Developers know that owning hotel assets means being ready for anything and everything. Having a clear plan when it comes to capital expenses can help to ensure the longevity of a property. Phil Miller, vice president of design and construction at Davidson Hotels & Resorts, and Jim Merkel, CEO of Rockbridge Capital, share tips for hoteliers looking to make smart spending decisions.
New doesn’t mean perfect. “A new property with new systems doesn’t guarantee that you won’t need to make new purchases. They’re going to be relatively small, but they’re still going to be there,” Miller cautions.
Take care of your property. “The most common mistake that people make is that they don’t reinvest in their assets, and that is the loser’s game of hotel real estate,” Merkel says. “Take care of your asset, fix it right, and don’t defer maintenance.”
Build a reserve. “From day one, you should be putting revenue into a reserve,” Miller says. “For new properties, it could be as small as 3 percent, but it could be as high as 5 percent. A lot of times this number is dictated by your financing or franchisor.”
Be well capitalized at the outset. “You have to capitalize up front because if you don’t, you get buried. It puts good people in a position to make bad decisions because they have limited capital,” Merkel describes.
PIP awareness is key. Miller explains that property improvement plans, or PIPs, should always be on a developer’s mind when considering acquiring a new asset. “When you’re recapitalizing an existing property, PIPs can impact the way you finance, refinance, or even whether you decide to go through with a purchase.”
The guest comes first. “If you don’t take care of your assets, you’re fighting an uphill battle when it comes to caring for your guests. Sometimes owners will kid themselves and think that maintenance isn’t worth the money. You can have a great-looking property, but if the basics—like hot water—aren’t being fulfilled, you won’t be able to overcome that,” Merkel says.
