ASSET MANAGEMENT – HOTEL EXPANSION

Initial position

The client was an owner of a four star business hotel in a German city. At the time of the order, the room occupancy of the hotel lay between 55 and 60%. A hotel expansion was considered because the management of the nearby urban convention hall demanded additional hotel capacities near its location in the course of its expansion. Moreover, the initial plans had already been conceived for the expansion on the part of an architect’s office and a cost estimate had been provided.

Goal

The goal of the study was to work out whether an expansion of the capacities made sense not only from the point of view of the city and the convention hall, but also from an economic point of view for the hotel. In connection with this, to what extent a future, larger hotel could generate additional overnight stays and further revenue along with it was also to be examined. From these parameters, the additional, obtainable capital service was to be derived once again and processed for presentation to the bank.

Action

HOTOUR examined the location´s market and competition in detail. In addition, special attention was given to the demand generated at the hotel and in the urban convention hall by the MICE Segment (Meetings, Incentives, Conventions, and Events). The occupancy was day-exact increased and was compared with the events taking place in the city and convention hall as well as existing event inquiries.

On the basis of the knowledge gained and in agreement with the hotel´s Board of Directors, a day-exact occupancy forecast was provided with A) the status quo and B) with the expansion of the hotel. The operating expenses originating from the additional rooms were determined in detail. The accumulated information flowed into an economic efficiency forecast that produced a sustainable, achievable cash flow after the expansion.

Result

On the basis of the positive knowledge contained within the study, an increased capital service capacity of approximately 50% could be derived.  Together with the building costs calculated by the architects, a positive return arose. The investment was recommended and is in the planning phase at this moment.