Development

Front 1

Real Assets

Back 1

Assets that are tangible and divisible. Ex. Land, buildings, and equipment.

Front 2

Financial Assets

Back 2

Assets that are intangible and liquid. Ex. Stock notes, bonds, and bank notes.

Front 3

Market Value

Back 3

What have others paid for comparable properties? Issue: What is comparable?

Front 4

Replacement Value

Back 4

What is the cost to reproduce the property?

Front 5

NOI

Back 5

Net operating income= Total assets- total expenses.

Front 6

Reversion

Back 6

Future selling price of the property-current debts.

Front 7

Value

Back 7

Value= PV of NOI + PV reversion

Front 8

Non-Monetary Factors that Can Influence Value

Back 8

Goodwill, location, barriers to entry, features and amenities, and quality of construction.

Front 9

Hotel Development Cycle

Back 9

Recovery, expansion, hypersupply, recession.

Front 10

Recovery

Back 10

When occ is increasing and is below LTAO.

Front 11

Expansion

Back 11

When occ is increasing and above LTAO. Construction on new hotels begins.

Front 12

Hypersupply

Back 12

When occ is decreasing and above LTAO. Supply growth begins to exceed demand growth.

Front 13

Recession

Back 13

When occ is decreasing and below LTAO. Supply growth outstrips demand growth, market cannot absorb any new rooms.

Front 14

Feasibility Study

Back 14

Test development idea, attract equity financing, support applications for debt financing, and attract brands and operators.

Front 15

Market Study

Back 15

Economic info, labor conditions, hotel supply and demand, and recommendations.

Front 16

Feasibility Study vs. Market Study

Back 16

A feasibility study has all of the components of a market study along with a site analysis, financial projections, and development budget.

Front 17

Demographic Conditions

Back 17

Labor availability and costs and demographic characteristics and changes.

Front 18

Climate for Development

Back 18

Regulatory environment, public opinion, and competitiveness.

Front 19

Lift

Back 19

Arrivals by air.

Front 20

Recommended Facilities

Back 20

Overall building size, room mix, capacities of public revenue generating spaces, physical amenities, quality level, comparison to competition, and relationship to site.

Front 21

Occupancy Projections

Back 21

From opening until a stabilized year (typically year 3) along with a list of assumptions.

Front 22

Financial Projections

Back 22

7-10 year pro forma statement, ROI, development cost projections, and debt service analysis.

Front 23

Pro Forma

Back 23

A future statement of income.

Front 24

Hurdle Rate

Back 24

A personal benchmark set by investors that a given project's ROI must satisfy for them to invest.

Front 25

Does the Project Pencil?

Back 25

RevPar must more than cover costs and cost per key must align with market conditions.

Front 26

Lenders Care About

Back 26

Does the project show potential to pay me back? Is the developer credible?

Front 27

Equity Investors Care About

Back 27

Will it profit? How does ROI compare to their hurdle rate?

Front 28

Brand Cares About

Back 28

Is project appropriate for brand? How does it fit with plan?

Front 29

Operator Cares About

Back 29

Is the projected performance possible?

Front 30

Government Cares About

Back 30

How will the project affect the community?

Front 31

MICE

Back 31

Meetings, incentives, conventions, and exhibitions.

Front 32

Demand Generators

Back 32

Things that draw people to the location.

Front 33

Latent Demand

Back 33

Demand for a product or service that a consumer cannot satisfy because they don't have enough money or because the product/service is unavailable. Demand exceeds supply.

Front 34

Defining Your Comp Set

Back 34

Proximity, price, and product.

Front 35

Location Analysis

Back 35

How easy/hard is it to access key demand generators from your property and from competitors' properties.

Front 36

Location

Back 36

General area.

Front 37

Site

Back 37

Specific parcel of land.

Front 38

Acre

Back 38

=43,500 sf of land and .4 hectares, Cornell arts quad=10 acres.

Front 39

Hectare

Back 39

=10,000 sm

Front 40

Building Footprint

Back 40

How much ground the building is taking up.

Front 41

Greenfield Project

Back 41

Parcel of land that has never been developed.

Front 42

Brownfield Project

Back 42

A parcel of land that has been used for industrial purposes.

Front 43

GSF

Back 43

=Gross square feet

Front 44

Floor Area Ratio

Back 44

The amount of physical space you may build above grade on a given site.

Front 45

Acquisition of Land Process

Back 45

Letter of intent(LOI)- Outlines basic terms and timeframes. $ deposit but is non-binding.

Initiate purchase sale agreement when project is feasible and finance can be obtained.

Front 46

Comparing Sites

Back 46

Orientation, views, access, visibility, proximity to demand generators, proximity to undesirable functions, shape of parcel, size of parcel, topography, zoning, environmental concerns, current use, past use, neighboring uses, utility availability, and area synergy.

Front 47

Stages of Development

Back 47

Development Planning, feasibility, programming, design, contracting(tendering), and construction.

Front 48

Development Planning

Back 48

Establish objectives, identify site, identify issues, assemble project team, determine concept, start raising funds.

Front 49

Development Planning Establish Objectives

Back 49

Why is the project being developed? What are the strategic goals? What are the financial goals?

Front 50

Primary Goal of Development

Back 50

To meet owner's present and future needs on schedule and on budget.

Front 51

Private Goals of Development

Back 51

Minimize risk and maximize ROI.

Front 52

Public Goals of Development

Back 52

A safe, attractive, well located project that enhances the community.

Front 53

Acquiring Existing Properties

Back 53

Refurbish, reflag, or reposition.

Front 54

Adaptive Reuse

Back 54

Converting an existing building from one use to another.

Front 55

Mixed Use Development

Back 55

Multiple revenue streams on different cycles. Pre-selling of space to help finance the project.

Front 56

Development Planning Determine the Concept

Back 56

Type of project, key attributes, and management structure.

Front 57

Development Planning Assemble the Team

Back 57

Developer, architect, engineer, investors, lenders, supporting personnel, and operator.

Front 58

Feasibility

Back 58

Demand for room and function space, supply of competitive properties, market outlook, and site and facility considerations.

Front 59

Programming

Back 59

How much and how many? Functional issues necessary for design and instruction to designers.

Front 60

Design

Back 60

Arranging spaces for efficiency, determining look and feel, FF&E selection, documentation, approvals from brand/operator, and refining the budget.

Front 61

Schematic Design

Back 61

Arrangement of spaces and basic circulation patterns.

Front 62

Design Development

Back 62

Detailed spaces and FF&E selection.

Front 63

Contract Documents

Back 63

Full documentation for construction.

Front 64

Contracting

Back 64

Identify potential bidders, solicit competitive bids, and select those who will build the project.

Front 65

Who Owns Hotels?

Back 65

REIT's~30%, private hotel company~20%, equity fund~10%, publicly traded c corp~10%, family~10%, san francisco~5%, pension fund advisor~5%.

Front 66

Developer Roles

Back 66

Initiates project, raised funds, retains team, controls and coordinates processes.

Front 67

Brand Roles

Back 67

Provides name, attracts investment, satisfies lenders, provides design input, and earns fees.

Front 68

Operator Roles

Back 68

Satisfies lenders, design input, day to day operations, and earns fees and a piece of NOI.

Front 69

Investor Roles

Back 69

May be joint venture or silent equity, influences choice of operators, always has eye on ROI, and may have an asset manager on board.

Front 70

Lender Roles

Back 70

Covers construction only, may influence operator choice, may have influence on project parameters.

Front 71

Architect

Back 71

Typically the first design professional hired, has key roles in all phases.

Front 72

Interior Designer

Back 72

Manipulates space and makes FF&E decisions in the front of house.

Front 73

Engineer

Back 73

Designs building/systems and bears legal responsibility for their designs over a span of years.

Front 74

Brand Choices as an Owner

Back 74

Management by brand, a license or franchise with 3rd party manager, a self managed license or franchise, or an independent hotel.

Front 75

Pros to Independent

Back 75

Save money, allows more flexibility in meeting the market, and no significant revpar hit over time.

Front 76

Cons to Independent

Back 76

Loss of reservations via brand.com, lack of support, risk of bad operator, much harder to get financing.

Front 77

LEED Certification

Back 77

Costs anywhere from 0-12% of construction costs.

Front 78

Design Bid Build Model

Back 78

3 separate stages.

Front 79

Design Build Model

Back 79

Bid to one firm that both designs and builds the hotel.

Front 80

Fast Tracking

Back 80

Construction begins before the design phases are complete.

Front 81

IPD Model

Back 81

Used for very big projects. Make a project specific corporation to do everything.

Front 82

Costs to Develop a Hotel

Back 82

Construction typically cost more as a % of project cost for economy hotels (~80%) compared to select and full service hotels.

Front 83

Basic Rules of Thumb

Back 83

Land value shouldn't exceed 15% of the total development costs (luxury may go as high as 17%)

Front 84

Total Development Costs per Key

Back 84

Econonmy~80,000, Select~110,000, Midscale~150,000, Full service~300,000, Luxury~700,000, and Extended stay~160,000.

Front 85

ADR Rule of Thumb

Back 85

For every $1,000 spent /key (excluding land) you should recoup at least $1.00 in ADR to be viable.