The Main Steps in the Hotel Development Process

The Main Steps in the Hotel Development Process

The process of hotel development follows the same path, whether you are developing a boutique hotel or a luxury hotel. This much is true for all hotels, although based on the individual circumstances of your hotel development, there are some aspects that can change or will need to be changed especially if you want your project to be one of a kind.

Choose A Location

Choosing where you are going to put your hotel is usually the first step and this is a two-fold process. You will have to decide which city the hotel will be located in as well as decide where in that city the hotel will be located. These will all depend on the clientele you want to cater to. For example, for a city that’s known for its business districts, you can build a hotel that focuses on business customers. It will have to be located in a central place in that city where most headquarters for the businesses are. If your ideal business is located in a tourist destination, you should start a tourist hotel that will cater to travelers and will provide easy access to tourist attractions in the city. Striking a balance between business and vacation travelers is of utmost importance because your success, not to mention the highest occupancy, will depend on it.

Acquire Financing

The next step in hotel development is acquiring financing. To do this, you need to come up with a strong business plan that includes things like the cost per room for building and operating the hotel, the expected occupancy rates, and what types of rates you plan to charge per room. You need to have a thorough idea of what your expenses are going to be, so that you know how much money you need to secure, and take into account the cost of the land you are going to build on, legal fees associated with the development, general construction costs, and the costs of things like furnishing the hotel. Financing the building of the hotel can come from two sources – business loans or investors. With the correct amount, either of these will suffice although it is preferable to obtain a combination of both.

Choose Whether to Build or Remodel

Purchasing the land and getting any zoning variances that are required, securing a franchise, and hiring a contractor will all have to wait after securing financing. Once that is ironed out, you will have to choose whether you would build a new building from scratch or remodel an existing building. You will also have to decide how your hotel is going to look and feel. Building a new hotel from scratch will be a demanding endeavor but will give you creative control over the design process. On the other hand, franchising a national brand will be more attractive to your lenders and will save you a lot on design fees because hotel brands provide designs for their prototypes.

Developing and operating a hotel is a very risky business and your capital reserves should be able to fund development cost overruns and periods of operating cash shortages. Because of the short-term nature of the leases, and the amount of management needed to run them properly, hotels are indeed among the riskiest type of real estate development. However, it can still be very rewarding to be major part of the hospitality industry. The best way to ensure a successful development process is by obtaining experienced advisors, consultants and partners.

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