How hoteliers can better control costs during projects
 
How hoteliers can better control costs during projects
23 APRIL 2018 8:36 AM

For new hoteliers or companies with smaller portfolios, making a budget for new-build projects or renovations can be a struggle. Experts shared some things to consider when managing budgets. 

REPORT FROM THE U.S.—There’s a great deal of planning that goes into a new-build hotel or renovation project, especially when it comes to managing the budgets. However, it doesn’t have to be as daunting a task if the proper steps are taken.

Much of it comes down to the education process, experts said, as well as having open communication with all parties involved to pick the most cost-effective route.

Education from the start
Bob Kraemer, principal and co-founder of Kraemer Design Group, said educating developers—whether they’re new or seasoned—is a standard part of the architecture and interior design firm’s process when working on a project.

The process includes breaking everything down and exploring all proposal options, which sometimes can take up to five or six hours in a day, he said.

Kraemer said the education process can be a challenge at times if the developer doesn’t necessarily value the cost for the professional service of hiring an architect.

The amount of time it takes is worth it, though, he said. “It really helps set the direction and the plan of attack, then that way we’re sort of doing value engineer throughout the process, not at the end.”

He believes in value engineering prior to bidding out a project.

Open communication
Once the project is in motion, sources said communication among the owner, architect, general contractor and all others involved is another requirement.

Suzanne Saunders, VP of design and construction at Hospitality Ventures Management Group, said her team does weekly calls with the architect, interior designer, general contractor, the owner’s representative and HVMG’s director.

Each member should go over any issues and ways to solve them, she said, such as any change orders, requests for information or need for alternative materials.

“It’s all about relationships, being an open book, being transparent and sharing everything … making sure that you represent their (owners and developer’s) best interest from everything that you do,” Saunders said.

Neill Parker, principal at hospitality architecture and design firm Stonehill Taylor, said there could be instances where an owner gets sticker shock, which could have been an estimating mistake, but the whole team needs to be in communication to re-evaluate.

Eliminating surprises through every step of the way should be the focus, said John Fetty, principal at Fillat + Architecture.

“Fortunately our Moxy hotel … with Douglas Development, (they were a) very savvy developer. We’ve had that great relationship … they’re very intimately involved with the project so we can reel it back at the juncture through constant communication,” Fetty said.

The best projects are always moving and fluid, Saunders said.

Choosing a contractor
Owners need to be active in the decision-making when choosing a contractor to build or renovate, Kraemer said.

He said an owner needs to understand the timing in which the contractor will complete a project and the contractor’s approaches in order to get the end result of budget savings.

“We get nervous when an owner chooses a really low cost, small contractor that may not have a lot of skills because of the risk involved,” he said.

Things like, “do they have a good safety record, do they maintain properties well, do they have enough staff so things don’t get stolen or broken,” Kraemer said. “It’s all of those things that start to eat up at the end and have no value.”

Stonehill Taylor’s Parker also felt the cost of a contractor comes down to two things: how much it costs for a subcontractor to build the building and how long it’s going to take.

He said he doesn’t want to be the sole decider of who the contactor will be. He wants the owner to feel it’s a right decision, too.

Saunders suggests if the renovation is like-for-like—taking out an old headboard and replacing it with a new one, for example—try going with a general contractor that has a travelling crew. A self-performing crew is always cheaper, she said, opposed to the overhead from a larger, specialized company.

Cost-effective materials
One area that Kraemer has seen change within the past few years is furniture, fixtures and equipment.

He said for a while everyone was buying from China because it was cheaper, but now domestic production is picking up.

One of the other biggest changes he’s seen is owners choosing logistics companies to handle the freight and delivery of products, he said.

“It’s been demonstrated over and over again that logistics companies out there that simply assist … send trucks to pick up the product, deliver the product to warehouses. They can do freight so much cheaper than doing it in individual parts,” he said.

He said that can translate into a 12% savings on freight alone.

Parker said one project he recently worked on—the Crowne Plaza HY36 Midtown Manhattan—included an atrium, which was a challenge because New York City properties have limited square footage of floor area. He said ideally that means the walls need to be as thin as possible.

He came across corrugated metal, which was much more effective for the building’s system compared to brick, he said, saving on both money and inches on the façade.

“We found that choosing this inexpensive material actually allows to make a richer looking façade and this material covers 75% of the building. It amounts to a serious cost savings,” he said.

And by going cheaper with the “skin” of the building, the team was able to pay for the cost of the atrium as well as adding more guestrooms, Parker said.

Other cost-effective materials include going for manmade quartz in a guestroom bathroom instead of granite, which is cheaper to make and lasts longer, Saunders said. And it’s important to be in touch with vendors and national companies making these products.

“They spend a lot of time developing more cost-effective materials,” she said.

Labor costs
Fetty, at Washington, D.C.-based Fillat + Architecture, said labor costs are high because it’s a very busy development time and there is heavy competiton for workers. He said obtaining quality staff requires paying a premium, saying you “get what you pay for.”

Kraemer said the labor shortage is by far the biggest challenge and many hotel projects are being delayed, namely from a lack of skilled trades, which can slow down things like elevator installation.

“It takes about a year from the time you order the elevator to get it done. There’s just so much new construction happening, there aren’t enough skilled trades,” he said. “It’s all kinds of tricks, (like) can you order it early before the drawings are done, and other things, we’re starting to see.”

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