Ever thought of building your own hotel but weren’t sure how to get started? The first step is to get some insights from a man who knows, so Hotelintel.co talked to Rei Matsuda, CEO of Kokotel, who agreed to break the whole process down into six easy steps.
1. Identify what you want and where to build
The very beginning of your journey must be to decide what you want to achieve from your hotel project. Do you want continuous yield returns, or long-term returns from the asset? Or are you simply looking for an emotional return from a landmark property – sometimes known as ROE (Return on Ego)?
It’s also important to consider whether this will be your main business to which you devote your life, or simply a sideline, one project among many. If these points are not determined from the outset, you are simply inviting confusion later on.
Your choice of location must depend on your project objectives. Rei spoke of one investor who wanted “a landmark hotel property in Sukhumvit, and 10% return”. It’s good to aim high, but it’s not realistic to have such a high annual yield in a prime location in Bangkok. This kind of disconnect is the cause of much wasted time for the investor and everyone else involved. The investor should instead take the approach of long-term asset appreciation.
2. Select a benchmark / Set a concept
The easiest way to set a concept is to tag a benchmark property. According to Rei, it will be much clearer when you say “I want to build a hotel like xxxxx hotel.” Yes, you can be a pioneer who comes up with a very innovative new concept. You can dream of building a hotel the like of which has never been seen before. You can certainly do that, but you have to be aware that investing in something untested in the market involves more risk. Once again, however, if your appetite for returns is based on ego rather than equity, all that creativity might make perfect sense after all.
3. Decide the operational side and then secure the finance
It is very important that this step of a making the key decision about hotel operation comes before the funding, design, and construction. A common myth shared among hotel owners is that “we build, they operate.” All too often this results in the owner talking to the operator too late in the process, leading to discomfort all round. All operators have their own specifications for interior finishing, floor layout, room configuration, IT system, and so forth, so it’s not unusual for operator to request changes from the owner. In order to avoid paying a double investment, it is advisable to talk to the operator as early as possible, ideally immediately after arriving at the rough concept of the project, such as size of building, facilities, and number of rooms.
It is also important to secure the operational side before seeking financing. These days, the banks are very particular about how the operation will be done, so you would like to be able to state with confidence that you already have a respected operator lined up to manage the business. The bank can then run their own checks on how good the operator is by looking at their history and portfolio. Some banks will even request to check the performance of another property managed by the same operator.
To operate without an operator is, of course, also an option, but if an owner takes this path, they should know that running a hotel is a long-term commitment. Many owners are so excited to develop a hotel by themselves, but then when they realize it is too much work, they start looking for an operator. Again, this is not a wise decision.
4. Design and construction
Owners tend to think it will be easy and straightforward to build a hotel with the help of a team of professionals such as architects, interior designers, and contractors. It is very important to note, however, that project management skills are vital, because none of these specialists is likely to be an expert in the entire process. It is very easy for things to start going awry.
A delay in the process is a nightmare for owners, who must often start their repayments to the bank because any repayment-free period is only for the duration of the expected construction period. Delays mean starting repayments before the property can generate any revenue. Avoiding this particular issue involves hiring a good operator with capable project management, or hiring an independent consultant who can take care of such processes.
Rei explained that he often sees hotel owners who feel that the pre-opening process is relatively short, running for just a few weeks. In reality, the pre-opening should be much longer than owners usually think.
One example of this is in staffing. If the hotel opening is 1st Oct, you want most of the people to get on board on 1st Sep to do the necessary setup and training. To do this, you need to make an offer on 1st Aug for them to leave their previous job with sufficient notice. That means you need to complete your interview process by the end of July, so it is advisable to start the advertising and recruiting events in May/June. This is actually almost half a year before the opening date, and your GM and other key members of the management team need to be on board even earlier.
Another aspect of pre-opening is purchasing. You need to deal with a good hundred or more suppliers to procure everything your hotel needs, so you will need hundreds of suppliers to provide quotations. And unfortunately, not every supplier is sufficiently professional to deliver things on time or not make mistakes in the quality or quantity of your orders. When we asked Rei about his toughest experiences since starting out in this business, his immediate response was “dealing with suppliers in pre-opening.”
You will have surprises with suppliers almost every day in pre-opening, so you need to ensure enough of a buffer by ordering things early, especially those items with longer lead times such as bed linen or towels. Even if you have everything else ready to welcome your guests, you cannot open a hotel without bed sheets.
6. Run, Run, Run = Improve, Improve, Improve
Running a hotel is an endless process, and the hotel owner who decides to operate by themselves must commit for the long-term. It is very difficult to hire a good GM, especially for an independent hotel or a budget hotel which can be less appealing for the best hoteliers. And even if you are lucky enough to hire a good GM, he or she will not stay forever, and it is very risky to rely too heavily upon one individual.
Owners tend to think that maintaining the quality at a hotel is an easy thing to do. In fact, when you are not doing anything, every aspect of the hotel deteriorates day by day. Staff motivation becomes low, staff service declines from the SOP, the food tastes less authentic, the housekeeping is not as good as before, thanks to some ‘creative’ ideas from the housekeepers, the interior work gets old – you get the picture. Running a hotel is actually an entire process of continuous improvement, such as introducing new procedures in the back office, starting new types of training, introducing new menus, updating HR policies and incentive schemes, and so on. The final lesson from Rei: your work is never done if you’re doing it right.
More information about Kokotel please Visit http://www.kokotel.com/owner