Hotel Expansion: Renovation vs. New Construction

By Fred B. Roedel, III Partner & Managing Member, Roedel Companies, LLC | April 02, 2015

Keys to Successful Expansion

There are three options to expanding your portfolio of hotels. You can purchase an existing property and leave it as is, build a new property or purchase an existing one and renovate it. Economics is what will drive your ultimate decision. In order to determine which expansion option best meets your objectives, it is important to properly and reliably evaluate each opportunity by breaking down its time, cost and quality elements in order to ensure success.

Renovating an Existing Structure

When considering whether to invest in renovating a hotel, two key factors to look at are location and opportunity. Renovation of a property makes the most sense when it is in a proven market and holds intrinsic value that cannot be recreated - is a historical landmark, is an example of unique architecture etc. Such properties are often valued by the community, sought out by travelers and, if of historic significance, may come with marketable tax credits.

A renovation of an existing hotel can be a positive alternative to building a new one for the following reasons:

  1. You have less market risk when buying an existing hotel with a proven location and trading history.
  2. Higher construction costs and land scarcity in good markets often mean that the economics of building a new hotel will not work.
  3. Buying an existing structure may be the only option for placing a hotel in a specific location.
  4. You are acquiring an existing structure and as long as the structure is sound and adaptable to your plans, a major development component is addressed.
  5. The overall construction timeline and cost may be less since a structure is already in place.
  6. The timeline to positive operating cash flow and market stabilization can be much shorter than that of a new development.
  7. Many communities actively seek developers to redevelop properties and be a part of redevelopment efforts, in some cases monetary assistance maybe available as an incentive.
  8. Redeveloping a property within a community can have an immeasurable positive impact on the property and its potential.
  9. Renovation tax credits are available for many older structures. Depending on renovation plans, a development could garner 10 - 20% of the commercial investment value in tax credits; you can then sell the tax credits and use the cash as equity.The areas to be cautious of when it comes to renovating a property are:

Have an accurate pre-renovation timeline.

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Coming up in June 2019...

Sales & Marketing: Selling Experiences

There are innumerable strategies that Hotel Sales and Marketing Directors employ to find, engage and entice guests to their property, and those strategies are constantly evolving. A breakthrough technology, pioneering platform, or even a simple algorithm update can cause new trends to emerge and upend the best laid plans. Sales and marketing departments must remain agile so they can adapt to the ever changing digital landscape. As an example, the popularity of virtual reality is on the rise, as 360 interactive technologies become more mainstream. Chatbots and artificial intelligence are also poised to become the next big things, as they take guest personalization to a whole new level. But one sales and marketing trend that is currently resulting in major benefits for hotels is experiential marketing - the effort to deliver an experience to potential guests. Mainly this is accomplished through the creative use of video and images, and by utilizing what has become known as User Generated Content. By sharing actual personal content (videos and pictures) from satisfied guests who have experienced the delights of a property, prospective guests can more easily imagine themselves having the same experience. Similarly, Hotel Generated Content is equally important. Hotels are more than beds and effective video presentations can tell a compelling story - a story about what makes the hotel appealing and unique. A video walk-through of rooms is essential, as are video tours in different areas of a hotel. The goal is to highlight what makes the property exceptional, but also to show real people having real fun - an experience that prospective guests can have too. The June Hotel Business Review will report on some of these issues and strategies, and examine how some sales and marketing professionals are integrating them into their operations.