Location, location, location: It’s still the No. 1 rule to real estate. And while every hotel project involves many variables, hoteliers agree that scouting out the right location takes dedication and a few best practices.
“There is a process, and process drives progress. That progress then results in a successful hotel,” said Mary Beth Cutshall, Executive Vice President and Chief Development Officer of HVMG.
A strong market, or one that is underserved, is a must, according to Mike Marshall, President and CEO of Marshall Hotels & Resorts. Then, Cutshall agrees, diverse demand generators are important within those markets. In short, there needs to be a reason to build.
“You don’t want to build for development’s sake,” said Brian Waldman, Executive Vice President of Investments at Peachtree Hotel Group. “The most important thing is looking at the market and understanding the supply and demand as well as the long-term outlook.”
But the process doesn’t include a guess-and-see approach. Developers need to enter into markets with their eyes wide open, with data to back them up. Following, sources share their go-to industry reports that help them build and buy.
LOCAL REPORTS
Marshall’s first source of data comes from the local community, such as reports released by the Chamber of Commerce, jobs data, and reports on the market’s economy.
“A lot we will use in passing because sometimes a lot of it is just fluff that the government has put out,” he said. “But the point is that you need to do your own research, too.”
He said paying attention to what’s going on within the market is critical for any project – and that means garnering the reports but also personally gathering data. “You’ve got to understand the market inside and out for yourself,” Marshall said. “That means putting boots on the ground, going to talk to people, and seeing those demand generators. Sitting in a corner office just relying solely on reports means you probably won’t be successful.”
HOTEL PERFORMANCE REPORTS
Cutshall said STR’s STAR reports are a must. The report compares hotel performance – including such metrics as revenue per available room, average daily rate, and occupancy – against a similar set of hotels, also known as a comp set. This report allows hoteliers to benchmark as well as see an index that shows whether the hotel is performing better or worse than the average within the comp set.
Waldman said that STAR reports look back at historical data to help determine how hotels in a market have performed, whether that be during downturns and recoveries, new supply growth, and the like. “STAR reports are helpful because they drill down on the comp set, and we can craft one or more sets,” he said.
Cutshall said segmentation data also can help to tell a fuller story of a market and how a hotel will perform within it. “Kalibri Labs has reports to understand segmentation and submarkets and the type of business and customer acquisition cost against the comp set. You can truly see what the net revenue is for getting heads in beds,” she said.
Kalibri’s Trendline Report is available for developers, investors, brokers, lenders, appraisers, and other investment professionals. The report shows performance for a hotel or group of hotels by month and details insights broken out by channel, rate categories, or length-of-stay buckets. The report also can benchmark two data points, such as a hotel against its comp set, for relative performance trends.
PIPELINE REPORTS
Hotel performance metrics are important to the puzzle, but pipeline data is equally so, sources say. STR and Lodging Econometrics are two companies that produce pipeline reports for the industry.
“You need to see what other hotels are proposed for the market and what stage they are in the pipeline,” Waldman said. “If the STAR report looks great, but five other hotels are about to break ground a mile from your site, that’s important information to know for supply and demand going forward.” He added that hoteliers will also want to know whether new demand generators will come in, if any hotels are set to leave the area, or whether any hotels are changing flags or renovating, which could also have an impact on competition in the market.
“We look for a report that’s got the most detailed information possible and that includes all possible projects,” said Hank Staley, Managing Director, Advisory Services, CBRE. “We want to know about every project, and we’ll track down every one of those. … With a comprehensive pipeline report, you can feel comfortable you didn’t miss something.”
FEASIBILITY REPORTS
“We love it when a sponsor has a feasibility report,” Cutshall said. “Some of the best money you can spend is on the front end, and hiring an objective third party to do a feasibility study helps flush out a lot of mistakes.”
Waldman said after his company completes its own projects, executives will bring in a consultant. “We do feasibility studies to bring in another expert to help us determine where the market is going and to validate our projections for the project.”
It’s important to partner with a third party that is non-biased when it comes to franchises, however. “Look at companies that focus more on the particular asset type you’re looking at,” Marshall said. “People who do feasibility studies for convention hotels don’t do well with a 62-room roadside hotel, for instance. You’re looking for a select set of skills. Look at people who have already had success in markets and already know the markets. You’re not trying to reinvent the wheel.”
SHARING-ECONOMY DATA
Data about home-sharing companies, such as Airbnb, might not be on the top of developers’ lists, but it should definitely be part of the overall strategy, sources say. To forget about this competition could mean hoteliers aren’t seeing the full picture that could be costly for business.
“There is data made available that you can subscribe to, and this is especially important for bigger MSA markets where Airbnb and others are successful and have a lot of supply,” Cutshall said. “Being able to get that data and overlay it with STR market performance data, which is what developers and operators have relied on, gives more of an assessment.”
Cutshall said Airbnb is like shadow demand that hoteliers need to know about. The data can help determine where home sharing has grown, how many units are being sold in the market, and which ones are performing best. It can also provide an indication of whether people are looking for single or multiple bedrooms in the market. “And, if the supply continues to grow, it could impact peak nights,” she said.
Staley agreed this data is a critical component. “We spend a lot of time trying to understand what it means. Is it all incremental demand that wouldn’t be there or a shift in booking channels? In certain markets, it’s an important part of the analysis. I suggest to anyone to ask if Airbnb matters. If it does, you need the report that shows it.”
INDUSTRY REPORTS
Hotel industry reports and data are available from a wide range of sources. The following are just a few of the places to gather location data for your property:
- STR
- Lodging Econometrics
- Kalibri Labs
- Deloitte
- CBRE
- Truist Securities
AAHOA Members receive exclusive discounts off many of these reports.
Visit AAHOA.com/membership/member-benefits to learn more.
