Don’t do as I did: Hoteliers’ tales of development woe
Don’t do as I did: Hoteliers’ tales of development woe
18 OCTOBER 2017 7:53 AM

Hoteliers on a panel at the recent Annual Hotel Conference in Manchester, England, underlined the development lessons they’ve learned the hard way.

MANCHESTER, England—A group of hotel developers in the United Kingdom gathered at the recent Annual Hotel Conference to share some lessons they’ve learned through failure.

In a panel titled “Regrets, I have a few, but then again… Real life stories of the pitfalls of hotel development and operation,” moderator Sir James Devitt, managing director of Herald Hotels, thanked panelists for “being prepared to tell us what did not go well,” noting acknowledging those mistakes will help panelists and industry newcomers avoid making them again.

The site
Kevin Charity, CEO of The Coaching Inn Group, said one costly mistake is to fall in love with a destination and not concentrate on the exact location.

“We like market towns, and in one I fell very much in love with one particular spot,” he said. “It was the most costly mistake I’ve made. It was a gorgeous building, but it had no business sensibilities and closed four years later. We fundamentally gave it away, but it does concentrate us now.”

Devitt spoke of one owner buying a site by a proposed motorway junction that in the end never opened.

Andy Jansons, managing director of development company Jansons Property, agreed that timing is key.

“Today is a peaky market, and secondary locations are working, but you have to be careful,” Jansons said. “In a downturn those assets drop off the cliff, but you can always can sell prime.”

Unfortunately, Aberdeen in Scotland is an example of this, its particular slump coming from a drop in the price of oil, its major commodity, according to Peter Banks, managing director of Rudding Park Hotel, Spa & Golf.

“You do not run just a one-trick pony, and Aberdeen is that,” Banks said. “You want a market that if one leg of the stool drops off, you still have three more.”

Robert Nadler, CEO of Nadler Hotels, said he once ran a development company and now still develops as an owner-operator.

“Developing for yourself a very different attitude,” Nadler said. “(Now) I have to be sure of the operational ease of what I have created. Look at the (total cost) of a project.”

He said hitting the ground running is important, but hoteliers should avoid making mistakes in their haste.

“You have to do a hell of a lot more work before you go on-site,” Nadler said. “In London, most of the cost goes into the site, not into the build, so the priority is to build as fast as you can, but that can be a mistake. Stop, breathe, investigate, take your time and understand the locational and physical issues. Strip it back to the core. It is very easy to rush in too quickly because you are thinking you are saving on interest costs, but that can be a huge, costly mistake.”

Banks brought the conversation back around to the guest.

“I am not a fan of ‘build it, they will come,’” Banks said. “You have to understand what your guests want, not develop from solely the developer’s idea.”

He noted it can be difficult to manage the potentially fraught relationship between owner, developer and contractor.

“Where you make all of your mistakes is on paper,” Banks said. “Do not go anywhere near to design and build, it requires you give the contractor hundreds and hundreds of compromises that will save only him money.”

Jansons said the budget should be the deciding factor in hotel development.

“Keep to budget,” Jansons said. “(That attitude is) a nightmare for me.”

Nadler agreed.

“The builder is the one who knows. Any consultant will tell you what it looks like, but the contractor will put it together, a contractor on-site since day one working with you,” Nadler said, who underlined that architects and designers working for builders allow owners to be in control as any decision on changes would come through the owners.

Jansons said relationship-building in hotel development is key for success.

“That is what builds trust … also, a funder will see you have the right contractor, which helps crystallize the project,” Jansons said.

Banks said it was also his opinion that his approach allowed him maximum control.

“If you want to have control over every single detail, it works for me,” he said. “We literally had drawings of the skirting boards, and we were bang on time and on budget.”

Planning law
Despite how some hoteliers might feel, bureaucrats in city hall do not all wake up in the morning with the sole goal of upsetting hoteliers, sources said.

One common mistake is not to invest the time in having relationships on community and hospitality committees.

“I like planning regulation, as it is clearly written out and to be followed,” Charity said. “Yes, it can be long-winded, and negotiations with English Heritage can be difficult, but I have a friend in another country whose planning depends on who he can bribe, and we do not have that (in the U.K.).”

“Being part of your place is necessary. It is who you know,” Banks said. “Committees will overrule officers.”

Nadler said that planning bodies do have knowledge, experience and wisdom. Not all the time, but often.

“On one occasion, we believed we were in discussion with planning bodies, but we were really not listening,” he said. “Over 18 months, they were trying to tell us not to go down a route, but we were convinced we knew best, that we would create a stunner, something amazing … and we were refused at committee. So then immediately we went beautiful, classical, what they wanted, and it took 15 minutes. Engaging means listening, not just telling.”

Nadler added hoteliers often forget that such bodies’ first concern is for residents.

Ground leases
U.K. hotel operations are normally either established via a freehold or leasehold nature. Simply put, the former means the owner owns both the land and the building, with the hotelier possibly being that owner, while the latter means the owner owns the building, or the right to operate it, often for a fixed term, but not the land, for which a rent is paid.

Tenancy is another option for smaller hotels, usually without the layer that is ownership of the operations.

Panelists said the most important thing to eradicate in respect to this is around covenants.

“With leaseholds, you’re beholden to a land owner. You have no control without freehold,” Jansons said, although he did add leaseholds equate to a different means of financing.

“If you take out a loan, you have to pay interest, and when you sign your covenants, the senior debt provider essentially owns the freehold,” Jansons added.

Nadler said the idea of any scenario is to end up with something worth more than the sum of its parts.

“Value is about that element of control,” he said. “There is likely to be value leakage somewhere in that equation.”

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