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.

The hotel acquisition process (Part 1)

As simply as possible, the hotel acquisition process 

The complex relationship between a business and real estate makes the process of buying into a hotel as complicated as one wants to make it, or as simple as a buyer wishes it to be.

Without question it is those buyers who are better informed who get the best deals.

An informed buyer needs to go through a process that will maximize the amount of information and relay the cost/benefit ratio.

As with the procurement of any business there is an acquisition process, a step by step approach.

Namely

  • Ascertaining the acquisition criteria
  • Sourcing the product
  • The initial assessment and the decision to proceed with seriousness
  • Ascertaining the price while compiling a business plan

In part 2 we will cover

  • Negotiation of the deal to a LOI to buy
  • The due diligence process
  • Closing the transaction

First up, ascertaining the acquisition criteria

A prospective owner will look at any purchase in many different ways, be it with an active or non active role, is it a short or long term play, is yield and cash return the key.

What ever the decision-making process is motivated by certain criteria stand out for consideration.

  • The properties type and its location
  • The size and potential cost per room
  • The risks involved with new competition entering the market
  • Is the management structure changeable, is the franchise affiliation changeable, is a management brand or franchise required.
  • The presently achieved cash flow and its potential cash flow and yield
  • The risk analysis to cash flow stability and growth.
  • Where is the upside potential, be it in management related areas, in repositioning through renovation,
  • The potential appreciation or depreciation in asset value

Each buyer will have their own answers to these, in conjunction each buyer needs to have clarity and a strategy within a defined decision-making program as they enter into the hotel buying process.

Sourcing the product

Your acquisition group

A broker

An appraiser who understands your market

An accountant who has hotel clients who can determine the correct net operating profit and if the revenue achieved is all from that business and that costs and controls are adequate, he can also helping the compilation of a business plan.

A market consultant, your asset manager, this is our role, where we help you find out how this property may perform or improve its performance and what strategies could be applied to achieve your financial goals, this is where we can help you put the business plan together.

Your legal adviser, who understands the hotel industry. Critical they do.

Possible an architect and or an Interior designer. If renovations and upgrades are required down the road and with the engineer they can review all the physical components of the building. Electrical, plumbing etc.

The initial assessment and the decision to proceed with seriousness

Obviously many hotels will not pass the initial screening process for numerous reasons.

The most common is an asking price that bears no resemblance what so ever to a sensible yield % based on the net operating profit being achieved.

This is mainly due to realtors accepting to list properties, and in many cases encouraging them to do so, at valuations they somehow dream up all based on what they perceive is a real estate value. Hotels are businesses and their value is mostly reflective in what net income they generate. Obviously some buyers over the years have not caught on to this hence the numerous stream of crazy priced hotels and resorts on the market here in Costa Rica. Same applies to Panama.

Once you find one that may be a possibility a site and property analysis begins and at this stage a possible go or not a go decision needs to be made.

Ascertaining the price while compiling a business plan

Based on an initial property and market analysis the aim is to come to a suitable bid price.

This bid price evolves around ascertaining what potential earnings can be achieved by your management team from the property, obviously an analysis of the present trading results by your experts and an analysis of what future market conditions will be like and the potential properties performance within that market need accessing. A preliminary business plan is then drawn up, key questions are how can we unlock value, by your team and management.

Firstly it is important to understand the market. Simply put this involves ascertaining  the present and the ever-changing dynamics of demand.

An assessment is made on how these market dynamics balance with the hotels concept, its mix of rooms and facilities, the quality of the building of both hard and softs, if applicable franchise or brand affiliation and associated revenues directly generated, the management and options for other organizations suitability to the property, and the capital structure and its future capital investment requirements. The hotels trading history and the projected market performance are complied with assumptions as to future market performance, a base line business plan for the property, with net cash flow projections over 5 to 10 years.

With this information, and your exist strategy with the potential disposition price taking into account your finance costs a professional will work with you to define the discounted value at today’s pricing, giving you the maximum price you are prepared to pay.

Then you have a solid foundation for the next decision as to how to proceed.

Is this an opportunity for a turnaround with good upside potential, or has the property reached its peak in earnings taking into account future capital investment requirements?

Obviously your appraiser will advise on the general market conditions and the weakness or strength of the local market to assist this process of defining the bid price and making that bid offer.

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.

Hotel business plans: does your asset manager participate?

In the world of international hotel management business plans are for all purposes, most sit on shelves gathering dust as soon as they are completed, some approved by the board then handed to the banks, perhaps incorrectly compiled solely by the financial department.

In the hospitality world of hotel brand management most form an annual ritual of head office wishing to find out what their management fees will be under pressure from the CEO who is hell bent on growth, while the GM and the team put a proposal that is rather conservative knowing that some so called expert higher up will boost it up killing off any incentive to achieve it.

Some are for owners who do need the truth, some are for owners that do not need the truth, for what ever reason and they are numerous.

Some are to back up the feasibility study to obtain financing for a new project.

Some are the feasibility study (we are building it so you better tell me how much profit we will make 1st year!).

Some don’t gather dust, those created by smart business operators and owners.Some are for real.

Real ones are living documents, put together by all members of the team, from the bottom up, line item by line item for each cost center and for each market segment being part of the revenue generation plan. Everyone is in sales so everyone is involved. Everyone you ask, yes, even the pot washer.

The result is a plan that with some prodding skywards from those above is an achievable and motivational tool that the owners and operators can feel proud in achieving.

Yet how many actually make sense, and that are worked on monthly by hotel owners and management as a team, with an asset manager who has the skills to see things from a different angle to that of the management company and who is probing for opportunities to unlock value during the annual business cycle. Not all that’s for sure.

For resort management or hotel asset management that really makes a positive difference, email mark@turnerlodgingco.com.

Hotel management practices by a hotel general manager

Quality hotel management practices by a Hotel General Manager include reviewing the financial performance monthly, however it is not all about internal financial control, one must when going about an analysis of expenditure take into account what is most appropriate for that unique property and its positioning in the market place, in relation to similar ones, keeping in mind the intention is to maximize profits, not just control costs.

This is called a variance analysis, reviewing each single line expense as per the hotel system of accounts to budgeted and prior performance, together with a revenue management overview comparing the hotel’s income performance to that of the competitive set.

What sometimes is missed in this process is a check of some accounting control measures, work that needed to be done correctly by the Financial Controller and team during the month.

My list is as follows, additions are most welcome as I expand it if needed.

  • That proper bank reconciliations have been completed and no non-reconciled values are shown on the bank reconciliations.
  • That all major reconciled items are current and that all necessary steps have been taken to clear non-current reconciled items.
  • That all cash in hand and house floats have been counted at least once during the month, that differences have been fully and conclusively investigated and that appropriate accounting entry has been made in the hotel books.
  • That all trade debtor sub/ledgers reconcile with the related accounts in the general ledger.
  • That the aged balance of the trade debtors has been reviewed, that proper actions are being carried out to ensure prompt collection of outstanding balances.
  • That all disputes and litigation are properly monitored, that a review of all outstanding balances above 60 days has been carried out, and  that the monthly provision for doubtful accounts has been appropriately adjusted in accordance with the overall risk of non collection.
  • That guest ledger balances are all current.
  • That physical inventory has been carried out at least once in the month in the presence of an employee external to the store-keeping department, that all differences have been fully investigated and that appropriate accounting entry or entries have been made.
  • That any perished or obsolete item of no value has been properly written-off in the accounts.
  • That all Trade Creditors sub ledgers reconcile fully with the related accounts in the General Ledger.
  • That statements received from Creditors have been properly reconciled with the related amounts payable in the books.
  • That the aged balance of the trade creditors has been reviewed and that appropriate actions have been taken regarding long outstanding amounts.
  • That proper accruals have been made and that all balances held as accruals and prepayments are adequately supported.
  • With the exception of normal accruals and deferred items arising from cut-off procedures, that no balance of revenue or cost nature is held in the balance sheet.
  • That inter company balances have been reconciled and confirmed with the other parties.
  • That the payroll cost recorded in the general ledger reconciles with the payroll report for the month.
  • That all other balances held in the balance sheet have been properly reconciled.

After all it is all about cash collected banked with correct accounting procedures.

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.

What hotel star rating do you need?

Do you know about hotel star ratings? Ok they are generally different from one county to the next, for good reason. In Austria a 4 star hotel needs to have a 4 course set menu available daily in the restaurant, in Hong Kong room sizes are smaller, that would have an impact on a North American standard rating. Hence no world wide hotel rating system exists.

Where do you really stand? More importantly where do you want to stand? What is your proposed market positioning to maximize ROI, how do you propose to get there?

Do you have an asset management plan that is geared to unlock value in balancing your star rating with what you need to be and no more?

Consider all of this!!

The following items are considered during the inspection process by that hotel inspector  

1. Guest Arrival Phase

Advertising/Media Professionalism; Reservations/Phone Assistance; Restaurant Location; Signage; Building Appearance; Parking; Valet Parking; Grounds; Entrance; Maitre d’ Stand; Coat Room; Initial Greeting; Cocktail Lounge (Location/Décor/Service); and Seating.

2. Guest Room and Bath

Living Space; Decor; Drapery; Linens; Technological Items (TV, Telephone, Ipad etc.); Minibar; Odor/Ventilation; Heating/Air Conditioning; Furniture; Beds; Walls; Closet/Storage/Drawers; Fixtures; Lighting; Floors; Housekeeping; Additional Amenities; turn-down Service; Bathroom Linens/Amenities/Physical Product; and Robes.

3. Public Spaces

Lobby/Public Spaces; Elevators; Hallways; Signage; Banquet/Meeting Space; Pay Phones/House Phones; Temperature; Public Restrooms; and Security.

4. Product/Services

Concierge/Guest Services Staff; Fitness Center/Equipment; Day Spa Equipment; Fitness Center Staff; Day Spa Staff; Fitness Center Services; Day Spa Services; Fitness Center/ Housekeeping; Day Spa Housekeeping; Business Center Equipment; Business Center Staff; Business Center Services; Gift Shop Staff; Gift Shop Services; Retail Outlets Staff; Retail Outlets Services; Laundry/Valet; Shoeshine; Newspaper Delivery; Pool Cleanliness/Safety; Pool Lounge Area; Tennis Court Conditions; Tennis Court Services; Golf Course Conditions; Golf Course Services; Beach Condition; Beach Services; Condition of Hiking/Running Trails; Skiing/Snowmobiling; Watersports Services; Watersports Equipment; Children’s Programs; and Transportation.

5. Departure

Check-out; Bill Accuracy; Baggage Handling; and Valet/Car Services.

6. Food and Beverage

Room Service Order Taking; Room Service Timeliness; Room Service Delivery; Room Service Product; Room Service Pick-up; Bar/Lounge; Primary Restaurant Rating  Secondary Restaurant Arrival; Secondary Restaurant Physical Property; Secondary Restaurant Service; Secondary Restaurant Culinary; Secondary Restaurant Beverage; and Secondary Restaurant Departure, etc etc etc!!.

Confused? So you should be.

What’s best for a property is no easy answer. What level of service and product standard will maximize your ROI? What investment plan do you have to make sound capital investment  plans that will position your hotel correctly and create or unlock asset value?

In need of help, the hard part, the implementation? Then contact us, we can help you consistently achieve your desired service and product standard that fits into your asset management and operations plan that will maximize your ROI.