Build Your Dream Hotel for Just USD 2 Million

If you’ve been dreaming of owning a hotel, but you’re not sure where to start, wouldn’t it be great to get a clear set of answers from someone who can point you in the right direction? Hotelintel.co had exactly that opportunity to talk to Rei Matsuda, CEO of Kokotel, to find out how he advises would-be owners who want to dip a toe into the hotel market. Here are some of the things you need to take into consideration before you take the plunge – but a few words about Kokotel first, just to put you in the picture.

Kokotel is both a brand and an operator. The company currently has six properties under its own brand, and operates an additional four properties under the owner’s brand, with more in the pipeline. These hotels usually have from 50 to 150 rooms, and work under the “bed and café” concept, so the facilities are often limited to just a cafe, also used as a hotel lobby, and children’s room, although some also have swimming pools. As an operator, Kokotel can handle a majority of the back-office work, including accounting, purchasing, sales, reservations, IT, and HR from the central headquarters, which means there isn’t a huge requirement for office space on site.

What are the costs and returns?

The cost of building a typical Kokotel property, as a new build, usually falls in the range of THB 1-1.3 million per room (approximately $42,000), inclusive of FF&E and pre-opening costs. This figure assumes that the owner already has land in a suitable location. The typical RevPAR for a Kokotel hotel, including F&B revenue but excluding VAT and service charges, will be around THB 1,100. (approximately $35) After fees are paid to Kokotel, the gross operating profit per room is around THB 440 per day, or THB 160,000 annually (approximately 5,100). On an initial investment of THB 1.3 million, this gives a payback period of around 8 years.

As Rei explains however, Kokotel’s business development team can estimate the payback period for any individual property very quickly, which can help potential owners to make the right investment decisions. “If an estimate is more than a 10-year payback, I tend to recommend to an owner not to invest for a hotel,” says Rei. “That means the loss of a new contract to me but I would rather not start a project that will not secure a long-term relationship between us and an owner.”

Another decision to take concerns branding, as some owners want to move into a higher market segment than the typical Kokotel property, with greater investment leading to a higher ADR. In this case, Rei is quite happy to work under the owner’s brand while the Kokotel team operates the hotel, although in the future, he anticipates the launch of a new more expensive brand which will address this demand from owners.

Why is it a good idea to invest in hotels?

A hotel is an investment which provides an emotional return as well as a business return. According to Rei, there can be a sense of pride to be derived from owning a hotel. There are also favorable comparisons to be made with other bricks and mortar investments, such as apartment buildings. An apartment may be rented out on a two-year contract, where the terms are fixed, whereas the hotel owner can adjust his prices rapidly to take immediate advantage of a booming economy and tourism sector. Of course, there are also downturns for economies, but a hotel can still be an advantage to hold as a part of your diversified portfolio of properties.

What do owners get from a deal with Kokotel?

Kokotel’s service to hotel owners has three parts: the design and construction phase, the pre-opening phase, and the post-opening phase. “The main mission is to take away the operational headache from a hotel owner in all phases of hotel development and operation,” explained Rei. That begins with design and construction, where Kokotel’s operational and architectural specialists will work alongside the owner to shape the entire concept of the hotel. At this stage, a hotel which is to take the Kokotel brand will follow the company’s own brand standards, but if the owner’s brand is involved, Kokotel will simply bring their expertise to follow the owner’s branding guidelines and standards.

In the pre-opening phase, Kokotel’s operational expertise really comes to the fore with so many tasks to be completed before the first guests are welcomed: hiring and training staff, procuring all the necessary equipment and consumable items, receiving and installing such items, setting up the IT system and network, establishing the accounting procedures and bank accounts, setting up online and offline sales channels, launching the website and setting up social media accounts, and so on. Effectively, it is like setting up a new business from scratch, albeit with the existing template to bring order and confidence.

Once the hotel has been opened, Kokotel takes over the operations. As Rei points out, “we are not helping to run a hotel – that is sometimes the perception of the role of hotel operator – but we actually run a hotel. Helping to run and to run are very different.” Much of the work is performed by the centralized operational staff in Bangkok, who take care of all the back-office functions. Sales and revenue management are also vital operational activities, and once again the centralized Bangkok office can provide this service to hotels, both online and offline.

Finally, each property has a Parent Resident Master (PRM) who oversees every aspect of the property’s operation. The PRM receives daily data from all online channels which is collated by the reputation system, Repup.  The PRM can then ensure that points raised in reviews are directly addressed. The PRM also conducts ongoing training for staff and ensures quality control through the use of a manual system called TeachMeBiz. All SOPs are stored in various formats in TeachMeBiz so they can be reviewed by staff at any time.

What's the process of building a hotel? How long does it take?

From start to finish, the time taken might be two years. The process starts with the initial negotiations and contract signing, which could take up to three months. The design phase takes a further three to four months, followed by construction which can last eighteen months for a completely new building. If the property in question is already operating, however, it is possible for Kokotel to take over after just a couple of months for rebranding. One such example would be the Kokotel Bangkok Sukhumvit 50, which was very quickly rebranded. If a brand change isn’t required, the process can be even faster, with the takeover coming within two weeks of signing a contract, although it can take up to three months for the operational activity to stabilize after the change. The Ava Sea Krabi is an example of this kind of property.

In conclusion, if you have a couple of million US dollars to spare, and a prime plot of land, you could become the proud owner of a brand new hotel in just two years – and before the decade is out you’ll have made your money back and be raking in the profits. But remember that a hotel is an emotional asset as much as a financial one, so only do it if you really care.