Owning and operating a hotel can be challenging work, but it can also be rewarding. Besides needing plenty of money, there is the long-term investment of time. It may take up to three years to seal the deal. Perhaps the easiest way to get started in the lodging industry is to buy a franchised hotel–Marriott, Hilton, and Choice brands to name a few. Hotel franchises have the added bonus of a familiar name, but franchise hotel owners also have to balance running a great hotel with following the parent company’s requirements. How do you determine what brand or franchise is right for you? Consider starting with a hotel chain’s economy brand (i.e., Courtyard Marriott) and then moving on to upscale (i.e., Renaissance) and luxury brands (i.e., JW Marriott).
The National Association of Black Hotel Owners, Operators and Developers convened a group of industry insiders from various major hotel chains. Here’s what they had to say about the four key elements to becoming a first-time hotel owner:
Key 1: Educating Yourself. Each hotel is so unique that both pros and novices alike must do extensive research and preparation before diving into a deal. Read the franchisor’s disclosure document. Review each hotel franchise’s strategy for growth and long-term plans. Find out about the support and training provided by the hotel franchise. Get to know the type of operating system each franchisor uses.
Many franchisors hold Discovery Days for potential franchisees to give them an opportunity to find out more about the franchise in an informal, no-obligation setting. During a Discovery Day, which is usually held at the corporate headquarters, the company explains the operation of the business, the product or service it provides, the training and support systems, and the financial investment. In addition, you should talk to other hotel owners about their experience to get the lay of the land.
Key 2: Securing Funding. Buying a hotel franchise requires adequate financing to support both the initial franchise startup fees as well as the initial operating costs for the hotel. Reports show that many new hotel franchises fail due to the failure of the new owner in allotting sufficient money to get the business running.
You can elect to buy an existing hotel and re-brand it under a new franchise or you can build a new hotel, says Julius W. Robinson, vice president, franchising and operations, Fairfield Inn & Suites, Marriott International. Buying an existing hotel building will save you money. But there may be challenges to the current location that you will need to consider, such as demographics, operating costs, and taxes, before making your purchase.
Key 3: Building A Team. The first step requires equity and dealer partnerships. “Look to provide a 20% to
30% equity investment,†says Brian Parker, regional vice president, franchise development and emerging markets, Choice Hotels International. If the point of entry for a franchise hotel brand is $5 million to $6 million, how then do you raise around $1 million for that deal? “You can get a pool of investors to come up with the money,†he suggests.Once you have equity partners you need to have skilled operators and hotel managers. Some management teams can be retained to manage daily hotel operations, or the hotel can be self-managed by you–the owner. You can get an approved management company through the franchise brand, Robinson says. Compare various companies. Just be sure to include a termination clause for poor performance in your paperwork, he adds.
Key 4:Â Knowing Fundamentals. What operational experience is needed? You obviously will need to focus on revenue generation, cash flow management, and getting heads on beds. But always remember that service reigns supreme, says Margie Blankenship, president of Miss-Holly Enterprises. That is the first and primary rule of lodging and hospitality.
Hotel owners have to anticipate guest needs, ensure that guest rooms are well maintained, and manage staff effectively. At the same time, hotel owners have the opportunity to meet new people and interact with guests from a variety of locations. So, hotel owners draw in guests who expect a certain quality at that location.
You should be prepared to benchmark you hotel to see how well you hold up to other hotels within your location, size, and brand, notes Evans Charles, managing member, Frontier Development and Hospitality Group. One resource is the Smith Travel Research (STAR) Report.
Also viable are customer surveys and reviews, especially online sites like Trip Advisor, says Robinson.
As a hotel owner, you can’t hide under the sheets from bad service.