Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 44 properties in the area, they may also be used to restrict certain activities. An easement such as a right of way and drainage rights should also be carefully checked to understand the terms of conditions of the easement and any responsibilities the owner has to maintain them. To check the property boundaries you will need to get a copy of a Title that contains a plan of the land. This allows you to get a sense of where the boundaries should roughly be running and match those with the physical boundaries of the property. If they look like they match then there aren’t likely to be any issues, but if you have any doubts then it might pay to consult your lawyer and/or get a surveyor to inspect the property. Verifying the ownership is very important when it comes to putting in an offer. The people named as the vendors should match those on the Title. You should also be aware of the type of ownership of the property. • Freehold is the most common ownership type; this means you own the land and the buildings on the property with few restrictions. • Cross-lease has also become more common and is where there is more than one property on a title. In this case the owner of each property shares ownership of the land and each leases their own property. This often means that you need to get permission from the other owners on the Title to conduct a range of activities, including building new structures. • Unit title is generally used for apartments. This gives freehold title to your unit and any garaging. This form of title often has common legal areas and shares responsibility for any common property that generally includes ongoing obligations to a body corporate. • Leasehold is less common and is where someone else owns the land that you then lease back and generally pay rent for. With a leasehold ownership there are often restrictions on what you can do on the land.
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 45 Sample Land Lease Agreement • THIS AGREEMENT is entered into on the ______________ day of ____________________by and between ______________, a limited company registered under the laws of ________________located at ____________represented by Mr. ______________, its authorized Directors (hereinafter referred to as "the Leaser") on the one part, and _______________________________________________________________ ______(hereinafter referred to as "the Lessee,") on the other part. • WHEREAS the Leaser is the owner of an approximate ________parcel of land situated at_____________province which is divided into smaller parcels of land; • WHEREAS one such parcel shall be leased to the Lessee under the terms and conditions of this Agreement. • WHEREAS this parcel of land has an approximate area of _____ meters under an associated title document, no.___, vol.____ , page ____, land number ____ located at _______________, which shall be hereinafter referred to as "the said land"; • WHEREAS the Leaser’s and the Lessee's objectives are to create a beautiful and peaceful environment for rest, enjoyment, and creative work; to make it possible for residents and guests to enjoy and care for the natural and the built environment within an atmosphere of mutual respect and common responsibility; and to ensure that the ecology of the area and its surroundings is preserved and enhanced to the greatest extent possible. NOW THEREFORE, the parties hereto agree as follows:
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 46 The Leaser shall lease the said land to the Lessee and the Lessee shall accept the lease of the said land from the Leaser. The location of the said land is shown on the site plan attached to this Agreement which shall be deemed a part of this Agreement, as plot no. ___, measuring _____ square meters in total. In consideration of the lease of the said land, the Lessee agrees to pay the total amount of ___________ to the Leaser in accordance with the following schedule upon execution of this Agreement ____________ within _____ days of the execution of this Agreement the remainder of _________ The duration of the lease of the said land under this Agreement shall be for ______ years from the date of this Agreement which is renewable for an additional period of _____ years without additional payment to the Leaser except for expenses as provided in Clause ___hereof. If at any time the Government extends the maximum allowable term of a land lease, the Leaser agrees to re-register the lease for the maximum allowable number of years, with the costs of registration borne by the Lessee. The lease of the said land under this Agreement shall be officially submitted for registration to the Land Office of _________ within 30 working days after the Leaser has received from the Lessee the amount specified in Clause __ in full. The Leaser shall each pay the expenses incurred in the registration of the said lease. In the event the Lessee wishes to renew the said lease, the Lessee is required to notify the Leaser in writing within 90 days before the expiration date of this Agreement. This request for registration of the renewal of said lease shall be submitted to the Land Office or appropriate authority within 30 days of the expiration of this Agreement. The lessee shall be informed by the Leaser of the said renewal. The Lessee shall only use the said land for Hotel Accommodation purposes and not for any other commercial, industrial or any other purposes whatsoever. All construction of fixtures or improvements made or caused to be made by the Lessee on the said land shall at all times be the property of the Lessee and shall be within the building lines specified on the attached site plan so as not the block the views of others. The nature of the area where the said land is situated shall be maintained by the Lessee. All construction on the land as aforesaid or any alteration or demolition thereof shall be in conformity with the construction regulations issued from time to time by the Leaser or directly and expressly approved by the Leaser. In addition, in constructing fixtures or improvements onto the said land, the Lessee is required to comply with Country laws and regulations in all respects especially the laws and regulations concerning building and construction.
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 47 The Leaser reserves the right to cease providing regular services to the Lessee's plot if the Lessee fails to abide by the conditions of this agreement. This Agreement is assignable provided that this Agreement is assigned as a whole and on the same terms and conditions as stipulated herein. The Assignee shall assume the rights and responsibilities of the Lessee under this Agreement existing at the time of assigning of this Agreement through its validity period. All expenses in the assignment of the lease will be borne by the Lessee. The Lessee may rent his fixtures or improvements to a third party only by the prior consent of the Leaser in writing and at the terms and conditions agreed upon by the Leaser and the Lessee. In the case of joint lessees, if one of the lessees dies the survivor will have all rights under this lease. Should the Government at any time extend the maximum permissible lease period, the Leaser agrees to extend this lease to the maximum allowed. All legal and official fees will be borne by the Lessee. By affixing his/her signature hereto, the Lessee attests that he fully understands and agrees to abide by all the rules, conditions, and limitations stated above. IN WITNESS WHEREOF, the Leaser and the Lessee have executed this Agreement as of the day and year mentioned above. Witness: The Lessee:
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 48 Hotel Licenses Permits and Approvals Various Licenses, Permits and Approvals are required before, during and after the Hotel Construction Process. Besides this there are many Licenses and Permits required once the Hotel is operational. Below listed are some of the many permits required for Hotel Development, Construction and Operations. It is important to note that not all of them listed below are required in every situation. This will also vary from one Country to other. The below list is not exhaustive and there might be some special permits which are required in some Countries, other than the ones mentioned below. Needless to say out of all the permits, Land use Permit, Building Permit, Health License, Business License and Fire Safety License are some of the most important ones.
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 49 Hotel Approval Process The Department of Tourism or the Tourism Board of a Country usually approves hotels at project stage based on documentation, which enables the hotels to get certain benefits from the govt. as announced from time to time. Project approvals are usually valid for 5 years. This again might be different from one Country to other. The application form for the approval usually requires the following details: o Proposed name of the hotel o Name of the promoters with a note on their business antecedents o Complete postal address of the promoters/tel./fax/email o Status of the owners/promoters If Public / Private limited company with copies of Memorandum and Articles of Association. If Partnership, a copy of partnership deed and certificate of registration. If proprietary concern, name and address of proprietor / certificate of registration. o Location of hotel site with postal address o Details of the site Area (in sq.meters) Title – owned / leased with copies of sale / lease deed. Copy of Land Use Permit from local authorities Distances from Railway station, airport, main shopping centers o Details of the project Copy of feasibility report. Star category planned. Number of rooms and area for each type of room (in sq. ft.) Number of attached baths and areas (in sq. ft.)
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 50 Details of public areas – Lobby / lounge, restaurants, bars, shopping, banquet / conference halls, health club, swimming pool, parking facilities. Facilities for the physically challenged persons. Eco – friendly practices and any other additional facilities Date by which project is expected to be completed and operational. o Blue prints / sketch plans signed by owners and architect showing Site plan Front and side elevations Floor plans for all floors Details of guest room and bathroom with dimensions in sq. ft. Details of Fire Fighting Measures / Hydrants etc. Details of measures for energy conservation and water harvesting. o Air – conditioning details for guest rooms, public areas. o Local approvals by Municipal /Council authorities Concerned Police Authorities Any other local authority as may be required. o Proposed capital structure Total project cost • Equity component with details of paid up capital • Debt – with current and proposed sources of funding o Letter of acceptance of regulatory conditions. o Application Fee The hotel must immediately inform the Department of the date from which the hotel becomes operational and apply for classification within 3 months of that date.
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 51 The fees payable for the project approval is different for every category: Star Category Fees 5 – Star 4 – Star 3 – Star 2 – Star 1 – Star
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 52 Licenses needed to operate a hotel Temporary Certificate of Fitness Garbage License Construction License Fire Extinguisher License Business License Lift Operation License Hotel Premise License Firearm License Generator License Permit To Lay Cables For Electricity Disco License Permit To Lay Cables For Telephone Signboard License Permit For The Supply Of Electricity Permit For The Supply And Operation Of Telephones Permit To Lay Pipes For The Supply Of Water Certificate Of Fitness Permit To Lay Pipes For The Supply Of Gas Swimming Pool (water testing) Permit For The Supply Of Water Permit For The Supply And Storage Of Gas / LPG Permit For The Supply And Storage Of Diesel Restaurant License (one for each outlet) Liquor Sales License Liquor Sales (extension hours) License Manufacturing License (Ice-cream, Bread, Meat, etc - one or each item) Entertainment License (one for each place of entertainment) Entertainment (extension hours) License Boiler License Ballroom License Laundry License Recreation License (e.g. Snooker, etc.) Health Centre License Stage License TV & Radio License (one for each set) Liquor Measure License Dance Floor License Money Changer License
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 53 Entertainers Permit (one for each function) Walkie-Talkie Operation License Sales Of Wild Life Meat License Neon Light License Transport License Entertainers' Permit Boat License Car Park Operation License Water Sports License (Individual Licenses) Pager License Service Tax License License To Operate Computer / Video Games
Step By Step Guide To Build A Hotel STAGES / APPROVALS / AGENCIES / TIMELINE FOR HOTEL NO. APPROVAL AGENCY TIMELINE [DAY(S)] 1 Approval of Company’s Name 2 Certification for Incorporation of Companies 3 Premise Licence 4AdvertisementLicence
Step By Step Guide To Build A Hotel 54 4 Advertisement Licence 5 Registration for Contractor 6 Public House Licence K1 (Liquor) 7 Employer’s Registration 8 Member’s Registration 9 Money Changer Licence 10 Employee’s Registration
Step By Step Guide To Build A Hotel NO. APPROVAL AGENCY TIMELINE [DAY(S)] 11 Registration for Corporate Payer 12 Approval to Employ Expatriate Staff 13 Land Conversion / Sub-division Approval 14 Application for Surrender & Re-alienation 15 Planning Approval 16BildiAl
Step By Step Guide To Build A Hotel 55 16 Building Approval 17 Supply of Electricity to Project 18 Approval of Detailed Plan 19 Approval of Telecommunication Connection 20 Approval of Telecommunication Connection Plan 21 Sewerage Works Planning Approval 22 Sewerage Works Design Approval
Step By Step Guide To Build A Hotel NO. APPROVAL AGENCY TIMELINE [DAY(S)] 23 Written Approval for Fuel Burning Equipment 24 Approval Letter for Installation (Lift) 25 Approval Letter for Design and Installation (Steam Boiler) 26 Temporary Electricity Supply to Site 27 Temporary Water Supply to Site
Step By Step Guide To Build A Hotel 56 37 Certificate of Fitness (Lift) 38 Certificate of Fitness (Steam Boiler) 39 Approval of Water Supply to Hotel 40 Approval of Electricity Supply to Hotel
Step By Step Guide To Build A Hotel NO. APPROVAL AGENCY TIMELINE [DAY(S)] 41 Composite Licence for Hotel (15 activities) 42Registration for Certificate for Tourist Accommodation
Step By Step Guide To Build A Hotel 57 42 gPremise 43 Registration for Certificate for Electric Installation
Step By Step Guide To Build A Hotel NO. APPROVAL AGENCY TIMELINE [DAY(S)] 44 Authorisation Letter to Purchase Diesel 45 Visit Pass (Professional) 46TPbliHLi(EtifH)
Step By Step Guide To Build A Hotel 58 46 Temporary Public House Licence (Extension of Hours) 47 External Advertising Licence / Permit 48 Temporary Entertainment Permit 49 Publication Permit 51 Apparatus Assignment Approval
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 59 Hotel Project Team Many people are involved in the successful completion of a Hotel Project. Other than the Hotel Owner, Developer, Legal Expert, Structural Engineer, Various Consultants (Food Service, Laundry, Kitchen, Financial, Feasibility Study, FF&E etc) and the Hotel Franchising Company, the following are some of the many important people involved in the successful completion of a Project. Architect Duties and Responsibilities: Architects perform the following tasks: • Discuss requirements of clients or builders (to design a new structure or modify an existing one) and prepare a brief. • Prepare sketch drawings, production drawings and detailed drawings by hand or using Computer-Aided Design (CAD) equipment. • Combine structural, mechanical and artistic elements into the building design, such as decks and atriums, lifts and air-conditioning systems, and decorative finishes. • Discuss designs and cost estimates with clients and others involved in the project, including engineers, quantity surveyors, landscape architects and town planners. • Obtain necessary approvals from authorities. • Prepare specifications and contract documents specifying building materials, construction equipment and, in some cases, the interior furnishings, for builders, trades people and legal advisers. • Observe, inspect and monitor building work, to make sure that it is progressing according to the contract and specifications. • Evaluate projects once they are completed and occupied.
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 60 Interior Designer Duties and Responsibilities: Interior designers perform the following tasks: • Talk to clients and architects to work out client needs and intentions, and to make sure that safety requirements are met. • Develop designs that are appropriate, functional and aesthetically pleasing. • Prepare working drawings and specifications for interior construction, materials, finishes, space planning, lighting, furnishings and equipment. • Estimate costs of materials, labor and time, and give estimates to clients for approval. • Organize supplies and prepare detailed instructions for trades people. • Inspect the work of suppliers and trades people, and maintain time, cost and quality controls. • Work with specialists in technical areas concerned with fire, hydraulics, and mechanical, electrical and structural design, making sure that industry regulations are met. • Prepare and administer tenders and contract documents. Quantity Surveyor Duties and Responsibilities Quantity surveyors perform the following tasks: • Talk to architects, engineers, builders, contractors, suppliers and project owners. • Study architectural and engineering drawings and specifications. • Prepare a 'Bill of Quantities', which lists the individual components required to construct the project. • Check on changes of design to assess the effects on cost. • Assess and recommend payment to contractors during construction. • Prepare monthly cash-flow forecasts for clients and tax depreciation schedules. • Undertake feasibility studies to assist in decisions about the worth of a project proceeding.
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 61 Building Contractor Duties and Responsibilities Building contractors perform the following tasks: • Examine and interpret clients' plans or arrange the drawing of plans to meet building regulations. • Submit tenders (offers to do jobs at a stated price), quotes or prices for the project to clients. • Arrange submission of plans to local authorities for approval and arrange inspections of building work. • Organize subcontractors to carry out all stages of building and negotiate rates of pay. • Calculate quantities of materials required for building projects and order these from building suppliers or advertise for tenders. • Arrange delivery times of materials to coincide with various stages of the building process. • Supervise the work of subcontractors to make sure buildings are of an acceptable standard and are proceeding according to schedule. • Coordinate the activities of office staff involved in the preparation and payment of accounts. • Talk to lawyers and financial institutions on matters relating to loans and contracts for building projects. Landscape Architect Duties and Responsibilities: Landscape architects perform the following tasks: • Study and discuss designs, costs and construction of projects with clients. • Talk to architects, engineers and other professionals, and gather information on factors such as historical and natural conservation requirements, soil structure, drainage, rock features, existing and proposed buildings, and sun and shade movements. • Draw up site plans outlining the development of the site, discuss with clients and seek approval.
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 62 • prepare specifications, arrange cost estimates, list building materials required and detail working drawings of the site, showing features such as location of buildings, roads and walkways; land contours and drainage systems; soil conservation measures; and the vegetation to be planted or retained. • Undertake heritage studies and plans of management for open space areas. • Use computer and video-simulation packages to develop broad scale landscape plans. • Supervise site work. • Advice on landscape problems concerned with environmental planning. Project Manager Duties and Responsibilities: Project manager performs the following tasks: • Interpret plans and estimate costs and quantities of materials needed. • Plan construction methods and procedures. • Coordinate the supply of labor and materials. • Supervise construction sites and direct site managers and subcontractors to make sure standards of building performance, quality, cost schedules and safety are maintained. • Study building contract documents and negotiate with building owners and subcontractors. • Control preparation of cost estimates and the documentation for contract bids. • Control payment to subcontractors by valuation of completed works. • Make sure that building regulations, standards and by-laws are enforced in building operations. • Consult with architects, engineers and other technical workers to make sure that design intentions are met.
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 63 Raising Finance There are various sources and methods of raising finance for Hotel Development and Construction at various phases of Development, Construction and Operations of a hotel. Various factors influence as to the amount of financing required for the project. Some of them are: 1. Land Cost 2. Construction Cost 3. Design and Development Cost 4. Cost of Furniture Fixtures and Equipment 5. Pre Opening Budget and Operational Budget for the first 6 Months of Opening. By far banks are the most-sought after source for developers for raising finance. The types of loan, the amounts offered, interest rates, arrangement fees and the terms for repayment vary widely. All these should be considered before finalizing a particular loan. Banks are usually committed to about 60 percent of the cost, only if Equity is significant, to the tune of 40 percent of commitment by Investors/Developers. To pursue these, the developer prepares an offering solicitation document that meets current securities and exchange law. The nature of this document depends on the type of business entity that was formed. For limited partnerships or limited liability companies, a private placement offering circular and project description is prepared. The developer now contacts money sources that have capital available to invest. These can include: Individual investors Private asset managers Opportunity fund managers Venture capital fund managers
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 64 These potential investment sources are offered the opportunity to invest in the hotel. Based on their study and evaluation of the reports, documents, and studies detailed above, they decide whether or not to offer funding to the developer. Listed below are considerations that lenders look for before financing hotel projects: 1. What reasons are there for this hotel to exist? What are the demand generators for this hotel? What is the demand segmentation for this hotel (i.e. business, leisure, group, etc.)? Is this a drive to or destination market? Is this a tourist area or a business area? If this is a business hotel, where is the convention center? 2. Projected Summary of ADR, Occupancy and RevPAR. 3. Monthly and annual reports (Owner’s Reports) from the management company to the borrower, detailing the performance of the hotel will be required, if available. 4. The subject property usually must have a franchise agreement with a reputed hotel chain. 5. Who are the sponsors? Given the business nature of hotel loans, the borrower principals and their credit history and management experience will undergo careful consideration. Also, is the borrower cashing out on this deal or will it have cash equity remaining? 6. What competition is already in the submarket? 7. Is there any new or proposed competition in the submarket? Additionally, what are the replacement costs for this type of property? What barriers to entry are there in the market for new competition?
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 65 Sample of Information required by a lender for lending Hotel Name: __________________________________________________ Address Telephone Fax Email Owner Name Address Telephone Fax Email Room Details Suites Kings Queens Twins Total Rooms
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 66 Indoor Pool (sq/ft) Spa (sq/ft) Steam Room (sq/ft) Additional Details/Comments Building Summary Proposed date of Opening Corridor (Exterior or Interior) Construction Material Foundation Type Elevators (how many) Restaurant (sq/ft) Meeting Rooms (sq/ft)/ft) Meeting Room Capacity Retail Space (sq/ft) Bar / Lounge (sq/ft) Fitness Center (sq/ft) Outdoor Pool (sq/ft) Roof (type) Ground Floor (sq/ft) Mezzanine 2nd Floor (sq/ft) 3rd Floor (sq/ft) 4th Floor (sq/ft) 5th Floor (sq/ft)
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 67 Site Summary Land (sq/ft) Building (sq/ft) Parking (sq/ft) Impervious (sq/ft) Landscaping (sq/ft) Financial Projections (Attachment Income / Expense Reports) Year Amount Additional Documents Needed Copy of Property Deed Copy of Real Estate Tax Bill Copy of Property Survey Copy of Title Insurance Policy Complete Inventory of F&E Mortgage Balance Lender Name / Address / Tel / Fax / Email
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 68 Loan Checklist This checklist will assist you through the process of gathering the necessary information to expedite your loan request. Loan Request Form Management Profile: Complete for all principals (20% or greater ownership) or any general manager (regardless of ownership percentage). Personal Financial Statement(s) Complete for all principals (20% or greater ownership). Business History Business Financial Statements and Tax Returns. Income statements, balance sheets, accounts payable and receivables (if applicable), and tax returns for the prior three fiscal year-ends. Personal Tax Returns. Complete tax returns and all attached schedules for the past three (3) years from each individual with 20% or greater ownership in the applicant business. Copies of Bank Statements: personal and/or business bank statements that evidence sufficient cash resources to meet (at a minimum) your required down payment. Filed Articles of Incorporation & By-Laws, Business License Projections (2 year minimum). Projections are required for all start-up and change of ownership situations and must be month-by-month for the first 12 months and annual thereafter. Assumptions to Projections. Provide detailed explanation of how the revenue and expense figures were derived along with all supporting documentation. Business Plan. Business plans are required for all start-up and most change of ownership situations. Franchise Documents Photocopy of the Purchase and Sale Agreement or Letter of Intent. Copy of the Purchase and Sale Agreement or Letter of Intent is required for all start-up and most change of ownership situations. Copies of any promissory notes that are to be refinanced along with payment history for each note.
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 69 Hotel Franchising & Hotel Management Contracts The vast majority of hotel brands do not own their hotels, but hotel owners elect to affiliate with a brand for a fee. Various types of Hotel Ownership/Management include the following: i) Individual: This means the owner is completely independent with regard to policy formulation and operating procedures. ii) Chain Ownership: A chain owns the hotels, formulates policies for them and staffs it with its own employees. iii) Lease and Joint Venture: Under lease agreements, The Hotel Chain leases a hotel building from a property owner or other partner and are entitled to the benefits of, and carry the risks associated with, operating the hotel. The Hotel Chain derives revenue primarily from room sales and food and beverage sales in restaurants, bars and banqueting. Typically, lease agreements include a variable rent clause under which the Hotel chain is obligated to pay a variable rent based on a percentage of the total revenue generated by a hotel ("variable rent") and the majority of lease agreements also include a minimum rent payment obligation which is independent of the revenue generated by the hotel ("fixed rent"). The duration of lease agreements varies, but they are typically long-term, 20 years or longer. iv) Franchise: Under franchise agreements, the Hotel Chain authorizes a thirdparty hotel operator or property owner to operate a hotel under the selected brand name. Under such agreements, the chain neither own, lease nor manage the hotel. The Hotel Chain derive revenue from a brand royalty or licensing fee which, under most of franchise agreements, is based on a percentage of total room revenue generated by a hotel. In addition, the chain also collects marketing fees based on total room revenue and reservation fees based on the number of reservations made. To maintain brand image and value, franchisees are obligated to meet specified brand standards. A franchisee also has access to the chain reservations system and is provided with marketing support and other know-how for operating the hotel. The duration of franchise agreements vary, but they are typically for a term of 10 years or longer.
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 70 v) Management Contracts: Under Management Contract agreements, The Hotel Chain provide management services for third-party hotel proprietors. The Hotel Chain derive revenue primarily from base fees determined as a percentage of total hotel revenue and incentive management fees defined as a percentage of the gross operating profit or adjusted gross operating profit of the hotel operations. In addition, The Hotel Chain also collects marketing fees based on total room revenue and reservation fees based on the number of reservations made. The duration of management agreements varies, but they are typically long-term, normally between 15 and 20 years. Certain type of hotels can potentially perform better as independents, in particular upper end unique "one-of-a-kind" hotels, specialty boutique style hotels, strong destination based and/or resort hotels. Independent positioning also allows for greater flexibility in establishing rates. As a member of a chain, a hotel’s pricing strategy must be consistent with the overall positioning and perception of the chain. It is very difficult for a franchisor or chain organization (in particular for chains having more than one product brand) to develop national pricing strategies that address the needs and objectives of all hotels within their systems. Given the dollars involved in purchasing and maintaining a franchise or affiliation, the decision to be a franchise or chain affiliated hotel is one of the most critical decisions in a hotel investment. For many hotels the costs associated with purchasing and maintaining a franchise represents the second largest (after labor) expense category. Historically, franchise and chain affiliation decisions were often driven by lending requirements. The need to have an affiliation to secure financing evolved out of a very real concern (by lenders) about a property’s having access to a reservation system and the need for many hotels to tie into national marketing and promotional programs to generate business. And since in the past these services were not readily available on a stand alone basis, a franchise or affiliation was often routinely required as a prerequisite for financing. Today, however, there are several cost-effective alternatives (to franchising or chain affiliation) available for a hotel to tie into an independent reservations systems/services, and for purchasing direct sales and/or trade show representation services, advertising and public relations expertise etc. on a "stand alone" or ala carte basis.
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 71 Advantages of Franchise • Assist hotel owners to acquire a brand name with regional or national recognition • Connect the hotel to the GDS • Increasing hotel’s sales, thus its profitability • Affecting ability of hotel’s owner to secure financing • Assistance with on-site training, advice on purchasing furnishings & fixtures, reduced operating costs, & free interior design assistance Considerations for selecting a Franchise Brand • Quality and experience of Brand Managers • Perceived quality /Service level of a brand • Fees charged • Number of hotels currently operating under that brand • Percent of hotels, on an annual basis, that elected to leave the brand in the past five years • Number of new properties currently being built under the brand’s name • The number of existing hotels converting to the brand (if conversions are allowed) • ADR trend for the last five years in comparison to ADR trend for the industry segment in which the brand competes • Occupancy rate trend for the last five years in comparison to the occupancy rate trend for the industry segment in which the brand competes
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 72 • Percent of total hotel room revenue contributed by the brand’s reservation system and percent of hotels within the brand that achieve that average rate of contribution • The amount of fees paid to franchiser - Fees paid to a franchiser are a negotiable part of franchise agreement • Direction of the brand The Franchise Agreement Franchise agreement is a legal contract between hotel owners (franchisee) and brand managers (franchiser), which describes duties & responsibilities of each in the franchise relationship Names of parties signing agreement - Name of legal entity representing the brand as well as corporation, Partnership or sole proprietor owning hotel License grant - Description of how the owner is allowed to use the brand’s logo, Signage, and name in operating the hotel. Term (length of agreement) - The most common franchise agreements are written for 20 years. - Also include windows at fifth, tenth, & fifteenth years with early outs Fees - Affiliation fees / royalty fees / marketing fees / reservation fees Reports - Room revenue generated, occupancy levels, & occupancy taxes & ADR Responsibilities of franchiser - Inspection schedules, marketing efforts, & brand standards enforcement Responsibilities of the franchisee - Signage requirements, operational standards & payment schedules Termination or default - Events that permit a termination, or define a default, by either party
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 73 Insurance requirements - Owner should provide types & amounts of required insurance - Proof of general indemnification policies, automobile insurance, & Mandatory workers’ compensation insurance Requirements for alteration - Rights of the franchiser to change the agreement Arbitration and legal fees - Responsibilities of each party related to legal disputes When discussing franchise requirements, ask specific questions in the following areas: A. Length of affiliation: for your protection, should not be less than 10 years, or more than 20. Whether 10, 20 or in-between, insist on intervals of windows of exit, i.e., a three year 60 day window to review franchise effectiveness, and if unsatisfied should be able to terminate without penalty. Most franchisors still insist on liquidated damages for termination. That's why you need exit strategy. B. Be specific about territory of franchise and competition, current and future. You should have at least a five year assurance of your exclusiveness. C. Transfer of Franchise: You should be allowed to transfer when you wish to sell. If not, requiring a purchaser to ante up for refranchising or requiring change of franchise may prevent sale. Franchise Fees Payment of continuing franchise fees commences when the hotel assumes the franchise affiliation, and is usually paid monthly over the term of the agreement. Continuing fees generally include a royalty fee, an advertising or marketing contribution fee, and a reservation fee. In addition, continuing fees may include a frequent traveler program and other miscellaneous fees. The continuing fees we analyzed are categorized as follows. Royalty Fee: Almost all franchisors collect a royalty fee, which represents compensation for the use of the brand’s trade name, service marks and associated logos, goodwill, and other franchise services. Royalty fees represent a major source of revenue for a franchisor.
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 74 Advertising or Marketing Contribution Fee: Brand wide advertising and marketing consist of national or regional advertising in various types of media, the development and distribution of a brand directory, and marketing geared toward specific groups and segments. In many instances, the advertising or marketing contribution fee goes into a fund that is administered by the franchisor on behalf of all members of the brand. Reservation Fee: If the franchise brand has a reservation system, the reservation fee supports the cost of operating the central office, telephones, computers, and reservation personnel. The reservation fee contains all distribution-related fees, including fees payable to third parties, such as travel agents and distributors. Other Miscellaneous Fees: This category includes fees payable to the franchisor or third-party supplier(s) for additional system and technical support. It also includes fees related to training programs, and national and regional annual conferences. Sometimes franchisors offer additional services. These services generally include consulting, purchasing assistance, computer equipment, equipment rental, on-site pre-opening assistance, and marketing campaigns. The fees for these services are typically not quantified in the disclosure document. The assessment of continuing franchise fees is based on several different formulas. In general, royalty fees are calculated based on a percentage of room’s revenue. However, a few hotel operators charge an additional royalty fee based on a percentage of food and beverage revenue. The ratio of royalty fee to room’s revenue ranged from 2.50% to 6.00%. Advertising, Marketing, and training fees are usually calculated as a percentage of rooms revenue, and ranged from 1.0% to 4.5%. In some cases, reservation fees are based on a combination of a percentage of room’s revenue (0.15% to 4.50%), a dollar amount per available room per month ($3.00 to $8.65), and a fixed dollar amount ($1.00 to $25.00), which depends on the source of booking, per reservation. Generally, these various fee formulas are applied individually, but in some cases, franchisors combine a number of formulas. Many also have first-month contingency fees in lieu of recorded revenues (e.g., a royalty fee of $24.00 per room for the first month and then 5.0% of gross revenues in the ensuing months).
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 75 Hotel Management Contract It’s a form of agreement between the owner of the hotel and a hotel management company, to run the hotel. The owner will have limited control on the operation in this form of Management. The hotel management company will provide expertise and management and they charge a specified fee as per the terms of agreement Management Contract term The initial term of a management contract is the length of time that the agreement is to remain in effect. Initial terms usually last ten, 15 or 20 years, depending on the brand and positioning of the operator selected. Popular hotel companies can demand longer initial contract terms. Renewal terms generally extend the total length of an initial term. This is commonly done by mutual consent and is rarely unilateral. In general, renewal terms occur in multiples of five years, occasionally ten. Most contracts offer two terms (sometimes more) on the condition that six months’ written notice is given prior to the end of the current term. Operating Fees An operator will typically receive remuneration from the owner, often termed a base fee, in exchange for performing the duties specified in the contract. Base fees typically range from 2% to 4% of total revenue. In addition to the base fee, an operator usually receives an incentive fee based on a percentage of profits. This may be curtailed, for example, until profitability reaches a certain threshold, or until minimum return requirements to the owner are met (typically related to debt service). These incentive fees are typically related to one of the following. • Gross operating profit (GOP) before the deduction of base management fee (although this is rare). • Adjusted GOP (calculated by deducting the base management fee from the GOP).
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 76 • Net operating profit (NOP) after deduction of some or all fixed charges, for example building insurance, property taxes, reserve for replacement of furniture, fixtures and equipment (FF&E), or rents payable. • NOP after deduction of some or all fixed charges and an owner’s priority return. In this event the percentage fee payable to the operator is sometimes higher. A growing number of operators accept lower base fees in return for higher incentive fees of up to 15% of GOP, which are intended to reward operators more generously for outperforming agreed targets. While a set incentive fee of about 10% of GOP was typical, it is becoming increasingly common to have scaled incentive fees. The tendency towards higher or scaled incentive fees versus higher base fees rewards effective operators but also increases the proportion of free cash flow to equity in the event of poor operator performance. Other fees and charges typically relate to contributions to the operator in respect to reservation systems, sales and marketing contributions or assessments, accounting charges, purchasing costs, and license or franchise fees. These fees are often set as a percentage of rooms’ revenue, and typically range from 1% to 4% of gross rooms revenue.
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 77 Hotel Project Cost estimate and Budget The cost of capital in building a hotel is the minimum rate of return expected by its investors. It is the weighted average cost of various sources of finances used by a hotel. The capital structure may be in the form of debt, preference capital, retained earnings and equity shares. A decision to invest in a particular hotel project depends on the cost of capital of the firm, and a fixed minimum rate of return expected on its investments, so as to maintain the market value of its share. Building a hotel is a unique project, in contrast to the manufacturing sector where cost components are highly standardized, precisely prescribed, or directly derived from the production capacity proposed. All the cost components, in a hotel project, are left to the choice of the promoters. The variations while making a hotel are on account of the differences in land costs, hotel concepts, services and facilities provided and so on. The building cost depends on the architect's plan, which is in turn, the replica of the promoter's concept of the hotel with creative ideas involved. The location has a direct bearing on the cost of construction, because if the materials have to be sourced from distant places, transportation costs will be higher. The cost of interior design too is thus dependent on the layout and the concept involved. Yet another factor to be considered is the FSI (Floor space index) regulation as applicable to the location. A hotel building consists of two major sections, namely the guest room and supplementary support facilities. The supplementary facilities include restaurants, coffee shops, bar, and lift, health club and spa. The support facilities include staff cafeterias, executive dining room, cloak room and rest rooms, diesel generator room, stores, transformer rooms, HT room, purchase, receiving areas, OH water tanks, parking slots, etc,. Some of these are revenue generating areas while others are not. Therefore the hotel design should be a judicious ratio of these facilities. With respect to plant and machinery, there are numerous options available such as central air conditioning, or partial air conditioning, high speed elevators or ordinary lifts, customized computer system, state-of-the-art kitchen and bakery equipments, which are imported or made indigenously. Thus options are several. As indicated the architect's design and the promoter's concept of the hotel form the pivotal point for a new hotel project. Out of the Total Hotel Project Cost, Construction costs form a large proportion of initial capital costs, accounting for 50–70% of the capital costs of a hospitality project, it is important that these are managed in the pursuit of maximum project
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 78 value. The key players responsible for the management of capital costs are quantity surveyors (QSs), the Owner, design team and contractor. Quantity surveyors (QSs): are construction professionals who forecast and manage construction costs throughout the project lifecycle, advising the client and design team so as to focus investment on elements of the project that deliver the greatest benefit to the client, or which minimize risk. Also known as cost consultants, they also manage the financial implications of changes introduced during the design and construction programme to ensure that the budget is met. Owner: The client sets the brief and budget, appoints the project team, signs off the design and ultimately determines the cost levels of a project. Ways in which clients can contribute to the effective control of costs include: Providing a comprehensive brief, sticking to the brief, signing off the design and avoiding design and specification ‘creep’: Avoiding changes to design and construction at later stages of a project. Contractors: Contractors are typically employed to construct a project based either on designs prepared by the client’s consultants or a scheme for which the contractor is responsible. Design team: The design team, typically comprising architect, interior designer, structural and services engineers, cost consultant and other advisers, is responsible for the development of the design to meet a brief, budget and programme, based on an analysis of the client’s needs and wants. Cost and value on a project will be affected by the match between the design solution and the client’s brief. Other areas of performance that can affect the outcome of a project include the management of the design process and the supervision and approval of the contractor’s work. The following twelve cost drivers are particularly significant in determining overall cost levels of a hotel project: 1 Site conditions and characteristics 2 Building plan, layout and massing 3 Quality levels 4 Building services installations 5 Extent of prefabrication 6 Furniture, fittings and equipment (FF&E) expenditure 7 Leisure facilities 8 Extent of external works 9 Requirements of local and statutory authorities 10 Unforeseen work and change to client requirements
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 79 11 Speed of construction 12 Location. When it’s time to build on your land, you’ll use your projected income statement to tell you the upper limits you should spend on construction. This may sound cynical, but only you can decide if you’ll have enough guests coming in the door to support massive construction debts in addition to land costs. So, before you decide on the buy-land-and-build strategy, you would do well to meet with consultants and an architect. Together, after listening to your needs, they should be able to present a preliminary budget that covers all aspects of construction. Hotel Project cost is divided in to Development cost, Construction Cost, FF&E and OS&E Cost and Operational cost. Cost breakdown of a hotel is given below. This will differ from one hotel to other based on size, standards, facilities and Country: Development Cost and Soft Costs Building Permit Fee All Other Permits Fee Municipality/Utility Fees & Inspections Architecture and Engineering Fees Application Fees Engineering Survey Fee Project Management Fee Appraisals/Survey Fees Legal Fees Insurance Consultants Fees Other Soft Costs Feasibility Study Cost Schematic Design Fees Landscape Architect Fees Interior Designer Fees Development Fee Franchise Fee Land Purchase/Leasing Cost Project Financing/Construction Loan Cost Administrative and General Costs Contractor Fees
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 80 Hotel Construction Cost Subcontractor, Supplier Description Original cost Estimate Adjusted Cost estimate Estimated cost To complete Utilities Excavation Foundation Labor Roofing Concrete Flatwork Plumbing Heating Electrical Installation Insulation Water Sewer Site Preparation Carpentry Painting Appliances Light Fixtures Floor Coverings Parking Other Stairs Frame and Upper Floor External Walls Windows and Doors Internal Walls and Partitions Internal Doors Wall Finishes Floor Finishes Ceiling Finishes Furniture and Fixtures Sanitary Fittings Hot and Cold Water Installations HVAC Installation Lift Installation Communication Installation Total
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 81 Furniture Fixture and Equipment Cost Item Description Vendor Purchased by Installed by P.O. # P.O. $ Budget Lobby Front Desk Furniture Artwork Lighting Drapes & Blinds Floral Arrangements Television Credit Card Phone House Phone Public Pay Phone Luggage Carts Meeting Room Announcement Board Interior Signage Exterior Signage Meeting Room Stack Chairs Folding Tables Chair Caddy Lectern w/ Light & PA System Flip Charts Misc Serving Equipment Overhead Projector Slide Projector Artwork T.V. & Cabinet Conference Call Speaker System VCR DVD Data Ports Cable TV Outlets Drapes & Blinds Business Center Conference Table Chairs Fax Machine Computer Assorted Software
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 82 Printer Typewriter Copying Machine Misc. Supplies Artwork Drapes & Blinds Typing Table Total Lobby Total Meeting Room Total Business Center Item Description Vendor Purchased by Installed by P.O. # P.O. $ Budget Admin Offices Property Management System Workstations Dot-Matrix Printers Laser Printers Assorted Software Safety Deposit Boxes Time Clock Drop Safe Filing Cabinets : Horizontal, Vertical GM Office Furniture Back Office Panel System Back Office Furniture Sales Office Furniture AGM Office Furniture Drapes & Blinds Typewriter Copier Fax Machine First Aid Kit Portable 2-Way Radios Beepers Calculators Storage Cabinets Misc. Office Supplies Hold-up/Fire Detection Buttons Phone System Guest Room Phones Admin Phones Installation Labor Call Accounting. Mgmt. System
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 83 Pool Furniture & Equipment Deck Furniture: Chaise Loungers Chairs Umbrellas w/bases Dining Tables Dining Chairs Planters for Courtyard First Aid Kit Water Testing Kit Shepherds Crook Life Rings Pool Cover Signage Total Pool Area Total Admin Offices Employee Lounge Lockers Dining Table Dining Chairs Drapes & Blinds Exec. Hskpr Office Furniture Refrigerator Microwave Oven Television w/ ceiling mount Commercial Laundry & Housekeeping Washing Machines Dryers Folding Tables Laundry Carts w/spring platforms Sheet Folder Laundry Scale System House person’s Cart Detergent System Room Attendant's Carts Vacuum Cleaners Cribs Sleeper Rollaway First Aid Kit (also for all closets) Carpet Shampooer
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 84 Guest Laundry Coin-Op Washers Coin-Op Dryers Signage Phone Wall Clock Folding Table Chairs Fitness Room Fitness Equipment Wall Clock Wall Towel Hooks Towel Holder Cabinet Hamper Fitness Posters Water Cooler Drapes & Blinds Total Guest Laundry Total Employee Lounge: Total Commercial Laundry & Housekeeping Total Fitness Room Kitchen Equipment Restaurant FF&E Bar FF&E Guest Rooms King Beds Double Beds King Bed Bases Double Bed Bases Sleeper Sofas Recliners King Bedspreads Double Bedspreads Artwork Lighting Case goods Clock Radios
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 85 Guest Service Directories Drapes & Blinds Linen Expendables Total For All Wall Vinyl Coffee Makers w/Trays & Supplies Irons & Boards Hairdryers Televisions Other Flagpoles Flooring & Walls (Vinyl, Ceramic, Carpet) Hallway Artwork Satellite Dish System Electronic Door Locks Millwork Security GRAND TOTAL
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 86 Hotel Concept Development and Design Hotel Concept Development This initial conceptual planning stage is where you define the size, layout, and look and feel of your hotel. Preliminary decisions made during this stage help shape the cost, degree of difficulty, and length of schedule required for successfully developing and opening the hotel. The preliminary sketches completed during this stage form the framework for the more detailed drawings and specifications done in the next step. Concept development involves balancing the strengths and limitations of the site against the competitive climate in the market, considering the expertise of the operator and the budget available for the project. Concept development involves finding and implementing an operating style that can occupy a unique position in the minds of the target market and be consistently operated at a profit. This is an inexact science, relying on an elusive ability to "see what's not there," but there are several identifiable characteristics of a good concept: • Flexible - the ability to evolve over time without loss of market identity • Simple - more classic than trendy with resulting potential for longevity • Profitable - the ability to generate excellent return on investment • Duplicable - the ability to regenerate and expand • Compatible - does not require extensive, expensive renovations to an existing physical plant • Fresh and Exciting - not a "me too" approach • Appropriate - meets a real need and creates sufficient "gravity" to attract crowds of guests • Consistent - can deliver on its promises using the prevailing labor market and existing management capabilities • Distinct - uniquely fills a niche in the minds of the target market • Durable - can hold its own in the market • Complementary - does not require directly confronting a competitor while enhancing the overall dining market When the developer is looking for a Hotel idea, it’s assumed that he is searching for a concept that has the potential to be successfully expanded rather than a onetime solution for a specific Hotel.
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 87 Developing a successful Hotel has three phases: concept development, prototype development and monitoring. The first phase is the creative process, the second is the physical part of setting up the new Hotel and the last has to do with refining the theories based on operating realities. Concept Development Process The actual development of the concept occurs in four parts: Background research Background work establishes the general realities of the site. It includes examining economic and demographic statistics, traffic patterns, site visibility and access, physical limitations and architectural features of the building, equipment installed, existing utility service in the building and related items. Market research Market research includes interviews with the target market, site visits to competitive and complementary Hotels, reviews of Hotels outside the market area for elements of interest or value and the identification of strengths, weaknesses and voids in the market. Synthesis Synthesis is the process of digesting all the information gathered in the preceding steps and arriving at an insight into what direction the project should take. The results of this step include the name of the Hotel, Style, Standards and operating profile, pro forma financial projections, basic marketing direction, development budget and similar elements which define the project. Until all these items are known, the odds of creating a successful and efficient Hotel are slim. Documentation All the pieces of the project are summarized in a report which clearly defines the project and assists the owner in making decisions about the project, securing financing (if necessary) and creating a blueprint for developing the project. Even if the report is only used internally, it is a valuable document for keeping the project on track and under control. Prototype Development Developing the prototype is the physical processes of making the Hotel happen. It includes layout and design, the preparation of working drawings, bids and awards, construction and project supervision, disposal of existing FFE not needed,
Step By Step Guide To Build A Hotel Step By Step Guide To Build A Hotel 88 specification and purchase of new FFE, specification and purchase of systems, recipe development and testing, logo and graphics, preparation of a detailed hotel marketing plan, selection of purveyors, hiring and training of staff, selection of uniforms, development accounting, pre-opening promotions and other activities required to go from a great idea to a great Hotel. This is the time when you establish the culture of the Hotel which will influence the working climate of the business for years. It is also the time when you first present yourself to the public and gain that all-important first impression. Monitoring Once the Hotel opens, it is necessary to observe the operation and make finetuning adjustments required to assure a strong start for the venture. During the first 60 days of the Hotels operation, there will be many minor modifications and systems required to improve operational effectiveness and enhance profitability/cash flow. This phase involves staff and management coaching and training as well as review of financial performance. Design process As in any other large project, the design process of a hotel begins with conceptual sketches, to get a sense of what the Hotel Developers preferences are, which is followed by working drawings for presentation purposes, for appraisals, funding, and the ever present Planning Commissions. In addition to the working drawings several views of the exterior of the project is added to enhance its realism, and believability. Development Company need to arrange for licensed architects, engineers, interior designers, or other qualified professionals to produce design and construction drawings, interior décor proposals, material samples, and specifications describing all new hotel developments. Preliminary Design Proposal –The preliminary design proposal consist of preliminary site plan, building floor plans, individual guest unit furnishing plans and exterior elevations. Construction Drawings –Construction documents include all disciplines of design, including site, structural, architectural, mechanical, electrical, and plumbing designs.