Panelists at the Hotel Data Conference discussed the issues hoteliers must consider when planning a capital-expenditure budget, including what projects to prioritize.
NASHVILLE, Tennessee—There is no one way to look at capital expenditure in the hotel business. Panelists speaking during “The cost of CapEx” session at the recent Hotel Data Conference said that CapEx reserves and strategies can vary based on market conditions, guest needs and asset class.
Carter Allen, VP of HVS, said many hoteliers are becoming reactive with CapEx due to new supply coming in.
“People are reinvesting to stay competitive,” he said. “We’re seeing a lot more CapEx spending to elevate or reposition an asset.”
However, George O’Brien, VP of business development for Fillmore Hospitality, said that can be a problem. He said hoteliers can’t expect to expand or gain market share with reactive CapEx.
Michael Morton, VP of owner relations for Best Western Hotels & Resorts, said many Best Western hotels are experiencing record levels of occupancy, and owners have said “you can’t expect us to redo our guestrooms or redo our bathrooms.”
“At the same time, we’re also telling them to put a really comprehensive plan together,” Morton said. “You know what our brand requirements are. You know what initiatives are coming up. Make sure you understand those very clearly.”
Some owners don’t want anything to do with the renovation, Allen said.
“They just sell it, and let that renovation reposition be a better add for whoever is going to buy it,” he said. “Technology has given us a great tool to be better planners with CapEx. It should all be about what the guest wants and needs.”
O’Brien said CapEx percentage reserves often depend on the type of asset. For example, he said an extended-stay hotel is a young asset class.
“And dual-branded hotels, 5% is not even going to work on those,” he said. “The first time you replace that kitchen, that’s going to be a very large capital expenditure.”
CapEx for IT
Panelists said that CapEx isn’t just about furniture, walls and carpet anymore. Technology plays a huge role.
“If you travel a lot, there’s not much difference between brands. Where are the things that are going to have a difference with the customer?” Morton said. “One of the biggest things is: What are you doing with IT? Do you have the CapEx dollars to plan for that?”
He said IT spend, such as integrating and updating beacon technology, is hard to quantify. The issue then becomes return on investment for owners.
“Now we’re starting to get into the point where we’ve got CRM systems that you’re going to have to incorporate,” Morton said. “I don’t really know how we’re able to sell that to people, like here’s what you’re going to see as a return.”
Strategy of CapEx
Panelists said that property-improvement plans have become more aggressive, and as such it’s important to adequately plan when it comes to CapEx.
“We sit down and really focus in on each individual hotel and create a strategy for that hotel,” O’Brien said. “Through that, you’re really looking at your competitive sets, etc. We’re constantly focused on strategy.”
That focus on strategy leads O’Brien and his team to create five-year plans for CapEx.
“You need to have a longer-term perspective,” he said.
Morton warned that a year-by-year approach isn’t the best way to handle CapEx.
“If you start just putting Band-Aids on stuff, you’re throwing good money on bad, because you’re realizing it was a waste, because you have to tear it up and do something bigger,” he said. “Make sure your owners are working with designers and architects. It’s easy for us to say as the brand to do it because that’s what the customer says they want. But one size does not fit all.”
O’Brien said a challenge is when executives want to play designers, but it’s important to find talented designers and let them do what they do best.
“I had an executive come in and say, ‘I don’t like blue,’ and he wanted to change it,” O’Brien said. “If you’re doing a custom design, you’re either independent or your location is more conducive to something unique.”
Designers have a great skill set and truly understand the value of a dollar, he said.
“You really have to find a group that does that,” he said. “One that helps you spend your dollars in the right places.”