Hospitality Feasibility Studies have gained increased importance due to the highly capital intensive nature of the hospitality projects as well as associated risks and rewards. Feasibility studies educate developers and investors on the viability of a proposed concept as well as the scale and configuration of the development could adhere to. Hotel Feasibility studies are often required by financial institutions and thus need to be thoroughly conducted by experienced, objective and independent consultants such as RK Consulting Services, Inc.
RK Consulting Services, Inc. can prepare in-depth studies for all types of hospitality developments, with particular expertise in hotels, resorts, condo hotels and boutique hotels. Our feasibility studies include a competitive analysis, construction cost analysis and presentation, facility recommendations and improvements, 10 or 5 year Financial Projections, analysis of Debt Service Coverage, Return on Investments (ROI), maximum justifiable expenditure and sensitivity/risk based on changes in key variables.
Market Analysis Capabilities
Market analysis the first part and economic feasibility is the second part of a complete report that is necessary prior to seeking equity partners or requesting a loan to buy or build a hotel. Typically, the hotel developer has already selected a market, a neighborhood and a site where he wants to build a hotel. If not, we will back up and assist the developer in evaluating alternative markets and sites. Whatever the starting point, we describe the nature of the assignment at the beginning of the report, so the client’s objectives will be achieved. We have analyzed markets from major metro areas to small cities and towns in almost every state and a few foreign countries. Whether it is a 60-room limited service hotel or a 500-room full service destination resort, we approach every market with the same set of questions, checklists and tools. We review the general market characteristics and trends and determine how these factors will impact the project. We review any previous studies that have been done. We investigate the existing competitive supply and determine each competitor’s strengths and weaknesses. We identify the demand for the proposed project.
After analysis of the general market, competitive supply and demand generators, we will provide a past to present Supply & Demand Trends Analysis for nation, region, state, market and competitive set. The proposed hotel will be positioned among the competition in terms of type, size, customer mix, occupancy, room rates and revenues. From here, we make recommendations to the developer regarding product design, facility configuration, ownership issues, management issues and possible franchise affiliations. All this is necessary to understand the market situation and determine how the proposed hotel will perform. The purpose of the Market Analysis & Economic Feasibility Report is to reduce the developer’s risk. Once you uncover consumer demand that is not being served and let it drive the design of your proposed hotel, you have a far better chance at success than if you simply ignore customer preferences. We advise the client on size, type and product features, ownership issues, management options and franchises. In the final analysis, we determine customer mix, average room rates, revenues and the expense ratios for the type of hotel proposed. Bottom-line, what are the NOI and the cash available for debt service? Now, the developer can determine how much he can afford to spend on the total project, the equity he must raise and the loan he needs.
Objectives of A Detailed Feasibility Study
The basic objectives of the study are to:
1. Evaluate the market potential for the proposed hotel based on an analysis of the market support for a lodging facility on the subject site.
2. Comment on the appropriate numbers types, and sizes of guest rooms and other amenities which would best serve the needs of the market.
3. Project levels of market penetration, occupancy, and average room rate for the proposed hotel for the first ten years of operations.
4. Prepare detailed projections of Cash Flow from operations before fixed charges for the hotel for the first ten years of operations.
5. Provide a written report containing the conclusions of the Feasibility Study and present Financial Projections for the proposed hotel.
Example of the table of contents: Sample Study
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