The owner's guide to hotel development

Mar 23, 2011

Tara Marlow.

Development stage
The development stage brings in further specialisms and professionals. During this part of the process, involvement will be required from hotel operators, architect and design consultants, a project manager and cost consultant, and potentially other consultants as may be required, subject to how the development team is to be structured.

The development stage will also depend on the type of asset that has been purchased.

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(a) Development Site
If acquisition of bare land for development has occurred, then the development stage will necessarily involve a number of components:

• Appointment of the hotel operator, which ideally should be undertaken pursuant to a detailed RFP and selection process

• Obtaining the various development licences and planning permissions, and non-objections from local tourism authorities

• Commencement of concept design of the hotel, with involvement of the appointed operator to ensure that the hotel will, in all respects, comply with the operator’s stated brand standards

• Preliminary development cost projections for the build

• Preliminary design and construction programme

(b) Existing building (whether partially or fully completed)
The development stage, where the asset acquired is an existing building, will follow the requirements of a development site for the most part, particularly with regard to hotel operator appointment and the design process (where the building is partially complete, or only completed to a shell and core finish).

In both cases (acquisition of a development site or an existing building), it is important that selection and appointment of the hotel operator occurs as early as possible.

Such an early appointment will facilitate the design programme of the hotel, with the owner being able to obtain input, guidance and approvals from the operator in line with the programme (thereby preventing any costly delays).

It will also ensure that the hotel is designed and built in accordance with the operator’s brand standards, and allows the owner to draw on the experience of the operator with regard to market positioning and optimising the marketability of the hotel.

Late appointment of an operator may cause additional pressure and stress to the design and construction programme, and is likely to push up development costs, particularly if the designs needs to be re-worked to accommodate the operator’s requirements and standards.

This will depend upon whether the existing hotel management agreement is transferred to the owner and operation remains unaffected, whether renovation/refurbishment is required, or whether the hotel management agreement terminates and a new operator needs to be appointed, resulting in a major renovation project.

In the event that the development stage does apply, then it will follow a similar path as per (a) and (b) above. Additional complexity will arise in the event of partial renovation or refurbishment of the hotel, which is to be undertaken without closing the hotel.

This will need to be carefully considered, with the operator’s views and approval obtained, before the renovation budget and programme can be finalised.

Renovation of a hotel while it remains operational is one of the most sensitive and difficult scenarios for owner and operator alike.

Both parties will try to balance the need for a facelift to the hotel (to hopefully improve revenue) against the requirement for minimal impact on available room inventory, common areas, provision of services, and the guest experience.

Time is of the essence, and the works programme needs to take these issues into account, which adds further management issues. This is an extremely difficult balancing act.

Construction and beyond...
In the second part of this article, to be published in the May issue of Hotelier, I shall focus on the construction, pre-opening and opening stages, at which point the hotel is handed over to the operator (and the owner can hopefully take a deep breath and more of a back seat!).

About Al Tamimi & Co.
Al Tamimi & Company is the largest non-affiliated law firm in the Middle East, employing more than 170 lawyers, with offices in Abu Dhabi, Dubai, Sharjah, Jordan, Qatar, Iraq, Saudi Arabia and Kuwait.

Al Tamimi & Company is a full service, commercial law firm, specialising in the following areas: Real Estate, Hospitality & Leisure, Construction and Engineering, Banking & Finance, Corporate & Commercial, Litigation, Arbitration and Dispute Resolution, Intellectual Property, Information Technology and Telecommunications, Employment, Maritime, Insurance and Aviation.

For further information, visit www.tamimi.com or email Tara Marlow at t.marlow@tamimi.com.