably at a lower rate, a rate more typical of what you'd find at a Days, Quality Inn, or Baymont.
Indeed, when they - along with Fairfield by Marriott, which also started out at this tier - were introduced in the 1980's, they were originally conceived and promoted as economy properties. But you can't get a return on new construction at the economy tier. Besides, the amenity levels generally found in them, the condition of the individual property that you're likely to find if you show up, and the expectations of the guests who'll show up, qualify Microtels and Sleep Inns as mid-market class B's; and in most places, you can even get that high a nightly rate if you ask. So, that's how we classify them, even though Smith Travel Research ( ) still characterizes them as economy brands.
Should you build a Sleep Inn or Microtel? If . . .
  • you're in a smaller market where the area Class A mid-market hotels are priced at around $129 or above,
  • any and every lesser property in that market - including the nearby Days Inn and Quality Inns - is a run-down voodoo hellhole that rents for around fifty bucks a night,
  • there are no options for a guest in between, and
  • the market is small enough that adding a Class A property of your own would impact that market enough to cause the $129 rate at the others to drop significantly and perhaps not recover for a long time;
. . . then, that's the only really good reason I can think of to go with a Microtel or a Sleep Inn. For example, if you want to build your new hotel in Danville, Virginia, or Southington, Connecticut, I'd consider making that one a Microtel. Even then, I'd take care to make sure that none of the competing Class A properties are aging, in a weak location, or owned by someone who cannot or will not keep up with needed, ongoing renovations; and are thus subject to downscaling (that is, rebranding from a Class A to a Class B brand, or from a Class B property to an economy property). It can be very frustrating if the nearby Holiday Inn Express rebrands as a Baymont Inn the same year you open your new Sleep Inn up the street, and you're suddenly competing with them head to head on price.
Sleep Inn actually has better product consistency than Comfort Inn, and can fetch as good a rate in many markets.
(Indeed, both Sleep Inns and Microtels have pretty good product consistency for a Class B property. That they're all-new construction might have something to do with it: even the oldest ones are twenty years old, not much more. Then again, it could be argued that for any hotel brand, good product consistency is good for a free bump up one market tier level. Since Sleeps and Microtels were originally conceived as economy properties, product consistency carried them into the Class B category. Prior to their acquisition by LaQuinta in 2005, good product consistency carried Baymont Inns from a Class B to a Class A mid-market product. Fairfield by Marriott, another late-1980's rollout that was originally conceived as an all new-build, economy brand, is now pretty much a Class A product by virtue of uncompromising product consistency. It also works the same way in reverse. Comfort Inn's product consistency is not so good, and as a consequence, it's open to question whether Comfort Inns should be characterized as a weak Class A or a strong Class B.)
Both Sleep Inn and Microtel use a prototype building that - if kept up in good condition, and not marketed as an 'economy' hotel - can fetch a rate of about eighty to eighty-five bucks a night in any market where it would be appropriate to build one at all.
The downside: both have a history of being marketed as economy brands. The only reason I didn't include Durham, N. C. as a possible location for a Microtel is because there's now a Microtel only 13 miles away, in Research Triangle Park, that goes for $49.99 a night. So, persuading any visitor to Microtel Inn & Suites by Wyndham Hotels that a Microtel as close to that one as Durham would be worth thirty dollars a night more, might be a bit of a challenge.
So allow me to re-make an earlier suggestion, especially if you're a first time owner - or even if you're not. You can build Microtels and Sleep Inns if you want, but you're better off to buy them, instead. Existing ones tend to be undervalued (Michael Forrest Jones' answer to As a new independent angel investor, how will I find new companies to invest in? ).
If you insist on building one, try and make it a Sleep Inn. Their current prototype is more easily converted to another brand. Microtels have a more unique design with an offset at every window, but whenever you see a former Microtel that had to switch to another brand that might work better in that location, it’s painfully obvious that that building was at one time a Microtel that didn’t do well.
Economy hotels:
A Super 8 or an Econo Lodge?
There's only one way to do that - economically and responsibly. (That might sound like two things, but the way they'd apply here, they're not - they're one and inseparable.)
As I noted, you don't build cheap hotels, you buy them. And even then, there's always going to be someone with cheaper rooms. There's a bottom in every barrel, but is that where you want to play?
If you want to buy an older property and go this route, you'd take care to get one in a decent location that has another twenty years' life left in it, where the surrounding neighborhood's not likely to deteriorate. Renovate, meticulously: keep things simple, stay on your housekeepers and maintenance people afterward to keep it in the pristine condition to which you renovated, watch it with what we call 'amenity creep' [adding amenities that don't directly result in increased revenue], and just generally be as anal as I am about hotel security without overdoing it and making the place feel like a correctional or military facility.
You're not out to have the cheapest hotel in town -- nor do you want to unless you're content to rent to the local druggies, prostitutes, and other generally unhealthy and/or destructive types who don't mind sharing their surroundings with crackwhores and cockroaches.
Instead, you're out to have the cheapest decent hotel in town. A hotel in that market position is something quite respectable, and something that every town needs.
Now, as you've perhaps anticipated, I'm going to suggest something that personally, I generally lack enthusiasm for -- go back through my previous posts on Quora and you'll lose count of the number of times I've observed that hotel franchising has no future.
However, hotel franchising does have a present, and we want to keep your venture as conservative and low-risk as possible. And hotel franchising has a history that bankers who'll be supplying your mortgage loan tend to strongly favor. So, for you, we want to plan on going with a national franchise. For now, anyway. Any franchise agreement you negotiate (they usually run for a twenty-year term) should provide for termination with no penalty at five-year intervals.
(I'm developing my own brand, and nothing would please me more than to have someone with capital to help me launch it. But there's more of a risk element there than there would be with a national franchise. And it would take, according to my calculations, about a half dozen locations to reach the critical mass that would compensate for lack of a national franchise brand: until we bought or built them, we'd have to accept a lower return. If we'd worked together on several other projects in the past, and you were okay with how I work and were confident we could launch it successfully, I'd say, okay, let's do it. If you had deep pockets, an appreciation for the downside involved, and you were - even so - up for the adventure, I'd say, okay, let's do it. And I'd be eternally grateful to you, we'd probably be friends for life, and once we had our successful regional chain going, your portrait would hang in the foyer of my bigger corporate headquarters facility that we'd eventually need. But given the above assumptions that I've made about you, and the cornerstone of our own corporate values that we always do right by our client-owners no matter what; I'm advising you a little more conservatively . . . And there is no way I'd advise a first-time investor to proceed with an independent, unfranchised property.)
Here again, while I have my preferences, we want to see what's missing in your market, and be the bearers of gifts who provide the particular gift of what the folks in that area have always wanted and never had before, so that your future customers will be happy to see us show up.
My first choice would be Best Western. It performs well in most places, the fees are much lower (it's a membership organization, not a franchise, so there are no royalties), and it allows for more customization if - like me - much of the fun and reward that there would be for you in owning a hotel is the opportunity to make your hotel a vehicle of self-expression, a medium of your own art. In other words, you can decorate it however you want (within limits) and you can put your own name on it alongside Best Western's.
But Best Western is not always an option. Any existing Best Western location will have an area of protection: this can be annoying when an older, dated property that barely meets their standards is 'in the way' in a market where you'd like to put something new and up to date. Also, a first time owner that intends to run the property themselves might want a little more by way of support. (Any support you have from any organization should be helpful, but do not rely upon it exclusively.)
So, be open-minded. Another brand might work better for you, or supply just what's needed in that particular market, where - say, in a town where there are already two or three Best Westerns, or even just one with about two hundred rooms - Best Western might not.
Wyndham Hotel Group (Wyndham Hotel Group )
Most of its acquired brands are on the decline, but for new construction, I'd consider the brands they put their own name on - Wingate by Wyndham, Hawthorn Suites by Wyndham, Microtel by Wyndham - and to which they have that level of commitment . . . if I had no other option. In far and away most markets, Wingate tends to be the weakest Class A brand, Microtel tends to be the weaker Class B new-build brand, and Hawthorn tends to be the weakest all-suite brand.
Much of their weakness is in that they’re marketed together with Wyndham’s ‘cheaper’ brands.
Super 8 Motels, Days Inn, Howard Johnson's and Travelodge all have new construction prototypes, but I wouldn't build anything new under those brands.
Also, with most of Wyndham's acquired brands - and with any 'cheap' brand - product consistency is a problem. Simply put, the guest never knows what he's checking in to. For a hotel owner with such a franchise, who makes the investment, and takes care to run a good hotel in which he can take pride and hope to draw good customers and get a good rate, it's infuriating that other hotels operated under the same brand by other franchised owners are older run-down properties, owned by people who don't operate in accordance with standards, don't keep them clean, and who just want to take the reservation referrals and pocket the money. Why shouldn't they? The franchise organization lets them get away with it. I'll believe Wyndham is serious about turning Days Inn and Super 8 around when they kick a whole bunch of Days Inns and Super 8's out of the system, or at least make them change over to Travelodges or Knights Inns.
But they might not. The previous corporate owner of those brands never did. Choice Hotels doesn't do it with its crappy franchised properties. That's the trouble with Class B and economy brands. They don't want these owners to flunk the property inspections, they want them to stay in the system and keep paying fees and royalties. So, they keep cutting them passes, putting them on 'double-secret probation', and looking the other way on inspections. You end up trying to sell nice rooms at your own attractive, well-kept Quality Inn for $79.99 per night to people whose last stay at a Quality Inn was at a worn, beat up, not very clean, older property that rents its rooms for closer to fifty dollars a night - and that's all your guests expect to be asked to pay. Good luck.
If I were going with new development of a more conventionally franchised property, I'd first consider LaQuinta.
Their product is impressive - generally. They still have some old, exterior-corridor, faux-Spanish-style properties from their early days that they're now in the process of getting rid of; and those cheap, old, Budgetel 'Image 3' prototypes from the '80's that came with their buyout of Baymont Inns a few years back have to, like, go already, too. (They bought Baymont from Marcus Corporation, its original owners, a few years back; rebranded Baymont's best locations as LaQuintas, then sold the leftovers, including the company name, to Cendant Corporation, making Baymont destined to become one of Wyndham's acquired Class B brands.)
Many of their hotels are company owned and operated. That's a good sign, even though I'm not too impressed with what I've seen of the management of some of them.
Once they finish getting rid of those older properties, they've got a consistently class product, and what appears to be a good organization and good national marketing. I'd readily consider this one - especially if I were looking to build a location in the Northeast, where LaQuinta's coverage isn't as good, and you can still pick your spots.
LaQuinta only owns the LaQuinta brand. It has no separate all-suites brand. It is, however, owned by the Blackstone Group, an equity capital firm . . . that also owns Hilton Worldwide.
I smell an opportunity there. If Blackstone were to up one day and make LaQuinta another Hilton brand . . . (This would give Hilton two Class A brands, LaQuinta and Hampton Inns. Why not? Hilton already has two upscale , full-service brands, Hilton and Doubletree . . . ), they could save a lot of money on administrative, marketing and support functions used by both chains, be able to sell a lot more Class A franchises in regions now saturated by Hampton Inns . . . and the value of a LaQuinta franchise would go up considerably, once LaQuinta's Returns program and central reservations system is absorbed into Hilton's central reservations system and HHonors program . . .
Choice Hotels International (http://www.choicehotelsfranchise... )
Choice Hotels - in its day, frequently the best choice for a small owner-operator desiring to buy or build a franchised hotel - is on the decline. But keep an open mind: there is no way a market like Morehead City, N. C., is going to be forever without a Comfort Inn or Comfort Suites. (I'd make it a Comfort Suites: it has better product consistency than Comfort Inn, and you can get a better rate out of it.)
Choice brands are also oversold in many markets. There are so many Choice hotels in Winston-Salem, N. C., where I live, that if I were buying a Choice-franchised hotel there (or in many other hotel markets), I'd demand it be unencumbered by franchise (meaning, if you're trying to sell it to me, that you get the hotel out of the franchise agreement, you pay Choice to go away, and you pay the five-to-six figure termination fees and liquidated damages demanded by Choice).
Another problem you're going to have with a new Comfort Inn or Comfort Suites is some difficulty getting a good rate: those two 'good' brands are marketed together, on the same 800 number and on the same website, as Choice's 'cheap' brands, so when it comes to referrals from their central reservation system, any nearby Quality Inn or Econo Lodge that appears to be in decent shape can offer their $69.99 or lower rate, and eat your lunch. (Wyndham has the same problem: their 'good' Wingates, Microtels and Hawthorns are marketed together with their 'cheap' Days Inns, Super 8's, Travelodges and Knights Inns . . .)
Choice Hotels owns no hotels: they're simply a franchisor, a royalty-and-fee collector. Any good that they do (the national advertising, the central reservation system, their pretending to enforce brand standards), they do only because it keeps the royalties and fees coming in: if it didn't, they wouldn't bother. The only thing they've ever been really good at is consistent mediocrity - and even in that area, they're slipping badly.
Comfort Suites, MainStay Suites and Cambria Suites are their all-suite brands, but Comfort Suites is the only one I'd touch with a ten-foot pole, if I messed with Choice at all. MainStay was never much of a success -- it has a good building prototype but Choice never did get the hang of marketing or supporting extended stay. Cambria Suites - Choice's very badly done attempt at entry into upscale select service with cliche 'boutique' elements and nothing close to an extended-stay pricing model - has experienced major problems.
Holiday Inn Express is more high investment, and wants to see more experienced, and well-heeled, operators show up.
It's difficult to find places where there isn't already a Holiday Inn nearby but here again, keep an open mind . . . There was no way the Poconos was going to go forever with only that one Holiday Inn product in Lake Harmony, way out in the western end of the Pocono Mountains. Too bad, there was an opportunity there, but you missed it: a new Holiday Inn Express property opened in Stroudsburg this year, at the end of the Pokies closer to New Jersey and New York. (I expect it to do quite well, even without me running it, or having had a chance to tell them to put it in Pocono Summit or Long Pond instead of Stroudsburg. I wish I'd gotten to do it . . .)
Still, there are towns where a Holiday Inn product shows up as missing. Check out Gloucester Point, Va., a fast-growing Newport News/Hampton suburb. Or even better, Lexington Park, Md., where the nearby Hampton Inn racks at $159 per night most of the year.
The Holiday Inn brand is owned and franchised by InterContinental Hotels, and Candlewood Suites and Staybridge Suites are their all-suite brands, if that's the way you decide to go.
Most of the above applies even more to Hampton Inn. It's high investment, they want to see an experienced operator who doesn't mind writing checks on demand without asking too many questions about the 'expert' reasoning for the expenditure or how long it might take to get a return on it, and it's likewise not easy to find a place where there isn't already a Hampton Inn nearby. So, even though you have the Hilton organization backing that one, it seems to have plateaued.
If you get a Hampton Inn, plan on running a very tight ship - and accepting some gratuitous punishment when you fall short in doing so. One thing I personally dislike about them is their "100% Satisfaction Guarantee": if a guest finds anything wrong with his room at all, or with the service, he gets comped a night (Hampton Inn & Suites , Michael Forrest Jones' answer to Business Travel: How far should hotels go to please and appease dissatisfied or unhappy guests? ). I feel that it encourages complaints: about the most destructive, unethical, offensive and completely inappropriate thing I see done in hotel marketing (and I see way too much of it in this business, and not just by Hampton Inns) is anything that relies upon playing guests against staff, or guests against the hotel. You'd think with a deal like that, Hampton Inns would be the number one hotel in customer satisfaction in most customer surveys conducted by anyone other than Hilton. It isn't. Holiday Inn Express is. So, it does Hampton Inns no good, and amounts to destructive competition: they've now got a segment of the traveling public well trained in the notion that a hotel room is something that should not have to be paid for if you can find some fault with it. Put me in a suite at the Waldorf-Astoria - also owned by Hilton - and in five minutes worth of nitpicking, I could easily find some fault with it that would qualify me for a refund if it were a Hampton Inn, if I had no conscience. At least I have a conscience.
People who own or run Hampton Inns, however, swear that it's really not much of a problem. And when it is, it's usually a public relations gesture that's worth doing. (Define 'not much'. One management company that had several said that the guarantee runs about five percent of rented rooms. If you own an 120-room Hampton Inn, and rent all of your rooms one night, that's six rooms that aren't going to be paid for because someone's not happy, times $129 or so? . . .) Perhaps part of the reason why it's not much of a problem is the 'catch' that they don't advertise: it's a limited offer, good for only one or two per customer. After that, you'll get that very carefully worded letter tactfully explaining that, for you, it's off the table, it's no good anymore. There are, of course, times when it's appropriate to comp a room, or give a discount, to appease an aggrieved guest (e.g., the guest was denied use of the room in part, or something seriously went wrong). But making it an automatic, unqualified entitlement markets your property to grudge collectors (see Michael Forrest Jones' answer to What is the best advice your father ever gave you? ). Notice how Hilton has backed off a similar guarantee with Homewood Suites and Embassy Suites - and when they rolled out their new all-suite brand, Home2Suites, a couple years ago, no "100% Satisfaction Guarantee" was ever included with that one.
Hilton, LaQuinta and InterContinental Hotels, which owns Holiday Inn, has one advantage over Choice and Wyndham as franchisors: they have no 'cheap' brands. So, it's easier for them to establish a high price point quickly, and get a good rate. Don't despair: you can catch up with them with a Wingate or a Comfort Suites, and over time attain a comparable rate, if you do your local marketing, and compete well, but it'll take some time and work. Besides, you want your rates a little on the low side when you first open, anyway, until you get your occupancy up.
If you go all-suites, Homewood Suites and Home2Suites are Hilton's all-suite brands. So is Embassy Suites, but you're getting into upscale select service and major investment with that one. . .
Marriott / Courtyard by Marriott / Fairfield by Marriott (Real Estate Investment with Marriott Hotels )
Forget it, you're not going to get a franchise for a Marriott brand for your first hotel - at least not if you intend to run it yourself. They like to see a very high level of experience and capital (if you don't already own three successful franchised properties, you don't meet their minimum qualifications), they place you and any other hotels you own under a great deal of scrutiny before they get involved with you at all (and even so I'm amazed at some of the companies, run by absolutely irresponsible lowlifes, accepted as 'Marriott developers').
And even then their scrutiny upon you doesn't end. You're almost guaranteed to make money, but you're in their game, and you're going to play it their way. If you want to invest ten to twelve million in Marriott's way of doing things, buy Marriott stock and save yourself the risk and personal accountability. If you want to make running a hotel, and doing things Marriott's way your life's work, get a job as a manager of a Marriott-branded hotel and save the ten to twelve million.
One option you might have if you're determined to own a Courtyard or a TownePlace -- if it's your desire simply to own such a hotel as a passive investment -- is to partner with a Marriott developer, and execute a hotel management agreement with them (we'll talk later about those). Be advised, however, you will have little to no control over your investment. The management company will be very much in charge, and Marriott will have a very well-listened-to say in how every little thing is done. You, a representative from your management company, and a representative from Marriott will have a budget meeting every year at which, together they'll explain to you what Marriott requires. You'll just get a report every quarter and, hopefully, a check.
As you've perhaps guessed . . . I like Marriott, and I don't. I'm a fan, and I have issues with them. I admire them at times, and I think they can be very silly at times. They're very good at most of what they do, and I give them credit. We're just different. My company will never be a Marriott developer: I'm more of a Best Western-compatible "let me put my own company's name on it, design and decorate it however I want, and be responsible and properly credited for the outcome" kind of guy. Marriott and I would drive each other nuts within a few months, if not weeks or days.
  • Marriott is very much a 'by the numbers' company. They're successful, they know it, and you're never going to convince them that maybe you have a better idea, or even one just as good, if it's different from their own. Everything that happens in a Marriott-branded hotel, right down to how the desk clerk answers the phone ("We're having a great day at the Courtyard by Marriott Waterbury . . . tra la la la la la . . .") is done in accordance with a 'recipe'. (Really. I read Bill Marriott's book [ ]). It's always seemed a bit odd to me that Marriott screens its developers so carefully supposedly on the basis of being absolutely the best at what they do without, up until being selected as a Marriott developer, any guidance from Marriott - then, tells them in minute detail how to do it. Their written policies and procedures probably take up sixteen or so bound volumes, maybe more.
  • I, on the other hand, want people who can make decisions - at every level - and have those decisions be correct, or at least respectable. I don't believe in 'hire for personality and train for ability'. (Maybe it's my gruff personality . . .) We don’t ‘dumb down’ our individual tasks almost to the level at which even a robot, a monkey, or a service animal can be trained to perform them; then hire the dumbest, most predictable and controllable (and presumably, loyal and reliable) box of rocks that breathes, has a pulse and can be trained to perform them, to perform them. You don’t see scripted customer greetings, or step-by-step task breakdowns to perform even the most menial tasks. If you're so dimwitted that you need to complete the same twenty-to-thirty-item checklist on a daily basis in order to stay on top of your duties as an $8.50-an-hour desk clerk, I'm not so sure I want a doofus like you working on my front desk, even with the checklist. We don't aspire to create ‘a system designed by geniuses for implementation by idiots’. Rather, we find people likely to carry out any accountabilities we might likely assign them who might be content to perform those accountabilities, and do it well, for as long as we need them to do so – and who, in addition, bring to our party some capabilities and giftedness for bigger and better things a few years down the road. We need to be able to expand quickly, and we need to be able to grow our people as fast as we can grow the company. Our written policies and procedures might someday fill a single, three-inch Staples three ring binder. And while we'd really rather you didn't just pick it up and say 'hello', we don't care how you answer the phone, so long as you're pleasant and represent the hotel in a positive way.
Marriott's respectable. We both want most of the same things. We just have different approaches to pursuing the achievement of them, that's all.
Marriott all but invented all-suites/extended stay - in fact, they bought Residence Inn from the guy who did ( Risk Only Money (9781611690118): Jack DeBoer: Books ) - and they also have TownePlace and Spring Hill. They do extended stay better than anyone, but common mortals like you and I are on our own with what's left.
And finally . . . sometimes, a little cynicism and negativity is a GOOD thing!
Do not consider any other franchise organization. There are none that are appropriate for a first-time owner. This is particularly true for regional, new-build franchises that market their franchises to first-time owners (the only one, ever, to do that successfully was Super 8 Motels back in the '70's, and it had a unique business model and financing scheme back then that enabled them to get away with it.)
ValuePlace's business model still needs more time to shake out: meanwhile, they expanded too fast and they're about to go through some bad weather. Way too many individual locations were up for sale all at once a couple of years back - nearly all net leased, making you wonder what other creative financing arrangements fueled the growth, and how this could affect them in the future - for me, that's good for a bad vibe. And the TripAdvisor reviews I'm seeing on many of their locations (Value Place Allentown | Value Place Asheville | Value Place Fayetteville ) indicate that the accumulated effects of Packard's Law (How does Starbucks Coffee (which does not franchise its coffeehouses), and other successful, reputable, fast-growing companies with multiple locations, avoid the pitfall and consequences of Packard's Law? ) are about to pay ValuePlace headquarters in Wichita a visit and bite them in the butt. There are way, way too many 'hospitality training consultants' in this business, most of whom set off my crap detector every time they open their mouth; but if I were being retained to fix ValuePlace, the first thing I'd do is go out and get four or five of them that doesn't drive me too nuts, and send them to different parts of the country with a mandate: I want to see some serious training in place - not a 'service program', none of that 'how to greet the guest' training, I mean good training - forthwith, I want to see some results very quickly that are very different from what I'm now seeing, and I want the training and performance standards raised. Starting last week. For keeps. Jack DeBoer's a smart guy, but I hope he's not repeating the same mistake he made (that even he admitted in his book) with Candlewood Suites: he expanded too rapidly, and had to sell it because only a large chain (such as InterContinental, the owners of Holiday Inn) could even control, never mind support, something that big that was growing that fast.
Red Roof Inn and Motel 6 are economy brands that are hard to get a return on if you build a new one using their prototype. Red Roof Inn is particularly bad: they deliver a very good mid-market product at a costly investment, but insist on claiming an economy hotel market position and charging an economy price, even in markets where they could easily command a higher rate.
And Motel 6 is bad, bad - Satan's own motel chain. Bad business model. Bad problems - I mean, serious crime on occasion - at many of their hotels. The only good thing about Motel 6 is its potential value as a Cornell case study about the direct relationship between bad hotel sales and marketing and bad hotel security. They market their rooms the same way Wal-Mart markets a lot of its items: low price, low margin, but make it up on volume. Don't let anyone walk away. Jeffrey Dahmer could get a room there. Osama bin Laden could get a room there. Any local drug dealer or criminal can get a room at Motel 6, and quite a few do. Don't let Tom Bodett kid you: a room at the 'lowest price of any national chain' is not a good thing if you're checking into a voodoo hellhole where there's a good risk of something bad happening to you.
Which brings us back to their bad business model: if you own a franchised Motel 6, and your competitor up the next exit is some raggedy Red Carpet Inn that's overdue for a date with a bulldozer and rents its smelly, vermin-infested rooms for $34.95 per night, the 'lowest price of any national chain' that you're stuck with because it's advertised nationally on your behalf can be a pretty low number. The Blackstone Group bought Motel 6 from Paris-based Accor about a year ago (they have good brands, throughout the rest of the world: why couldn't they bring a good one like Ibis over here?), but I can pretty much promise you even without asking them: unlike LaQuinta Inns, Motel 6 will not become a Hilton brand.
Speaking of Red Carpet Inns . . . Hospitality International brands (Red Carpet Inn, Scottish Inn, Master Hosts Inn, Passport Inn and Downtowner Inn; BookRoomsNow: Home ) are completely inappropriate for new construction, and if you've ever seen one of their motels from the highway, you can guess why. They're the franchise of last resort for any roach motel operator who can't pass a 'real' franchise organization's property inspection, and each of their locations are the location of last resort in any given town for Hospitality International - they were able to sell a franchise to that owner only because no other local hotel owner would buy their franchise. There's no polite way to put it: nearly all of their properties are dumps. (There's a Scottish Inn in Mocksville, N. C. near where I live that's owned by some good folks, and kept up pretty nicely, but it's a cheap, old, poorly-designed motel that looks a lot rougher than it is. I'm sure there are others similarly situated. It's probably that Gujarati immigrant family's first property, they do the best they can - very well, actually - with what they have to work with, and I'll be happy to see them eventually move up to something better.) Nearly every reservation referral by their central reservations feed originates from an online travel agency - meaning, in part, that your $35.95-per-night rooms will, after the OTA's commission is paid, net you closer to $28.76 per night. Before franchise fees and royalties.
Don't touch Carlson - Country Inn and Suites, Park Inns, or Radisson - with a ten foot pole. If Choice Hotels is an organization that's slipping, Carlson is one that's in freefall. I have a friend who owns one of three Country Inn and Suites in a badly oversold Asheville, N. C., market: by contrast, there are only three Hampton Inns, a much stronger brand, in Asheville, each of which is located near one of the Country Inns and Suites. You just don't need that many Country Inns and Suites in that town. Carlson can't support them. (But that's okay: my friend pays an 8 1/2% royalty on every room he sells, whether Carlson referred the reservation to him or not. That's what franchising is all about, collecting fees and royalties, reaping where you did not sow.) Nearly every reservation my friend gets from Carlson's system originated from an online travel agency: we'll talk later about what that's worth.
Carlson was once a strong organization, but its strength was in Carlson's nationwide chain of storefront travel agencies: book a trip at one at one of those storefront travel agencies, and guess which Radisson - er, hotel - they would book you into? But nobody uses storefront travel agencies any more, and apparently, Carlson never got control of a major online travel agency. They kicked out a bunch of Radissons a few years back for 'failing to meet brand standards' (What brand standards? The one in Cromwell, Connecticut, with which I was most familiar, was always a rat's nest, by contrast to what you'd expect of Radisson in better days, in better locations; and no one ever cared . . .). It could be they were retrenching, as the press releases had us believe . . . or it could be they were just throwing in the towel and no longer want the responsibility. It'll be interesting to see. But even if the Carlson drama has a happy ending and the sort of inspiring redemption story that would make a good movie (in that business drama genre so popular in Japan, perhaps), none of it will do you any good in time to do you any good if someone sold you a Country Inn and Suites (Development Opportunities ) franchise . . . Meanwhile, they're pulling straws, looking for a magic bullet: the new 'hip', ultra-modern, building prototype for Country Inn and Suites looks like anything but a country inn ("Please, somebody buy these people out and take the stick from them before they hurt themselves . . . " Episode 1: Carlson by Michael Forrest Jones on WWMD: What Would Mike Do? The hotel blog ).
And if you go with an upstart regional brand, you're trusting them with a heck of a lot, and you're the one who's going to lose if it doesn't work out. (In either case, you certainly don't want to be outside their established region . . .) Any franchise needs to have a hundred or so locations before it can be considered to have an acceptable level of stability - and stability is only one thing to consider.
Once you've selected your franchise, they will send out a brand representative and - with varying degrees of skill, dedication, and diligence; on the part of both the franchise organization and the brand rep - support you with much of the necessary expertise in getting the site developed and the building built. (You'll still need your own architect, and your own lawyer to deal with any zoning and regulatory issues). That's where you'll deal with issues such as traffic counts, site orientation, and market analysis. You should be in alignment with your brand rep on all of this before you submit the application and hand over the thirty-odd-thousand dollar application fee to the franchise organization. Receive with graciousness and gratitude any help they offer, but check behind them, and get your own professional advice from professionals - lawyers, bankers, accountants, contractors, etc. - that you know, to insure that what they're doing is in fact helpful. Always remember, it is the franchise organization, not you, who is paying the brand rep. Wherefor his treasure is, there will his heart be, also.
Most franchise organizations nowadays will require a formal professionally-done market study. There was a time when, if you were asked for one, you might ask yourself, if they're not confident that their brand or business model can succeed in your location, then why are you making a $7-to-8 million-dollar, twenty-year-long commitment to it, or betting your entire investment upon the success of it? But the purpose, and substance, of these market studies has shifted over the years. Much of the purpose, I suspect, is liability management: if the franchise situation doesn't work out for you and you need to sue to terminate the franchise, or if your property doesn't perform well and you find a way to blame it on the franchisor, the defense will sound something like, "we had him contract the market study, he had the market study done, he knew what he was doing". As to their substance, when was the last time you've seen a "bad" one? I haven't in awhile. If you ever see one that concludes, "building this type of hotel in this location is absolutely the most stupid idea since Adam ate the apple, only a fool would do it or invest in it", please send it to me: such candid and potentially useful market studies are disappearing relics. Back in the day, they were written by accounting firms, they contained educated, objective analysis, and they had a conclusion that could go either way, based strictly upon cold numbers and analysis of the data. Nowadays, they're written by hotel consultants and read like a business plan - the way I used to write them before I learned not to do it that way, with lots of promotional material - and contain enough attachments (usually downloaded pages from area companies and institutions, tourist attractions, and local convention bureaus) to kill an entire forest.
Financing your project is your own responsibility. The brand rep may refer you to someone, but you'll still have to go through the approval process, and they'll only want to wait so long for you to get your property up and running and paying the royalties and fees. You should have a few sources of your own lined up and have most of the wheels turning before you even apply for the franchise. (I've seen one major franchise organization sign up someone that they knew was going to have problems with his financing, that they knew was never going to get his hotel renovated in accordance with their standards anytime within the foreseeable future, simply so they could pocket his $30,000 application fee.)
Financing works much the same way as for any other commercial project: you'll get bridge financing - basically, a hard-money loan - to build it out (and it should allow for overruns or any nasty surprises that come up in the costs), and permanent financing close to the completion of the project. Your friendly banker will want to see a 80% loan-to-value ratio - even less if he doesn't feel completely confident in your franchise, or your credit history, or your ability to run the property. Mortgage lenders who do hotels have a very strong bias toward franchised properties - some franchise, any franchise, many of which are, nowadays, not worth having if you go by raw numbers as they occur this year. Having a franchise that charges 8% of your revenue in royalties and fees, whose reservation system refers to your hotel no more than 8% of your total rooms rented, is like having 14.7 pounds of air pressure in your tire.
If you're paying out eight to twelve percent in fees and royalties, more than eight to twelve percent of your revenue should come from central reservations referrals - and Expedia, Travelocity,, or other online travel agencies don't count as central reservation system referrals in the math I use to calculate this. If you have a franchise, your franchise organization will be handling most of the referrals from online travel agencies, but those didn't originate with the franchise organization, and they can't fairly claim credit for 'getting' it for you. An independent property with a $1600-and-under property management system can still access OTA referrals ( & Expedia ), so you don't really have the franchise organization to thank for them. (And you will not get a property management system nearly that cheap with a major franchise organization - see Michael Forrest Jones' answer to Do most hotels use a specific POS system at the front desk or a larger computer system? )
History has shown, however, that franchised properties are less likely to run into financial problems than independent properties, so it's going to be a few more years before mortgage lenders are ready to give up that bias toward some franchise being in place. Stay with a strong brand - one that can get you more revenue from reservations referrals than you're paying in fees and royalties - and you should be okay, as long as you have an option to terminate the franchise every five years.
There are some building contractors who do nothing but hotels. I'd go with one of those, unless you know someone who you're absolutely sure is good at getting things done on time and on budget. They have the experience to quote you a price per room, and have the final cost come in at something close to that price. As with any commercial project, you should also be clear on the cost of the 'extras': after all, there's more involved than just the building (The parking lot? The pool? Any landscaping that you want done? Did the bid include carpet, paint and wallpaper?)
Your brand rep will offer you support with acquiring the fixtures, furnishings and equipment you'll need to fit out your building and make it work as a hotel. There will be some required purchases: some items, you will be required to procure from a specified vendor. For a lot of other things - furniture, linens and terry, office equipment, signage and fixtures - they will offer purchasing services. Some of the stuff will be available to you at a fair price - maybe (some overpriced items are required purchases, so you're stuck with them). Some of the stuff, you'll actually save money on. (Sometimes franchise organizations actually do intend, sincerely, to really help the franchisee, but ultimately it's always the franchise organization's interests that control, no matter which one you're dealing with.) Anything you buy has to meet the franchise organization's standards: if you buy from their purchasing service or approved vendor, it will; if you buy it elsewhere, they'll have to okay it.
Me, I watch them . . . I make a thirty-odd page shopping list, categorized by departments, like they taught us to do in the architectural estimating class I took back in college (The hotel you see here - New Salem Inn prototype - should cost about $5,600,000 per copy, not much more. Like a Microtel or a Sleep Inn, it was designed to compete successfully in that category if it had to, but to go after Class A customers wherever it could . . . ). I cost out everything out of a three-inch thick American Hotel Register catalog (Hotel Supplies, Hotel Products, Amenities, Linens & Hotel Furniture & More .) But when it comes time to make the actual buy, I shop it around: you can save a lot of money off American Hotel Register's off-the-shelf, set-in-cement prices that way, and I have a built-in fudge factor on my projected costs.
Classic, shining example? To stock an entire 62-room hotel with three turns of linens and terry from American Hotel Register at their regular list prices, you're going to spend about $60,000 (Yes, that's just for things like sheets, towels, and washcloths. Think that's bad? Plan on having to replace it all every year or two . . . that stuff has a one-year life expectancy. That's how quickly it disappears, or gets a noticeable tear, fray, or stain that won't come out.) But there are any number of suppliers from whom you can order linens and terry that meets your franchise organization's specifications (material, thread count, etc.) for around half as much, sometimes less.
No matter how precisely you can figure it, there will still be surprises. And you're only human: you will miss things. I showed a costs takeoff I had recently done to one hotel owner friend, and within a few minutes, he asked, what are you going to use for phones? I'd included phones in the rooms, but had forgotten the front desk console and main switchboard system: add twenty-five thousand dollars to the list to allow for that. Twenty-five thousand dollars is a lot of money. You might rationalize that it wouldn't be to someone spending seven or eight million, but you still look and feel stupid explaining a mistake at that price to them as a boo-boo. And as for them, they didn't get in a position to spend several million by making - or even putting up with - twenty-five thousand dollar boo-boos. That's why I had my friend check it over.
Before we go further (at the further risk of my sounding paranoid about you), I need to insert yet another word of caution. (I don't mean to discourage you. If this is something you really want to do, your intentions are good, you take pride in what you do, and you are a decent human being who cares and is committed to doing it right, I want you to do it, and do it well, and succeed, and be appropriately rewarded. We need more people like yourself in this business. I just don't want to see you get into trouble, or lose a great deal of money, or be just another one of those owners whose sole contribution to the way things are done is further market overcrowding or destructive, nuisance competition.)
If you're considering a hotel as a passive real estate investment - like an apartment building, or strip mall - be warned, it isn't. (Lots and lots of 'real estate' investors think of them that way: that's why you see hotels advertised for sale on LoopNet with a 12%-or-under 'cap rate' as though that capitalization rate is even an appropriate metric for determining the value a hotel, never mind an impressive one. It's neither.) You don't just collect the rent, and pay maybe a single on-site superintendent or a maintenance guy, and contract any needed repairs, and make the mortgage payment, and your costs are covered.
A hotel is a business. It must be respected and managed as one. You may also own a Boeing 737, but owning it doesn't qualify you to fly it as pilot-in-command. Likewise, your wife's best friend who's into entertaining, or decorating, can't necessarily run a hotel, nor can your ne'er-do-well nephew or brother-in-law who needs a job. A hotel must be managed with skill and intentionality by people who know what they're doing.
Which brings us to management . . .
You'll need to work out an operating budget that you can live with without learning too many things by experience along the way - and there will still be surprises. I use one with a built-in 'fiscal cliff', actually several. It has six columns, each headed by an occupancy percentage figure. If my occupancy for a month - or even a few days - is 40% instead of 50%, automatic cuts in many areas kick in. If I know in advance, for whatever strange reason, that we won't rent any rooms next Thursday, I don't need a desk clerk on duty next Thursday: I'll be there and tend the front desk myself. A good manager is going to be on the front desk himself every day anyway if his occupancy is under 30%, and save the payroll cost. But if his occupancy is more than 40%, he's going to schedule a desk clerk: his time would be better spent doing some sales calls or a property improvement project.
If occupancy is over 65%, however, I splurge if I don't have past due bills or needs, and I can do so. Of course, I put aside some cash for a rainy day, but I also use some of the extra money to launch new marketing efforts or property upgrades. That makes your property more competitive and provides for a rainy day in itself, and you want to be in the habit of doing that.
In budgeting, as with calculating costs; no two hotels run exactly alike, or have exactly the same needs. And again, you're only human: you'll miss things. So, you'll have to add things in later, and adjust your budget along the way. And when you first open, your revenue won't meet budget for a few months - or even be very predictable - so you'll have to be prepared to make judicious adjustments to it until it does.
You'll need to recruit and train a staff, and your staff will need to get used to working together as a team.
  • You'll need a full crew of desk clerks - including two of those all essential night auditors (see Michael Forrest Jones' answer to How do you get into hotel management? ) They'll all need to be trained.
  • You'll need an experienced housekeeper. Check her out thoroughly, and make sure she has supervisory experience. If she's currently employed at another nearby hotel, check into the hotel where she now works for a night, run your fingers along the top of the picture frames checking for dust, open every drawer and cupboard in every piece of furniture in the room, and spend several minutes crawling around in the floor in your room looking under things. If she's slack about staying on top of what her people are doing, what you'll find in those places will tell on her . . .
  • She'll need one room attendant for every fourteen rooms in your property (for the first few months, you'll be able to make do with fewer). They'll all need to be trained (see Michael Forrest Jones' answer to How do good hotels always feel so clean and fresh? )
  • You'll need a breakfast hostess, maybe two (just one will want a day off sooner or later; and since she starts work at 5am, she's the second most aggravating employee - after a night auditor - to get a substitute for if she calls in sick or just doesn't show up). They'll need to have it worked out how to set out the various food items, manage the breakfast, and clean up and put it away afterward.
  • You'll need need a maintenance guy (Yes, even though the hotel is brand new, and if you built more than 70 or so rooms, you'll need more than one.) Any building needs day to day care and occasional repairs even if people don't break things, and even a new building - especially a brand new one that you just opened - is going to have to be shaken down and have a lot of bugs to work out. Besides, who's going to cut the grass, or sweep the litter out of the parking lot, or empty the outside trash barrels? Indeed, you might want to make him your very first employee: he should start work while the building contractors and subs are still there, and during the final weeks of construction, they can walk him around and show him how everything is put together. Plan on paying him about $12-16 per hour. You can, of course, get one for half as much, but that'll get you eight-bucks-an-hour worth of maintenance guy. Yours needs to be a jack-of-all-trades - plumbing, mechanical, electrical, carpentry, paint and wallpaper . . . To put it another way: the repair on anything that he can't fix will have to be contracted, and contractors have a much higher per-hour labor cost on service calls. They can also take a few days to show up: not a good thing when you run a 24-7 business.
  • (There is no reason a guy cannot work well as a room attendant: I've seen them do it. There is no reason a woman cannot be a maintenance worker or engineer: I've seen them do quite well at that. Historically, there has been very good equal opportunity for men and women in management roles: nearly half of all managers are women, and some of the best hotels I've seen are run by women. So, please don't take it the wrong way that originally, I wrote this in a hurry and didn't take care to use gender-neutral job designations.)
You'll spend several days prior to opening with all of the above, both individually and in groups, doing 'walk-throughs', like Mike Krzyzewski does on the court with the Blue Devils before boarding the bus for a big game, planning the plays that they will use against the team that they'll be playing that night. During your first few days of operation, you want them working together so smoothly that, to a guest, it looks like they've been working together for years.
You'll need to have everything in place before the first guests arrive. Opening night is not the time to discover that you forgot to order toilet paper, or to put a couple of wastebaskets in each room. Guests will be getting a kick out of being among the first guests in a brand new hotel. (Part of the traditional opening ceremonies for a new hotel is having the mayor of your city or town show up and register as the first guest, if you're into tradition and can swing it.) And they may even be forgiving of opening-night kinks that need to be worked out, but you don't want to abuse the privilege - or even claim the privilege if you can avoid it.
If you have no hotel management experience, get someone who does. (Plan on paying him or her about $35k, give or take, for a hotel of this type, plus incentives.) Your brand rep can help, but he or she can't do it all for you - at some point, the training wheels are going to have to come off and you're going to be on your own. Much of the 'training' you get from the franchise organization is how to work with their central reservations system and fill out their required forms, anyway. They will have materials for you and will work with you to get you trained in other areas, but you're not going to come through that training with the equivalent of a degree from Cornell. With some, it's more like a band-aid and a prayer. Choice Hotels has lots of materials on human resources management, for example; but if you don't already have some idea how to attract and retain good help, how to treat them and care for them properly, how to stay within the workplace safety and wage-and-hour laws in your state, and how to train and develop them, the material you get from Choice won't be sufficient to carry the day but for just so long before you're in trouble.
If you hire a manager . . .
  • Require specific, successful experience. Before I started my own company, I was the g.m. of four different hotels . . . working for dipstick owners, doing dipstick things in the dipstick way they wanted them done because I needed the work and wanted to keep the job, and signing off on the dipstick results that I got for doing the dipstick things . . . which were, invariably, such dipstick results that frankly, if I didn't know me, I wouldn't advise you to hire me! (One of the reasons I formed my own company was so I could negotiate opportunities to do it right.) So, finding people with specific, successful experience won't be easy, and will depend far too much on how much you're willing to compromise upon your definition of 'successful'. Still, any step in the right direction is a step in the right direction . . .
  • Check references - and then some. I check references on applicants - and scrutinize the reference as well as the applicant [see Michael Forrest Jones' answer to How do you get into hotel management? ]. One fundamental flaw I've always noted in the 'science' of human resources management is, is any applicant going to give as a reference someone who's going to have anything bad to say about them? And if they're stupid enough, or blind enough to how others perceive them, to do that, do you want to hire them? But if they're not just that stupid, how can you make an informed, balanced and accurate assessment of them? You are relying upon the stupidity or dishonesty of others in making critical business decisions for yourself. I don't read 'testimonials' offered by someone trying to sell me some flaky deal on some flaky product, I don't accept letters of reference or recommendation on resumes or job applications (nor, even, the applicants who offer them) unless the recommendation is from someone I know (and even then I'm going to call them and question it), and I don't 'play fair' when it comes to reference checks: I'll ask anyone I deem likely to know.
  • My job application for any front office accountability is eight pages of mostly essay-type questions (if it's for a management or business development accountability, there are another six to ten pages of those), and my interviews get even more up close and personal.
  • I generally won''t touch a wannabe-hotel manager who doesn't have experience as a night auditor [see Michael Forrest Jones' answer to How do you get into hotel management? ], and I like to see sales and marketing ability.
  • Do a background check on anyone you hire.
Or you can contract a hotel management company to take most of the responsibility. I'll be happy to travel out and look at it, if you're in this part of the U. S. (We'd need to discuss that privately: details and individual terms are not appropriate for a Quora answer.) A typical hotel management agreement calls for
  • a base fee of two percent of revenue for the first year, three percent the second, four percent the third, and levels off at five percent for each year of its twenty year term.
  • incentive fees of up to to fifteen percent apply to any increase in revenue over that of the year before.
  • a five percent fee that gets added to the total cost of any construction or later improvements, addition or renovations, in return for managing the project.
  • you to provide all working capital and inventories.
  • 'no-cut' provisions. The management company, by virtue of the HMA, acquires a leasehold interest in the hotel. Not all imaginable breaches under the agreement constitute a default that can justify termination of the agreement, although they must be cured to the extent possible. And even most events of default must be cured, but still do not constitute grounds for termination of the agreement unless one or more other factors are in place to indicate that the management company's operation of the hotel is failing (e.g., the hotel is not, as indicated by several metrics - rate penetration, occupancy penetration, etc. - competing successfully against or keeping up with comparable hotels in its market).
I love 'em. I can ask an investor to bankroll a hotel, and he can own it: we don't have to worry about equity (although that can certainly be negotiated), or vesting, or any of the other stuff that goes with startups that can be hard for a guy without a lot of money of his own to invest to leverage. I'll help in every way I can. You own it. All I ask is the management contract -- and can we throw in an option for us to buy the hotel if you ever decide to sell it?
Negotiate your HMA very carefully, no matter which management company you choose: the twenty-year term of a 'no-cut' agreement can be a long, long time - twenty years, to be exact - and there's a lot that a management company that views its contracts as a cash cow can get away with in the meanwhile. (One of the cornerstones of the company values we had in mind when we put my company together was, we're always going to do right by the client-owner no matter what. Be accountable, keep the client-owner informed, you have a lot of discretion under the agreement, but make sure he's okay with what you're doing. No overstaffing, no girlfriends on the payroll as 'sales secretaries' or 'reservations managers', no letting your salaried g.m. use it as a jobs program for her relatives or 'professional colleagues', no overloading the hotel with extra salaried management-level employees so we'll have bench strength waiting in the wings if we sign another hotel. No renovations or expenditures that won't really benefit the hotel, just so we can collect the five percent improvements management fee [see When a hotel has an electronic "Do Not Disturb" system, what happens, and where, when a guest toggles the setting? ]. No comp rooms: every occupied room has a value, and if it's not paid for, the cost gets billed against something as an expense, which has to be justified on the reports. It's a no-cut agreement, but don't abuse the privilege. Don't be cheap and cheesy, or penny-wise and pound-foolish, but look for a cheaper solution that will work to any problem or expense.)
And finally, we get to the part that many people forget. Or just don't pay enough attention to if they remember it at all. Or depend entirely upon the franchise organization for even though doing that assures your property a mediocre - at best - performance. Or cynically settle for that mediocrity when it turns out that their franchise organization doesn't have it handled after all (at least not as well as the owner was led to believe when they sold her the franchise), and doesn't hand it to them on a plate. Marketing.
Like a developer I knew years ago said recently, no one spec-builds anything anymore. Before you even invest anything, you should have some idea who's going to show up and rent the rooms. It's not an isolated, 28-room roadside mom-and-pop on an off-ramp: you can't just open the doors, sit behind the desk, and expect people to show up.
Some will, if your franchise, or your location, isn't completely worthless. But if you leave your sales and marketing to work itself out on its own (or rely too much upon your franchise organization to do it all for you), then you'll just be getting your competitors' leftovers, and you'll never get a nightly rate for your rooms that's higher than maybe five to ten bucks more than what the nearest old, run-down hotel that's clearly a comedown from your own charges for its rooms.
Once you have your hotel up and running - long before, even - you need to have someone working on corporate and group bookings, negotiating contract rates, building a base of regular users. If I were there, I'd pull a few tricks out of my marketing bag, set up my Community Partner program (donate ten bucks to a designated charity - say, Habitat for Humanity - and we give you twenty bucks off your room rate for each night of your stay . . . the local Habitat chapter will refer lots of rooms to us once the checks start rolling in . . .). I'd structure the rates so anyone who stays three days or more gets an automatic discount - much the same way extended-stay properties do with slightly longer stays - and position the property to be the place to stay if you're staying several days.
But sales and marketing is also where my biggest weakness lies: I can do it, but my experience in hotel sales and marketing is not altogether conventional. What I do works, but it's sloppy. I usually send out for help if I can recruit a Director of Sales that doesn't drive me nuts. If you can't afford a full-time person in a dedicated business development accountability, however, don't despair (and certainly, don't give up and quit): I've seen desk clerks who had a gift for it: look for that gift when you interview and hire. The important thing is, keep someone working on it, and don't settle for anything less than the best imaginable positive results.
Over time, I want my company to work out a range of techniques and things, all of which work, and most of which anyone can be trained to execute confidently: that way, if I sign more than three or four hotels, I don't have to be personally responsible for - or at least directly involved in - the successful marketing of each one. (Some techniques and methods will work better for some people than for others. Each has to be matched to the personality of the person attempting them. Anything done has to flow naturally from that person. It can't be role-played: it'll just go over as a gimmick or manipulation if a person from whom it does not flow naturally tries. I hated the Meryl Burbank character in The Truman Show - everything about that conniving, controlling, manipulative, just generally fraudulent, and ultimately-out-for-herself character; not just when she was touting some sponsored product - and I don't want anyone like her working in any of my hotels in any guest contact, never mind business development, accountability.) As a matter of fact, I'm going to burn some of my Quora credits and ask Susan Deluzain Barry to jump in here and take on this question, because she can be counted upon to approach it from just that angle, quite expertly . . .
The more rooms you rent at rack rate, the lower your rack rate is going to be (see What is and why do hotels have a rack rate? ). When I see a hotel for sale, I hope to see that the broker provided an average daily rate (ADR) in addition to the hotel's occupancy percentage. Then, I go online to the hotel's website, and look up its Best Available Rate. The ADR should be about 86% of its BAR. If it's much more, say, up in the nineties, I know I'm looking at a hotel whose marketing is static, no one's really working on marketing the hotel and reaching new users. (Your ADR/BAR will be ninety-something percent anyway, just because of the number of people who come in wanting their AAA, AARP and other entitlement discounts.) There's an opportunity there, some upside potential.
On the other hand, if it's much lower than 86%, I'm going to suspect either some chicanery on the part of the seller (he's renting out a bunch of rooms really cheap, to whoever, in an effort to manipulate his occupancy percentage), or that the hotel's marketing isn't being approached very intelligently. They're handing out discounts like candy, but not all customers need, or even want, a discount. Some have other needs, but no one's finding out what those needs are. Our job is to know. The people who are staying at the hotel are paying a rate which could get them a room at a much lesser property. Obviously, they don't place a higher value on what this hotel has to offer than they would place upon a room at that lesser property. Why not? And why are we not reaching people who'd not only better appreciate what we have to offer, but even be willing to pay more?
Frequently, what I find to be happening in such cases is that any marketing that the hotel is working on amounts to going after more, more, more of what they already have; and in order to get it, they're dropping the price. Nobody's looking for anything new. Nobody's trying to identify potential new users. Nobody's communicating what this hotel, with these features, in this location, can be to anyone who doesn't already know. They're just trying - sometimes, perhaps, a little too hard - to hang on to the old. Part of the job of business development - most of it, actually - is finding and identifying these potential new friends and customers. Once that's done, lots of people can 'sell' and 'market' to them: even a gifted hourly employee can do it. If your competitors find, and reach out to them, before you do; they'll sell and market to them. So, find these people, and keep them talking to you and your own people.
Once your hotel achieves a critical mass of occupancy, say, 60% of your rooms are being rented pretty consistently, you can tap up your rack rate five to ten bucks (Michael Forrest Jones' answer to Is price discrimination good or bad?). 60% for most good hotels is quite normal: if you can't find a way to hit that in a new hotel within a year, you overbuilt, you have too many rooms . . . From then on, any discounts you have to give to secure new corporate and group business will be discounted from the new rack rate, meaning you can get a little more for that business. As you keep getting more new business (hopefully faster than the old regulars taper off and stop coming), you can tap your rate up again: it's an upward spiral.
It also works the same way in reverse: if you have to lower your rate in order to compete, any new corporate or group business you get will have leverage to negotiate a deeper discount and lower rate for themselves. As they disappear faster than you're drawing new ones -- which they will if you're not constantly drawing in new ones -- you have to lower your rates again to keep the rooms filled: you're in a downward spiral and your property is in decline. (What's the life expectancy of a new corporate account in any hotel? About six months. If they continue to have the need to be in town that long -- and even if they feel no particular dissatisfaction with your hotel -- they're prone to look at other area hotels, just because they're tired of looking at the same wallpaper. Or because one of your competitors got in touch and offered them a lower rate, or something they wanted that they didn't think to ask you for. Or any number of reasons. You can't take them for granted: you've got to be present to their needs and make sure that they're cared for.)
Your hotel is either busy living or it's busy dying. Your business is either growing or it's shrinking. It's either making money or it's not: no one's income and expenses balance to the penny, unless the balance is zero. And everyday that it's in 'survival and maintenance', every day that it's coasting along waiting for you to figure out what you're going to do with it next, it's aging by another day and getting older and more worn. Age is the enemy of any hotel, product freshness is paramount in this business. 'Grand ladies', as Conrad Hilton used to refer to his earlier properties, don't take well to age (especially showing their age), any more than real ladies do. The life expectancy of any new hotel is twenty years.
After that, it can't compete with newer, fresher hotels unless its renovated at a cost approaching its replacement cost (which isn't really worth doing unless it's in a really high-value location, near a major mall, hospital or other serious demand generator). It downscales, it gets bumped down a market tier (from a mid-market Class A to a Class B hotel, and eventually, to a worn-out economy property.) Nobody wants to check in to a hotel that 'looks old', unless they can afford nothing better - and that'll affect your revenue. Old historic hotels are the exception, but the reason that we preserve them is that few hotels that are anything like them have been built in the last fifty years.
So, consistent success in attracting and drawing in new corporate and group business - and keeping what you have -- is absolutely essential to the success of your hotel. Indeed, it's essential to the life of it.
You absolutely cannot afford to neglect this. You can't even to wait to get started - if you build a new 72-room hotel, the very day the contractors hand over the keys, you've got 72 empty rooms, and your costs and overhead are already in place. You've got to start making it payNow. It's something you should have been working on for a couple of months already, as soon as you could safely commit to an opening date. (see Michael Forrest Jones' answer to What would be a good way to promote a small hotel? )
Hopefully this answer comes close to what you need. If not, we need to talk - whatever you do, your situation is going to be unique anyway, and not everything I've said here will apply to you in quite the same way. And if you're the kind of person I like to work with; then at this point, you'll come away with questions, not the impression that you now have final solutions. I'd apologize for the length, but all I can tell you is that it still needs work (I spent parts of 2-3 days, and finally sat up late into tonight having fun with it . . .), I'll add more over time, and I won't kid you: it's only going to get longer. Even after Forbes runs it. Even my biggest followers on Quora might fairly make the criticism of me that I'm prone to a lot of TLDR material, but if you want easy answers, write to Dear Abby. (Or consult a hotel franchise organization's training manual.)
Someone else may have quite a contribution to make as well That's the beauty of Quora. Hopefully, a hotel restaurant or banquet manager, and maybe a contractor, and a commercial mortgage lender, will also show up on Quora and try to field this question each from their own unique perspective, and keep adding to it over time . . .
(I'd love to see how this Quora page would look after just a few months if they all did . . .)

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