What exactly is a boutique hotel?

In today’s hotel market one may well ask what exactly is a Boutique Hotel? It seems the word BOUTIQUE has been misused and marketed irresponsibly by many hotel owners and operators worldwide. Nowadays you see the word associated with 2-star Days Inn styled rooms at so-called ‘eco’ resorts where the only eco aspect to their operation is a few plastic bins for so-called separate waste disposal in the guest rooms. Both the word ‘eco’ and ’boutique’ are clearly overused and in most cases not at all relevant to the property marketing itself as being so.

So for ” boutique” some education for those in need of it.

A Boutique Hotel needs to reflect the following. Small, fashionable and independent; when lacking innovative design and stylish high quality personal operations and impeccable amenities, these small hotels are in violation of the fundamental boutique motif and are merely small. Add to what boutique should reflect in a hotel, innovative design, distinctive, individuality, flair, original, and creativity, and you can see how this word has been turned into more than rather a vague term confusing the market, and undermining those that actually achieve it.

Cool, or hip or historic, themed, marketed for business or leisure and more often than not both, the meaning is now an extension of the original boutique hotel urban properties where the key descriptive components were fashion, elegance, glamor and style. Nowadays the word transcends these earlier definitions and crosses many hotel classifications, from small to not so mall, luxury to affordable, urban to resort, chic and cool to traditional. Boutique Hotels have many sub segments.

Ignoring the attempts by chains to be boutique-ish, the W brand for example, and the Malmaison Group in the UK, boutique hotels independence has enabled owners and operators to keep at arm’s length corporate standards of the chains that more often than not hinder the creative ideas of those employees on site in supplying distinguished and personalized hospitality services to the travelers they know.  In boutique hotel operations it is much more than employees knowing each guest’s name, which in some of the so-called larger boutique hotels is an impossibility anyway.

It is in my mind more a return to traditional hotel keeping, knowing your guests and fully understanding their requirements as individual travelers and then actually delivering that service in an exceptional manner, all within an environment that has innovative design, distinctive characteristics, where individuality and flair shine through, and the whole experience to the traveler is original and creative.

Some development priorities summed up:

  • An at home feel in both size, elegance and throughout it is of a different perspective.
  • Inviting, at peace with itself, snug, social.
  • Top of the line, select and personalized. Personalized means sincere and warm.
  • Home made, hand-made, not the standard factory produced stuff. This goes not just for the set up and fit out, add to that food, beverages, paper, amenities.
  • Hello to the designer! Square foot by square foot thought through!
  • Concepts that are of quality, from design to delivery.
  • Amenities unseen near you, out of the box, from soaps, to personalized jams, cookie wraps, cocktails on arrival, smart phone, limos to the office, and the house essence.
  • And time and time, time to create, time to prepare to deliver!

For boutique hotel development planning and management that deliver on the true concept of the word, contact mark@turnerlodgingco.com.

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Hotel brand franchise affiliation vs the independent alternative

It’s probably more or less impossible to 100% evaluate the benefits of one hotel brand franchise affiliation to another and also compare it to going the independent route and get it 100% right taking into account numerous aspects including perception in the market of one brand or franchise to an other.

It’s complicated, difficult, and challenging.

300 odd franchise/brand/chain management options in the market make this a real headache. Then how to decide between the one chosen as your 1st preference and going the independent route.

Yet, a certain owner I recently met, new to the UK, was more focused on asking me for advice as to “ what brand would you choose” as if I had the answer out of a hat! He liked my idea on one with the comment “ yes, I know owners who think highly of them”.

It’s not about past performance with others, it’s what best fits your unique circumstance. That circumstance being highly technical, re investment, location, positioning etc etc etc.

Assuming one has a preference, how to address the independent alternative as an option?

In the past being or not being associated with a franchise has involved, as the primary focus, understanding how much business has been or could be driven through brand reservation systems and the online presence. Trouble is one can’t estimate how much business a property could have achieved by being a stand-alone, by itself, if it was an independent for comparisons sake.

One has to also figure out the comparison in the cost of booking aspects from a brand/franchise to being an independent. How much is an owner paying for all those guest promotional programs, the advertising, and its contribution to a central reservation system? Complicated, just look at group and other business that is driven at property level and then possibly added into the affiliation reservation system count.

In brief, franchise management fees can be as a % of revenue 7% to 10%, with 9% that’s 45% of one’s net operating profit if a hotel generates a 20% NOP, which is about average.

45%!

Now lets assume 25% of one’s rooms generated business has been through the affiliation, the other 75% through the hotel’s direct efforts. Taking the 9% as above the actual bottom line effective cost of rooms achieved by affiliation association is 36%. That’s the ratio of affiliation fees paid on rooms revenue to the % of business this affiliation has in rooms income terms benefited a property.

Not cheap is it!

Where do we break even in this circumstance? How much business is needed to break even with a 9% fee cost to owner? How much additional business does this affiliation need to generate that one could not have achieved by being an independent operator?

With a 100 roomed hotel achieving 70% occupancy with a ADR of $100 the fees equate to $229,950. With a department profit of 75% that’s 3066 room nights required, or an 8.4% in real term increase in occupancy.

Brands and franchise affiliations do work, a lot has to be said for going that route, however not for all, and in my view not for many that have this relationship.

With the modern world changing, with ecommerce evolving at break neck speeds and with so many options for independent properties to take advantage of the more than 60% of hotel bookings on average influenced through the web, according to some experts, owners would do well to think through very exactly what benefits going the independent route can offer.

Greater flexibility in pricing and positioning, more precise control, more control and options to choose service levels, in design, in marketing, more influence on management, more flexible use of capital to meet positioning standards. Probably easier to sell and exist the investment. That’s a very simplified view.

For advice on the independent route and putting a business plan and operation in place to take advantage of today’s ecommerce, non franchised/chain reservation systems, putting a sales team together, and a marketing program for a stand-alone resort, that would not cost that 9% annually, contact me via mark@turnerlodgingco.com.

The hotel acquisition process simplified (Part 2)

Negotiation of the deal, BTW please see part one of the hotel acquisition process

So the bid price has been in principle accepted so we need a document outlining the project and the analysis as to what led you to that position.

This guiding paper being the foundation of the operational business plan would include,

A description of the property, the market summary and the projected market opportunities, all the financial information with the cash flow projections, financing aspects, management and brand affiliation opportunities, renovation costs and an engineering plan in general regarding future requirements related to the building .

Now the process of serious negotiations can begin, and the buyer needs to take these next steps forward with due care.

The hotel procurement terms consist of these most important aspects of a deal.

The price, the financing package including seller options, title and property condition, default aspects, an agreement on what is defined as a hotel asset (this list consists of, but is not limited to the land and property, cash, all inventories, prepaid deposits and expenses, all equipment be it fixtures fittings and all equipment, from linen to spoons to security cameras, vehicles, licenses and permits  as well as staff lists, all operational human resource records, all sales and marketing information, clients data lists, suppliers, key accounts, accounting books of record).

Numerous aspects are involved to come to an agreement to the final sales price.  Seller financing will push the price up, long payment terms will push the price up. Can a mortgage be taken over? What is the financial strength of the buyer and how quickly can the property be bought? All will influence the price.

Also a list of contingencies come into play, such as the buyer not being able to secure  financing, get the required licenses and permits to operate, achieve the deal line of due diligence completion.

The contract aspects evolve around agreeing on a non binding letter of intent, or an other option is to go straight into a binding agreement with a list of all the way outs, (for what ever reason during the due diligence process, lack of financing, unable to obtain permits etc.).

It costs more and takes longer to negotiate a binding agreement with outs, and the negative aspect of the LOI initial approach is that you are lengthening the whole process.  You are trading off wasting time with this process compared to  a gamble the due diligence results will be to your satisfaction by going straight into a non binding contract.

Letters of intent can serve good purposes when complicated transactions are being negotiated, for certain legal reasons, if a group of investors are involved.

What goes in and what does not go in these non binding letters of intent or a binding document with outs will be carefully discussed with your lawyers and all advisers. For example does the buyer want the seller to not be able to sell to any one else during and initial period, perhaps the whole due diligence period? Can this be negotiated? Is there a time line for all this process to be completed?

Probably both parties will want to be able to be able to terminate at any time without damages, and as a buyer may be spending a lot of cash during the due diligence period, then they need to have full clarification of their rights to enforce the seller to proceed with the sale.

The due diligence period incorporates the following:

  • A legal description of the property
  • All employees, name, remuneration package details, position, all benefits.
  • All engineering plans and architectural specifications will be provided
  • All insurance aspects with details of all coverage with the costs and details on all limitations
  • All inventories detailed
  • An accountant will audit the profit and loss statements
  • An audited balance sheet for the last five years will be produced
  • Capital and construction expenditure for the last five years detailed and an estimate  of  projections for expenditure required next three years
  • Details of any actual or possibly pending legal threats or litigation against the property.
  • Details of any mortgages on the property.
  • Fire, health and safety reports with an engineers report
  • Land tax and property tax applicable with proof of payment last 5 years
  • List of all supplies of services.
  • List of all tenants, rents, lease details
  • Occupancy and average rate the last three years clarified
  • Recent appraised valuation of the building
  • Reservations and deposits
  • Service contracts with third parties, with details on all issues the buyer will assume like franchises, licenses, permits, management agreements, union agreements.
  • The current operating year profit and loss statement with comparison to previous year will be ascertained to which the management will comment and add certain costs that may be missing so a true reflective NOP can be clearly determined
  • Trade names and copyrights.

Following successful completion the final purchase and sale contract is drawn up.

The content and issues outlined in this document are normally like this.

The property description, the list of assets being purchased, title and survey aspects, all licenses and permits and franchise agreements, the date of transfer,  all the financial terms with the terms of finance and information related to present trading results, the details of the due diligence with the obligations and  rights of both parties, occur and the rights and obligations of each party, closing documentation, closing expense obligations, and legal aspects.

In addition since staff are the most important ingredient of a successful business and one is buying into their expertise their needs should be very much at the forefront of the buyers mind.

The take over of the staff should evolve around the sellers officially terminating all employees on the day the property changes ownership, and then the buyer re hires them (or whoever they wish to hire) on a probationary basis. Management should by this time have a good idea on the benefits of re hiring most staff as the analysis of staff strength should be a critical component of the due diligence process. Aspects covered include staff medical records, pension and benefits, and vacation days owned.

Often a buyer will decide that all staff can bring forward their benefits and an accounting transaction is worked out. Legal advice being taken regarding assuring the buyer avoids taking over any liability issues.

The hotel closing day transactions incorporate calculation of that days property’s revenues and expenses and the physical stock take of all inventories included in the purchase price.

Once the necessary calculations have been worked out and the cash transferred the buyer is the owner!

For advice along the tricky road of hotel acquisition contact mark@turnerlodgingco.com.

Condominium hotels and resorts, advice for investors (Part 1)

The term condominium hotel is best summed up by this description: The accommodation units are individually owned but they are under a management umbrella and marketed as a unified group and operated as a hotel. Add on some common area facilities such as a spa, a front desk, restaurants and bars and administrative areas, with in-room dinning, property upkeep and maintenance .

All very simple really, or is it? What makes a condo hotel unit such a complicated piece of real estate  to purchase and be owned? The following commentary is not unheard of. Not what you will hear from a real estate agent!

The most important aspect to consider is the relationship between the players, i.e., the developer and real estate agent who are hell-bent on selling the units, the rental management operator or hotel operator who is concerned the buyers are being misinformed with hugely overstated revenue projections by the developer’s sales team (revenues they will never be able to achieve), the management of the common areas (strata) who may or may not be the rental or hotel operator who is concerned that the owners are not fully aware of all the ongoing fees and cost involved in looking after the property as perhaps these fine details have not been presented in the purchase contracts (a classic response to any one who asks is “they are being worked out right now”) and the owners, the buyers who buy into it.

First up the buyers (the owners ) review all those glossy sales packaging, great pictures, revenue projections in your face that have little or no realistic market research behind them, which may or may not resemble the actual projections the management company presented to the developer, who package it all very well of course with fine print that is basically meaningless. Your home in paradise!

Then owners end up being peeved off with the management company who have to bear the brunt of the owners’ frustrations as they gradually find out that their net revenue, after all the commissions and operating costs, in no way cover all of the ongoing costs, and that includes strata fees to cover the management and upkeep of the common areas and the like, all the general repairs and maintenance, taxes, etc. Especially so after deducting the rental operator’s fees that could be near 50% of revenue.

So as condo hotel ownership gets to be a bit of a financial let down for the owners, the pressure gets tight, everyone is trying to reduce costs and maximize revenue. So the owner decides it is about time to take a trip and have a bit of a break, and experience his second home and see what is actually going on. (See Part 2 of this most interesting topic!)

Condominium hotels and resorts, advice for investors (Part 2)

Upon arrival the front desk agent greets you in the same friendly manner as they would greet a normal guest, and a key is handed over and you make your way up to your unit.

As you enter you are immediately taken to the dark marks along the wall near the entry  door, luggage marks you guess, the dining table has large scrape marks and one leg is partially broken, there are  glasses and plates missing from the stock you originally purchased, the towels look faded and worn, the carpet hasn’t been vacuumed well, the drapes are not fitted correctly with broken attachments at the top and the bed sheets have hairs on them.

You reflect back to your last monthly statement, which details costs of 50% of revenue to the rental manager, $275 in maintenance and repair costs, the electricity and water bill, your portion of travel agents commission costs and credit card commissions, and the hotel marketing franchise fee, and then you try to figure out how much if any will be left over to pay the mortgage and property taxes. You also note last month was the high season and you couldn’t even stay in your unit so you expected your bottom line income to be one of the best months of the year.

You ask to speak with maintenance about the work not completed in your unit, and get transferred to the rental management company’s in-house maintenance department. A voice mail kindly responds with a message request, which you leave, which is not replied to.

On return from a day enjoying the sights, you decide to speak to the rental management company to complain, firstly about all the revenues which are below expectations, and then all of the repairs and maintenance issues you feel are costs that should be borne by the rental management company as the damage you have seen in the unit has to be renter and guest related and not owner related.

A conversation then occurs that focuses on the definition of what normal wear and tear is, and the owner’s responsibility in covering normal wear and tear costs, but the broken table leg is agreed to be fixed by the management company at their costs. That makes you feel good, until you remember the rental income issue was never discussed. You then make a call to someone else and are reminded that there is a lot of competition and the rental market is not growing as was originally thought, but “we are out performing the competition,” what ever that means. You decide it’s time for a night out to relax and take a meal in the hotel’s restaurant thinking any profit will be reflected in your next monthly statement until you realize on return to your unit that the hotel management company does not share any profit in other areas of the hotel other than income generated through the rental of the units.

Boy, this is getting messy you think, and off back down to the bar for a night cap! (Continued in Part 3!)

 

Condominium hotels and resorts advice for investors (Part 3)

Have you read Part 1 and 2 regarding condominium hotels and resorts?

Following on in this true saga, the next morning on awakening you feel water on the bathroom floor and look up to see on the bathroom ceiling a water stain and dripping water. A quick call to the front office agent and you get passed onto the rental maintenance department. However you are then  passed onto the common area building maintenance department, (the strata property management company as your building has both a rental and a strata property management company and is not managed by one operating entity)!

You are becoming confused…

The strata property manager then makes it clear this is a strata issue and that the owners of the unit above will be contacted and this issue will be fixed by the strata property management company.

The strata property manager now has to ascertain the reason for this leak, and after some time and cost to the owner above concludes it was from a leaking water pipe connection to the dishwasher in the kitchen above, which backs onto their bathroom.

So you pass that information off thinking that the owner above wasn’t in the unit at the time  and why didn’t the rental management company take action on this to stop it, as they rented the unit out. Or shouldn’t they have charged the renter you think, but on asking the strata manager for an explanation so you can better understand how the system works get told that the rental management company didn’t report the issue, as they should have done, and the guests were not charged for any damage. On asking the rental management company why this happened you are told that the guest checked out before they noticed anything wrong as it was a hidden pipe problem, so they could not consider charging the renters, and anyway this was a wear and tear issue and not related to any actual direct action which could be defined as abusive by the renters, so no action would have been taken to charge the renters anyway.

You are perplexed and further confused.

Why was the leak not reported to the strata manager earlier, why did housekeeping not report the damaged ceiling in the suite below?

All this leaves you wondering why you did not have this kind of discussion with the strata property manager and the rental manager prior to purchasing the unit. You reflect that the only information you were supplied was some beautiful artistic renderings and some income projections. You leave more troubled than you were when you arrived, blaming yourself for not doing adequate due diligence on buying a second home.

Now add-on to this, how about this model being further complicated by a developer promoting it as a fractional development with 3-month segments with 4 possible owners,  and a flexible rental pool option? One owner can rent if they wish, the others may not if they do not wish to.  Yes, it happens! Anything to sell something!!

Work that one out!!

Who pays for what, is the first question one needs to ask as a buyer, then do your sums and work out the bottom line and ask yourself ‘will this be a good financial deal for me?’ It is a financial investment transaction, you are not buying into a second home, you are buying into an investment where the users of the unit will not be as caring as you, with an investment model which over the years has proven to be a risky one.

Lesson:  Owners and buyers, beware of the so-called ‘income projections’ presented by the developers and uneducated real estate agents that are totally unrealistic and that bear little or no resemblance on what the net income could possibly be. Get independent advice before buying into a condo hotel.

Lesson: Developers partner with hospitality management that knows how to get results!

Developers who want a partner to make a long term success of a project please contact Mark, and for owners, please do the due diligence!

Boutique hotel development room design considerations

In designing and planning a boutique hotel room basic design elements take center stage at the commencement of the development process..

Jumping from the planning of the guestroom floor with the slab and design configuration options, defining the room mix is at its core based on the market study, or the basic understanding of what market the hotel is to attract.

The guestroom program defines what bay within the architectural design will be allocated to king, queen and twin bedded rooms, the variety and number of junior and king suites, service areas, and what connects to what directly. The design team, and that includes the interior designer at the outset, studies a wide range of options and room layouts paying particular attention to the optimum width of the architectural bays, and how to use them to best advantage.

Over the years it has been ascertained that a width of a hotel bay and the associated net width of the interior of a guestroom in a single bay, be at a minimum 4.1m for an upscale property. This permits a major advantage in that it allows the king bed to be positioned against the bathroom wall and not as one usually finds in a standard hotel room on the side of the wall. It should be noted there is not that much advantage in a wider width unless it reaches 4.9m. Then a lounge or/and work area can be placed on the opposite wall to that of the bed, and allows for a 5-fixture bathroom.

The market definition for boutique hotel usually arrives at a consensus that 75% of the rooms should have king beds with additional keys being allocated to single or larger suites and queen queen rooms. In boutique hotels  the rooms are usually somewhat smaller than the norm given the fact many are renovations of old hotels that owners have  acquired at an attractive price and cost-effectively remodeled, the role of the design team becomes even more important in applying techniques for combining the guest activity zones within a room in a way that increases the flexibility of use.

To fit the market position as a true boutique hotel, projects need to create elements that distinguish themselves from being just a traditionally renovated room, adding flair and humor to give distinction from just a remodeled hotel room.

Nowhere in the room is the planning and design more important than in the guest bathroom;  to maximize the efficiency of design, bathrooms are positioned in pairs, together with the pairing of two guests rooms back to back.

Usually total guestroom area allocation at a minimum for an upscale property equates to about 24 square meters for the living area before space is allocated to a closet and an entry area, with a 1.8m by 2.8 meter bathroom. Total guestroom of 36 meters square at a bare minimum.

Summing up, 3 key areas need addressing, the net width of the inside walls, the length and the size and shape of the bathrooms. However it is not so much the size, it is how that size is utilized that holds the key to a well designed market-focused boutique hotel room.

Larger and more sexy bathrooms for boutique style properties are obviously more important than in a 3-star branded hotel at an airport. Guest bathrooms with compartmentalized toilet, separate shower stall with spa style shower heads, 2 sinks, and a tub are becoming more the norm and guests are sure to measure the boutique hotel experience to what  they enjoy in their homes. Obviously exceptional good use of space by the interior design team for each square foot available can overcome in the guests mind any limitation of size of the living area and the bathroom.

However the space is utilized, the bottom line is that innovation and artistic expression need to go hand in hand with practicality, designs that combine good flexible function and comfort within an established budget based on the market positioning, with technology aspects within the room that are easy to use.

For more advice in the design of  boutique hotels contact Turner Lodging Co; remember, a hotel design team is only as good as the hotelier who guides and inspires their creativity, helping them to integrate operational efficiency and day to day functionality into the design as only a hotelier could.