Ignore these key resort development steps and you can end up with a non-performing asset. Unfortunately, its common for new resort developers to miss the ‘big development picture’. Read on if you intend to make the right moves.
1. Identify the market segment and know it well know
Which market segment does your proposed resort cater to? Mass market, boutique, high end, mid market?
Understand why you want to enter that particular market segment. Is the segment growing and margins large enough to justify entry? Or are you planning to increase your social and business visibility by owning a resort?
2. Identify the site that best fits the intended resort
Is the site location, development density, height constraints in line with market expectations? The site issues covered in land development site analysis apply here equally.
If you have an existing site should you be re-assessing whether it fits the intended market segment?
If you’re still looking for a site find something that’s appreciated by the target market. You probably don’t want to end up doing a villa type project in an urban setting. Not that you can’t, but why?
3. Identify the hotel management companies
It’s wiser to engage a hotel management company if you are not already a well experienced owner-operator. Talk to hotel management companies operating within this market niche. Assess their level of interest and terms of engagement before committing.
4. Determine the operating performance for similar resorts
What’s the annual average room rate, occupancy and operating expense of similar resort hotels in the vicinity?
You will likely require a market study to get these data points if there are external funding partners. For a start visit these properties yourself. Get acquainted with the front office staff and they’ll likely offer an indication of occupancy numbers. Published room rates are readily available from the internet. Net off agents commission to obtain net-to-hotel rates.
Ensure these figures are as close to market as possible. Current year figures must not be projections, else you get an unrealistic financial feasibility study and development budgets.
5. Determine the cost of capital
What’s your investors have a hurdle rate? Do they see the resort as a realistic investment? Or are they open to possibly lower returns while enjoying the public recognition of owning a trophy? Whatever the reasons don’t proceed blindly. Go through the process of establishing the cost of capital. Better for you to know the project’s financial status now than hope for the market to meet your expectations later on.
6. Prepare a financial feasibility study
Prepare a 10 year financial feasibility study to determine cash flows over the course of ownership. Hotel management companies can assist with figures but their forecast seldom extend beyond 3 years. Resort hotels are risky investment with long gestation periods. You have to expand the time horizon to take into consideration the uncertainty. Stress test the investment with a monte carlo simulation.
7. Establish the development budget
The discounted cash flow identified from the financial feasibility study determines the development budget. Divide the development budget into their main constituents : land, construction, FF&E, professional fees and operating capital.
8. Identify the resort design team
The resort architect is the key consultant to appoint. Choose well. Resort architect performs a role beyond designing a functional building. They set the tone for the entire resort. This potentially impacts the visibility and viability of the development. If you’re unfamiliar with the unique services resort architects provide talk to at least half a dozen to get an idea. Shortlist 3. Select 1. Same goes for the interior design and landscape architect. Here’s a list of resort architects to start with.
9. Design the resort around the capital budget
Work closely with the design team to bring out the value in the design concept – guide but don’t constrain and dictate. Ingenuity needs fresh air. Make sure the hotel management company has already been appointed at this time. Their input is crucial. Most important, try not to go beyond the development budget. Otherwise you may never get to smell the investment returns.
10. Execute and manage the development budget
Development budgets needs to be managed throughout the entire planning, design development and construction process. Work the with architect and cost consultant to value engineer such that it’s always on budget until completion. In practical reality this will be a back and forth iterative process. Trade-offs are to be expected as well.
There you go! 10 steps
At the end you will be closer to developing a resort that’s recognized by the market and an intelligent investment.