We pick the brains of 3 different experts on how to approach resort developments in order to make a profit. They are:
Bill Barnett (BB) – Managing Director of C9 Hotelworks
Miles Fenley (MF) – Director of Montpelier Estates (Asia Pacific)
Sr Low Han Hoe (LHH) – Senior Manager (Investment & Agency) at Nawawi Tie Leung Real Estate Consultants Sdn Bhd
Text & Photography by Jan Yong
1. What are the most important criteria to build a profitable resort?
BB: Understanding both the existing hotel marketplace including details such as historical operating data such as occupancy, actual average rates and profit levels, and developing a forward look of the marketplace. Feasibility is the first stepping stone, followed by logical steps of deeply looking at the market and what opportunities exist for a sustainable new project coming onstream.
MF: Choice of destination (year round), access, masterplan/business plan, design, availability of land, building permits, qualified personnel, resources, excellent management, right product to the right market, capital, funding, infrastructure, common sense, and local knowledge.
LHH: Getting the Master Plan done based on solid market lead research and the Target Market identified correctly.[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”1,2,3,4,5,6,7,8″ ihc_mb_template=”1″ ]
2. How do you raise funding to build a resort?
BB: Resorts are different from city hotels; they tend to trade more by season so debt ratios are lower, hence it’s important not to overleverage on bank financing. Traditional methods of capital include funding by the principal or though a strategic partnership. Joint ventures are another method. Capital markets like the stock market tend to favour existing or operating assets.
3. What sort of expertise do you need in your team?
BB: A real estate outlook is important; an experienced finance team, project management, designer, hotel operator and most importantly, leadership of the project.
LHH: Good and experienced individuals with strong track record working in similar resort developments – General Manager, Finance, Human Resource, Security, Maintenance, Chef, Housekeeping, Front office, Business development and landscaping – would be critical.
4. Do you sell the units as resort apartments or keep them to rent out – how do you decide?
BB: Real estate and hotels all depend on market conditions. In strong markets, retaining a hotel asset makes sense, but in larger projects, adding real estate helps diversify risk and speed up returns by sales. The key is find equilibrium. Hotels are long-term assets and need long-term thinking as well as a solid investment strategy for sustainable returns.
MF: Depends on your capital requirements and return expectations. A long-term view would necessitate maintaining 100% ownership to control your product and experience.
5. With the increasing popularity of AirBnb, is building a resort still a viable business proposition?
BB: Certainly, AirBnb remains a very successful model but there are issues of tax, licensing and other regulatory items that could restrict widespread growth in resort areas. End of the day, leisure resorts are valued as they provide certain services that Airbnb does not – the vision to travellers of a pampered getaway cannot be ignored.
MF: Even more so as this and others like HomeAway enhance your marketing and sales channels as well as reservations network.
LHH: It is always about the service and the branded lifestyle – different target market, I would say.
6. What are some of the latest trends in resort developments and how should developers adapt?
BB: Smaller hotels, not mega properties. Size matters and resort sizes are tracking smaller properties. More travellers now get beyond the beach in resorts, especially the Chinese. They want to be kept busy and see as much as they can, not simply sit on the beach. Also, more local experiences like local food and sights and authentic experiences.
MF: Each market/destination is different – depends on the availability and cost of land, development restrictions, available debt financing, cost of development, scarcity of trained personnel, etc, which make economic feasibility more difficult. The lack of or over-regulation on environmental issues, infrastructure, congestion, etc. In terms of product, some individuality and creativeness must be displayed to ensure a unique and memorable experience at the upper end. Also, the safety and consistency of the product in the faster growing mid-market budget sector. You also have to consider marketing and sales – is there a need for brand involvement, how to protect your territory, outsourcing, etc.
LHH: There should be more focus on brand, destination-based and interesting activities for a unique experience.
7. Nowadays, there is also a trend towards more sustainable developments. What sustainability measures should be taken in order to reduce the carbon footprint?
BB: Asia still lags the world in this aspect and while things are changing, they are not taking headlines in the region enough. Simple things like plastic bags and drinking water bottles being eliminated are excellent starting places.
MF: By definition, developments/tourism are not sustainable so the best reduction is not to build at all. But if built, use local people/materials/resources, apply green technology, develop movable structures (tents/traditional Thai houses), grow produce locally, support the local and wider communities, adapt, recycle, reuse, and redeploy.
LHH: Sustainable development is now a new norm, a new minimum – for example, use of natural materials and natural resources, construction to take into account the natural terrain, recycle water and waste disposal.[/ihc-hide-content]