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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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.

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.

Restaurant development and operations

So you want to develop and operate a restaurant. In a hotel, in a resort, a stand alone, where ever. Consider the following, and these are just the basics!

The restaurant business concept stage

  • Do you have a restaurant development check list?
  • What is your development cost estimate and timeline?
  • Do you know how to get your team together and who should be in it?
  • What will be your concept and unique positioning and branding and how are you to develop name awareness?
  • What kind of analysis of the competition will you focus on?
  • What future expansion is envisaged and how will you expand your brand awareness?
  • What suppliers are available with what product?
  • What menu will suit?
  • Do the initial figures work?

Business planning and operations

  • What legal structure suits you?
  • How deep will your market analysis be so you can ascertain the needs taking into account competitive offerings and pricing?
  • What will your management and support organization be? Do you know how to create your management structure and organization, skilled in operating one?
  • Have you done a feasibility study and are you capable of creating your detailed operational business plan?
  • Building, leasing, joint ownership, what is your development plan?
  • What professional and advisory support will be needed? Need expert advice with startup expenses and capitalization, and other startup costs and your financial plan?
  • How will you fund this? How will you fund growth?
  • How do you implement administrative and financial reporting that makes sense?

Issues to consider with the restaurant location and its actual site

  • Do you know why the real estate aspect matters?
  • Will you lease?
  • Are you knowledgeable enough to negotiate a lease with a fair rent?
  • Do you know all the design and architectural issues needed to be addressed and managed?
  • Are you skilled in compiling technical  agreements with service providers? What professional assistance is needed?
  • Are you skilled in restaurant space planning, kitchen area and adjustable space planning, or will you leave all of that to others?
  • Have you considered design aspects including the consistency of appearance, color, curb appeal, furniture, fixtures & equipment, intimacy, lighting, music, signage? What about parking, insurance, permit needs?

Menu and beverage considerations

  • What strategies are you implementing with your menu and its menu design?
  • Know what menu engineering means going into operations?
  • Who are your vendors and why, why will you purchase from whom?
  • What hygiene and food storage  standards will be implemented?
  • Can you cost out a menu, control inventories, understand what a preparation list is, calculate the cost of goods sold, and have the skills set to lead the team and your chef?
  • Do you understand the responsibilities of owning a liquor license, other liquor license considerations, knowledgeable on wines, and all other beverages?

Marketing your restaurant operation

Do you know how to create and utilize a website, direct mail and data management? Compile monthly email newsletters, identify best advertising options, make use of special events, use media releases to best advantage, write articles, make best use of the local business network, put local networking functions together, create culinary events?

Human resources

How skilled are you in the hiring process, pre-employment screenings, compilation of  the employee manual, training manual, creating the job specification and job description for each position, your service and kitchen training and development plan,  defining your service standards, initiation of incentives, payroll control, labor and employment contacts, best practice and work scheduling?

Then you have to run it, and grow it.

Where do you begin? Restaurant development and operations are complicated, need advice? For advice that works to save you from going broke, contact Mark, at least for a chat!!

Resort asset management and rooms revenue management

For most mid and smaller sized independent resorts one does not have to invest in a revenue manager to reap the rewards of applying some simple rooms revenue management  tactics to your asset management program to improve your bottom line.

This role is a key daily component of the Manager and whoever is overseeing front office operations.

It can be a bit over the top when you get involved with revenue management experts who seems hell-bent on making this process sound more complicated than it need be.

Simply put revenue management is a process of anticipating hotel occupancy and market demand and to determine how it will affect your hotel, once you can anticipate your market demand then you can correctly positioning your rates.

Firstly put your occupancy and average room rate to one side and think of your hotels revenue income per available room, this is called Rev Par. You can calculate this taking your occupancy (70%) and multiplying it by your average room rate (S$ 100), therefore the result is 0.7*100 equals $70.

Most of us know that in general terms improving ones average room rate generates more profit than just increasing ones occupancy. The added revenue generated is not subjected to operating costs associated with improving occupancy. So we need to focus on both in tandem. This is a bit is a waste of time if ones occupancy is always so low that one never has those peak and high demand periods, but lets assume you like most hotels you have some.

Please note here that lowering ones rates in general across the board to drive occupancy tends to be a fools game, only rarely will this result in improved bottom line profit. Say you increase your rev par to $72.25 by dropping your rates from $100 to US$ 85 and by some miracle that stimulates sales to 85% occupancy. A 15% drop in price has some how generated a 21% increase in rooms demand.  Not very likely. Then you take the associated operational costs, and that includes maintenance and replacements applicable for those  additional rooms sold, and guess what, you are worse off. Then you have to figure out how to get the rates back to where they where.

Revenue management simply takes advantage of increased demand periods.Take that competitors study you have just competed which will detail all your competitors pricing and ask yourself:  are my rates correctly positioned for my market, do we offer value, are we truly competitive. With that knowledge the revenue management process you apply is simply having complete knowledge of the market demand for hotel rooms for your local area and ascertaining how that will affect you property, and with that knowing what rate strategies you can apply to improve your rev par through room rate pricing. Maximizing your yield potential. The process is to create a “base” of business through a range of rates to appeal to a wide range of potential clients.

Once this base business is booked, by whatever market mix, lower rates can then be closed for sale and higher yielding rates can apply The key to successful revenue or yield management is to review advance reservations and make rate close-out decisions as often as might be necessary; generally, three times per week.

Hotels practicing revenue management gain an insight into the ebb and flow of business, knowledge of reservations booking pace, and a true understanding of factors which impact occupancy and average rate. Nothing complicated, and although there are many different strategies one can use it just boils down to good old common sense that need not be over complicated by those experts.

Larger more complicated resort hotels have far more complex revenue management  models, where some expert asset management advice will go a long way to reap better financial returns.

Contact us for assistance in creating your resort asset management plan incorporating winning revenue management strategies that will cost you far less than the financial reward you will reap.

Hotel sales program strategies

The quickest way to have occupancy and net profit improve dramatically within a short period of time is by the General Manager getting as involved as they should be in the hotel sales program and general team efforts.

Traveling around and talking to some hotel owners recently some very basic advice seems to be appropriate. This relates to GM’s just not doing their jobs frankly.

Resorts and those properties in the city are somewhat different but in the comments below you can get the gist of  what should be happening.

  • Given your General Manager is the CEO of your hotel every local organization from the chamber of commerce, to the board of each important local community organization, every single tourism authority, and the Tourism Minister should be well acquainted with the GM. Involvement and relationship building needs to be ongoing. Is there a plan in place for this relationship building?
  • A General Manager who is effective in Sales (lets just ignore the operational aspects) will take advantage of the daily peak operating periods to pour some coffee at the breakfast table and pour water at the luncheon table and yes, shake hands. How often do you see that?
  • The GM should meet and greet on arrival all the top 10 key accounts and either follow-up with a call during their stay or speak with them on check out, while ensuring you have great business relationships with the person who actually makes the bookings at these top accounts (the secretary to the CEO?) Who could be better candidates, at no cost, for repeat business or positive word of mouth.
  • He/she should have two on site business lunches per week at a minimum. Look after your key accounts. Look after your high spending resort guests.
  • Your General Manager should be making a minimum of 15 calls a week to new and potential account leads in support of the sales team, who should be met during the daily sales briefing after 5pm to give encouragement and support.
  • Does the GM meet or call each guest who informs the management that something went wrong? These most valued guests, who have taken the time to comment are too often looked upon as someone to avoid. You not only have an opportunity to win them over and ensure whatever went wrong does not happen in the future, but these guests will more likely recommend you to others if you appease them.
  • And most importantly the General Manager needs to instill a sales focused attitude in their team. This can be developed in many ways, but at least get the message across that a smile and acknowledgement from everyone  to all guests  at all times is a must in the hospitality industry.

Trouble is this basic level of management is just not happening sufficiently in real life.

Costly sales programs do not come before the basics, for advice on winning business plans that get all the basics in place before $ is spent, contact Mark, someone who has actually been the GM/Director of sales for a resort and put one on the world map.