Staying power

OWNING a hotel or resort may be a dream. Once you have fallen in love with a project, which is often a prerequisite, there is much to consider such as location, segment, size, service concept, business mix, demand generators and facilities.

Something less obvious to first-time hoteliers, is selecting the right business management model.

There are probably few truly passive real estate investments, but hotel businesses are especially active and require day-to-day attention. Professional management and distribution are often only part of the answer. Seasoned hotel investors will tell you that professional managers need to be monitored and challenged to enhance guest experience and drive asset performance.

New development vs acquisition of existing hotel

This choice is often driven by the real estate opportunity at hand. In both developing and mature markets, ideally where hotel demand exceeds current and short-term newroom supply, there can be significant upsides if you are prepared to take on development risk.

Advantages of a new development:

Advantages of acquiring an existing hotel:

Management vs franchise

Most hotel operators no longer own the hotels carrying their brands. Instead, they favour the "asset-light", or "asset- right", model. Hence, if you own the capital asset, you will need to decide on the following:

Unless you are an experienced hotelier with a dedicated team of hotel professionals committed to your asset, then self-management or even franchise may not be your best option. As the largest global operators consolidate and grow their market share, an independent hotelier - without access to a significant room distribution system and economies of scale - will be an increasingly niche option. An alternative would be to have your hotel managed by a branded professional hotel operator.

Developers and investors should be aware of the core concepts of the Hotel Management Agreement (HMA), which is effectively a combination of a licence and service contract, and certainly not a lease:

Should the owner wish to be more independent from the operator, or to make the operator share the business risks, then hybrid business models, such as a man-chise or joint venture, may be considered. Usually, operators are fairly selective in taking on joint ventures.

Selecting the right hotel operator/franchisor

If you have decided that engaging a third-party operator or brand is the right business model, it is time to pin down potential candidates for the hotel operator/franchisor's role. One must remember that the selection process is not just choosing a big brand. It is finding a partner that best matches your particular hotel, in terms of added value with due consideration of local market specifics, competition among rivals, and potential for growth. You will also want to drive competitive HMA terms that reflect the opportunity you are giving the operator by appointing them to brand your property.

In order to optimise the operator selection process, the developer should identify its top priorities and ensure they are reflected in the request for proposal. In our discussions with owners and developers, the following priorities often arise:

Owners have different priorities at different stages of a project. Initially, it may be securing finance or development approval, thereafter, getting the hotel to operating maturity as quickly as possible, and then focusing on bottom- line performance, operator's fees and maximising the exit opportunity.

Only projects with the most sought after locations and sponsors will tick all the boxes in the above list. Developers often have to choose possible deal-breakers carefully, with an estimation of their bargaining position. W

Lada Shelkovnikova is Partner & Singapore Leader of Hotels & Hospitality, Withers KhattarWong; and Robert Williams is Partner & Asia-Pacific Leader of Hotels & Hospitality, Withersworldwide