Technical Analysis:
Market moves in three directions: Up, Down, Sideways
MARKET TRENDS
Long- Term: 9 months or longer
Largest overall focus of most investors
Intermediate: 3-9 months
Lasts weeks or months
Short-term: days to weeks but not more than three months
Ripple effect
Regardless of time frame, try to identify long/intermediate and short term trends. When riding ripples or waves helps to know i fthe stocks stide is going in the preferred direction. Go with the tide and ride the waves in..
Support: Imaginary price level that is difficult for a stock to move below beacuse there are so many investors willing to buy at that level. Investors create support when the bulls gain enough momentum to overwhelm the bears and stop or reverse downward movement.
The more often a stock price bounces off a support level the stronger the support level becomes.
Resistance: Opposite of support. Imaginary price level that is difficult for a stock to penetrate on the upside. Created when the bears gain enough momentum to overwhelm the bulls and stop or reverse upward movement.
Diagonal Resistance:
Occurs after a stock creates two consecutively lower peaks.
Price Channel: Range defined by a strong support level on the bottom of the price and strong resistance level on the top of the price. Help identify possible entry and exit signals.
Guidelines to consider for identifying potential breakout:
3 percent: Consider it a breakout if the stock price penetrates the previous level of support or resistance by atleast 3 percent.
150 percent: More significant if it occurs on atleast 150% of average daily volume.
Monday, November 21, 2011
Wednesday, January 12, 2011
BGR: C-Store
Ref: C-Store
Milk, Bread, Soda and Snacks
RoT: Rule of Thumb
15-30% annual sales + inventory
1.5-2 times SDE + inventory
5 times EBITDA less cosmetic renovation to receive nat'l brand of fule + inventory
2-3 times EBITDA + inventory (c-store only)
6-8 times EBITDA + inventory (real estate + business)
RoT for different types of C-Stores
Kiosk - 1-2 times EBITDA + RE & Fixtures/Equipment
Mini-CStore - 2-3 times EBITDA + RE & Fixtures/Equipment
Limited Selection C-Store - 2-3 times EBITDA + RE & Fixtures/Equipment
Traditional C-Store - 3-4 times EBITDA Includes RE & Fixtures/Equipment Less inventory
Expanded C-Store - 4-5 times EBITDA includes RE & Fixtures & Equipment Less inventory
Hyper C-Store - same as Expanded CStore
Looking @ c-store
- Look @ 4 primary profit centers in c-store including typical sales, cost, margins & cash flows
- Consider impact of real-estate ownership vs lease
- Review petroleum product supply agreements
- It is more profitable for store owner to own fuel equipment and by paying loan pmt to bank rather than receiving a limited commission from fuel supply contract
- Calculate with accurate books and record, a market value that can be financed
Petroleum Supply Agreement
How long does it have remaining
Are there financial strings (loans, unamortized rebranding costs, volume rebates, buyout penalties)
Financial strings such as loans, unamortized rebranding costs, volume rebates buyout penalties?
Is brand competitive in the area or should rebranding considered?
Are financial terms competitive or can they be renegotiated to take advance of current market practices? Eg: If sales volumes have increased that would qualify for better competitive allowances, prepayments etc.
Fire sites with petroleum sales greater than 1M gallons per yr (83K GPM) there are lucrative arrangements if supplier is "buying" market share
Don't take supply agreement as admin function. Its very important part of sale.
Check store for gross/traffic count. Compare to average hours that generate profit. Exclude 1am - 5am as most stores do not generate enough business at this time.
Small volume, marginal stores impossible to sell in bad-margin market
Note: Must know supply agrements and margin that operator is working on.. High volume/good margins. Important factor to determine justification of seller's asking price is the profitability of the business. A c-store working on high margin on inside sales and having high monthly sales will sell for higher price than high-volume store working on low margin.
C-store operating at 30% + gross profit & monthly sales over 50k is attractive to buyer and should sell for higher price.
PRICING TIPS
Average price is 2-3 times SDE, 3-5 times when real estate is involved.
Business with low revenue - average under 1000 per day is buying a job - with sale price of 1 - 1.5 - under the 2 times of SDE
Location of business. Competition in immediate area. Type of products sold. Lottery Commissions.
Korean rule of thumb: 20x average weekly sales
Industry expert: Strive for an overall weighted inside gross profit margin of 30%
Attempt to get margin of 50-60% for deli sales
Gas margins vary over competition
Ballpark figure: If you get a bottom-line profit of 6.5-7% of total sales after taxes, depreciation and amortization
Usually valued at 3-4 times monthly gross depending on age of structure, new vs mature business, location etc. Price does not include RE or inventory but would include fixtures and equipment at market value. Value of food inventory for super market is about $12 p sf
High sales volume with profit important; need loss leaders especially milk and bread, good personnel, customer service important; open early morning; clean facility
Interstate locations, other good location, brand of gas very important
Age and condition of petroleum equipment important
Environmental issues must be dealt with before closing
Phase I/II reports required for financing
Up-to-date current property appraisal is helpful
SELLER FINANCING
5 year all due payable with 15-year amortization
5 - 7 years
QUESTIONS TO ASK
If petroleum - any previous environmenal issue, current leak test result
3 year tax return, lease agreement
Amount of gross that is tobacco related
Lottery sales
Any employee or customer thefts
Location: traffic count and number of rooftops dictate best locations along with traffic patterns, red lights curb out access
Age and condition of other equipment important
What is the mixture of sales?
How do sales break down concerning gas, merchandise/cig, beer, grill, deli?
EPA requirements completed?
Robberies since buying store
Key people
Gas supplier
Gas equipment owner
Wholesaler who supplies majority of groceries
C-stores being built within two miles of store?
BENCHMARKS
Strive for average 30% inside margin on merchandise sales
Rental less than $15 p sq foot
C-store annual sales $767k
Foodservice annual sales $115k
High volume easier to sell. Small stores under $25k monthly very hard to sell
Secondary Income (1.7% of total sales; $250k > $4250 and $150k > 2550)
Secondary income avenues: rebates/allowances; product placement fees; special promotions; pay phones; car vaccum/air/water; ATM: money order; Lottery; Pre-paid cards
EXPENSE AS % of SALES
COGS: 50-60% or less - good store
Payroll: 20% (owner operator will lower)
Occupancy costs: 7-15% (rent or mortgage payment)
Profit (pretax) 10-15% gasoline profit should cover rent/mortgage
Milk, Bread, Soda and Snacks
RoT: Rule of Thumb
15-30% annual sales + inventory
1.5-2 times SDE + inventory
5 times EBITDA less cosmetic renovation to receive nat'l brand of fule + inventory
2-3 times EBITDA + inventory (c-store only)
6-8 times EBITDA + inventory (real estate + business)
RoT for different types of C-Stores
Kiosk - 1-2 times EBITDA + RE & Fixtures/Equipment
Mini-CStore - 2-3 times EBITDA + RE & Fixtures/Equipment
Limited Selection C-Store - 2-3 times EBITDA + RE & Fixtures/Equipment
Traditional C-Store - 3-4 times EBITDA Includes RE & Fixtures/Equipment Less inventory
Expanded C-Store - 4-5 times EBITDA includes RE & Fixtures & Equipment Less inventory
Hyper C-Store - same as Expanded CStore
Looking @ c-store
- Look @ 4 primary profit centers in c-store including typical sales, cost, margins & cash flows
- Consider impact of real-estate ownership vs lease
- Review petroleum product supply agreements
- It is more profitable for store owner to own fuel equipment and by paying loan pmt to bank rather than receiving a limited commission from fuel supply contract
- Calculate with accurate books and record, a market value that can be financed
Petroleum Supply Agreement
How long does it have remaining
Are there financial strings (loans, unamortized rebranding costs, volume rebates, buyout penalties)
Financial strings such as loans, unamortized rebranding costs, volume rebates buyout penalties?
Is brand competitive in the area or should rebranding considered?
Are financial terms competitive or can they be renegotiated to take advance of current market practices? Eg: If sales volumes have increased that would qualify for better competitive allowances, prepayments etc.
Fire sites with petroleum sales greater than 1M gallons per yr (83K GPM) there are lucrative arrangements if supplier is "buying" market share
Don't take supply agreement as admin function. Its very important part of sale.
Check store for gross/traffic count. Compare to average hours that generate profit. Exclude 1am - 5am as most stores do not generate enough business at this time.
Small volume, marginal stores impossible to sell in bad-margin market
Note: Must know supply agrements and margin that operator is working on.. High volume/good margins. Important factor to determine justification of seller's asking price is the profitability of the business. A c-store working on high margin on inside sales and having high monthly sales will sell for higher price than high-volume store working on low margin.
C-store operating at 30% + gross profit & monthly sales over 50k is attractive to buyer and should sell for higher price.
PRICING TIPS
Average price is 2-3 times SDE, 3-5 times when real estate is involved.
Business with low revenue - average under 1000 per day is buying a job - with sale price of 1 - 1.5 - under the 2 times of SDE
Location of business. Competition in immediate area. Type of products sold. Lottery Commissions.
Korean rule of thumb: 20x average weekly sales
Industry expert: Strive for an overall weighted inside gross profit margin of 30%
Attempt to get margin of 50-60% for deli sales
Gas margins vary over competition
Ballpark figure: If you get a bottom-line profit of 6.5-7% of total sales after taxes, depreciation and amortization
Usually valued at 3-4 times monthly gross depending on age of structure, new vs mature business, location etc. Price does not include RE or inventory but would include fixtures and equipment at market value. Value of food inventory for super market is about $12 p sf
High sales volume with profit important; need loss leaders especially milk and bread, good personnel, customer service important; open early morning; clean facility
Interstate locations, other good location, brand of gas very important
Age and condition of petroleum equipment important
Environmental issues must be dealt with before closing
Phase I/II reports required for financing
Up-to-date current property appraisal is helpful
SELLER FINANCING
5 year all due payable with 15-year amortization
5 - 7 years
QUESTIONS TO ASK
If petroleum - any previous environmenal issue, current leak test result
3 year tax return, lease agreement
Amount of gross that is tobacco related
Lottery sales
Any employee or customer thefts
Location: traffic count and number of rooftops dictate best locations along with traffic patterns, red lights curb out access
Age and condition of other equipment important
What is the mixture of sales?
How do sales break down concerning gas, merchandise/cig, beer, grill, deli?
EPA requirements completed?
Robberies since buying store
Key people
Gas supplier
Gas equipment owner
Wholesaler who supplies majority of groceries
C-stores being built within two miles of store?
BENCHMARKS
Strive for average 30% inside margin on merchandise sales
Rental less than $15 p sq foot
C-store annual sales $767k
Foodservice annual sales $115k
High volume easier to sell. Small stores under $25k monthly very hard to sell
Secondary Income (1.7% of total sales; $250k > $4250 and $150k > 2550)
Secondary income avenues: rebates/allowances; product placement fees; special promotions; pay phones; car vaccum/air/water; ATM: money order; Lottery; Pre-paid cards
EXPENSE AS % of SALES
COGS: 50-60% or less - good store
Payroll: 20% (owner operator will lower)
Occupancy costs: 7-15% (rent or mortgage payment)
Profit (pretax) 10-15% gasoline profit should cover rent/mortgage
Monday, January 3, 2011
Hotel Investments: Facility Types
FACILITY TYPES:
DELUXE:
Very top of hotel segment in regard to service, physical facilities and amenities. Common associated brands - Four Seasons, Ritz Carlton. Likely to contain independently-owned hotels who have established reputation over many decades. Eg: Lenox in Boston and Mark in New York.
LUXURY:
Commercial facilities catering to business traveler - generally situated in downtown or commercial districts. Amenities include restaurant, lounge meeting facilities, fitness room and gift shop. Service offered include room service, business center, concierge and valet services, shoe shine, daily newspaper, airport shuttle and local transportation. Modern facilities provide work desks, multiple telephones with dual lines and data ports, in-room coffee makers, irons and ironing boards and copy/fax services. Convention hotels are large facilities that have meeting spaces with capacity to handle large groups of people. Convention hotels are large facilities - 30 sq feet of meeting space per guest-room located near convention. Contains large inventory of guestrooms with high % of double/double bedding configuration. Convention hotels provide large ballrooms and small breakout rooms for meetings and conferences. Some hotels feature exhibit space and auditoriums.
UPSCALE:
Hotels and all-suite brands that cater primarily to business travelers who do not need the amenities of full service luxury hotel. Segment also appeals to leisure travelers who want more amenities that can be found in a midscale hotel.
MIDSCALE WITH FOOD & BEVERAGE:
Largest single segment in the nation. Represented by old brand names such as Holiday Inn or Best Western.
LIMITED SERVICE SEGMENTS:
Three segments: Midscale without F&B, Economy, and Budget. Eg: Comfort Inn, Hampton Inn
Economy segment offer larger rooms than typical budget hotel.
Budget segment is popular among senior citizens and people traveling on very limited budget.
EXTENDED STAY:
Provide residential atmosphere by offering larger, apartment-type guestrooms with separate living and sleeping areas, full kitchens, exterior entrances and recreational facilities. Extended-stay resemble garden apartment complexes and usually have a small administrative building that houses the front office and lounging/dining area. Guest suites furnished with residential style goods and feature fireplace. Attracts travelers who must stay in the area for an extended period of time. Average length of stay at Marriott Residence Inn is 10 days. Typical guests include relocated employees, auditors working on long-term projects attorneys involved in lengthy trial and engineers assigned to building project.
CASINO HOTELS:
Provide guests and visitors with on-site gaming facilities. Casino hotels offer buffet-style restaurants, cocktail lounges, retail outlets and entertainment facilities. Depending on extent and orientation of gaming facilities, guestroom range from moderate to luxury. Suites are provided for "high rollers" and other high-profile guests.
BED & BREAKFAST
Offer quaint, residential-style accomodations along with breakfast. Usually in historic areas.
MOM & POP MOTELS:
Small, independent, family-operated motels. Older-style lodging facilities usually have fewer than 50 units and offer limited amenities. Tourist cabins and camps are included in this category.
BOUTIQUE HOTELS:
Small lodging facility that caters to upscale patrons looking for intimate, quiet sorroundings. Often converted from historic structures, these properties offer high-quality amenities and furnishings, signature upscale restaurants and expensive personalized guest services. Public areas and meeting facilities are minimal in this category.
HEALTH SPAS:
Hotel that provides various health-oriented services and activities such as special diets and dining plans, exercise programs, medical supervision, massage and therapy and health education and training.
BOATELS:
Lodging facility that is specifically associated with a marina development. Generally accomodates leisure travelers who wish to enjoy nearby bodies of water along with boat owners seeking accomodations and other amenities on shore. Amenities typically offered include restaurant, lounge, ship's store, laundry facilities, docks and marine equipment repair and service.
LOCATION & CLIENTELE:
AIRPORT:
Situated either at or near airport facility, this type of hotel attracts commercial travelers, small meetings and groups, airline related visitation such as crewes and distressed passengers.
HIGHWAYS:
Designed for guests traveling by automobile. Properties with highway locations attract commercial and leisure travelers. Proximity to major roadway, accessibility and visibility are major attributes required for this type of property. Features limited meeting facilities, restaurant on property or nearby, and amenities such as swimming pool, playground, complimentary hot beverage service, sundries and road maps.
DOWNTOWNS:
Cater mostly to commercial and meeting and convention market segments.
SUBURBS:
Generally located near office, retail, and light industrial areas. Development costs are lower for suburban hotels than for downtown properties.
CONVENTION CENTERS:
Draws patronage from events held at the nearby convention center. Typically provide food and beverage facilities.
RESORTS:
Located in areas with considerable scenic beauty or recreational opportunities. Attracts leisure demand segment of the lodging market and leisure-oriented meetings and conventions such as corporate-incentive groups.
MIXED-USE FACILITIES:
Facilities situated in multiple-use developments that contain both hotel and non-hotel elements (office space, retail property, residential property).
GUESTROOM DESIGN
Microbudget motel:
Total area is 190 sq feet and provides enough space for one bed. Although guestroom is small, it has all normal amenities found in conventional budget motel guestrooms.
Budget motel:
Total area is 236 sq feet and provides space for two double beds. Window is adjacent to entry door which means property has exterior corridors.
Mid-rate facility:
Total area is 300 sq feet and includes larger bathroom, separate closet and sleeping area containing king-sized bed and two chairs. Guestroom contains desk/dresser with television. Corridor to which room has access is interior.
Luxury:
Total area is 450 sq feet. 25 feet length and 18 feet wide - creating feeling of greater open space. Bathroom is above average in size and sleeping area has capacity for desk, two small couches and coffee table.
Suite:
Contains separate sleeping and living areas. Rectangular guestroom in which living area is in front and leeping area is to rear. Approx 400-500 sq feet space only slightly larger than typical luxury guestroom.
Extended stay:
Provides greatest amount of space of any lodging facility. Guestrooms consist of full-size living rooms, kitchen and bedrooms. Two floor duplex - 580 sq feet 1st floor; 244 sq feet second floor - Total of 824 sq feet.
AMENITIES:
Such as swimming pool, room service and personal care items play large role in marketing of hotel rooms. A survey was done to quantify usage of amenities. Although swimming pool is frequently an expected feature - it is used by less than one-third of the guests. Should a costly swimming pool which guests expect but rarely use be included in design on property? The answer is yes because the need to conform with the local competitive environment - despite the low usage.
DELUXE:
Very top of hotel segment in regard to service, physical facilities and amenities. Common associated brands - Four Seasons, Ritz Carlton. Likely to contain independently-owned hotels who have established reputation over many decades. Eg: Lenox in Boston and Mark in New York.
LUXURY:
Commercial facilities catering to business traveler - generally situated in downtown or commercial districts. Amenities include restaurant, lounge meeting facilities, fitness room and gift shop. Service offered include room service, business center, concierge and valet services, shoe shine, daily newspaper, airport shuttle and local transportation. Modern facilities provide work desks, multiple telephones with dual lines and data ports, in-room coffee makers, irons and ironing boards and copy/fax services. Convention hotels are large facilities that have meeting spaces with capacity to handle large groups of people. Convention hotels are large facilities - 30 sq feet of meeting space per guest-room located near convention. Contains large inventory of guestrooms with high % of double/double bedding configuration. Convention hotels provide large ballrooms and small breakout rooms for meetings and conferences. Some hotels feature exhibit space and auditoriums.
UPSCALE:
Hotels and all-suite brands that cater primarily to business travelers who do not need the amenities of full service luxury hotel. Segment also appeals to leisure travelers who want more amenities that can be found in a midscale hotel.
MIDSCALE WITH FOOD & BEVERAGE:
Largest single segment in the nation. Represented by old brand names such as Holiday Inn or Best Western.
LIMITED SERVICE SEGMENTS:
Three segments: Midscale without F&B, Economy, and Budget. Eg: Comfort Inn, Hampton Inn
Economy segment offer larger rooms than typical budget hotel.
Budget segment is popular among senior citizens and people traveling on very limited budget.
EXTENDED STAY:
Provide residential atmosphere by offering larger, apartment-type guestrooms with separate living and sleeping areas, full kitchens, exterior entrances and recreational facilities. Extended-stay resemble garden apartment complexes and usually have a small administrative building that houses the front office and lounging/dining area. Guest suites furnished with residential style goods and feature fireplace. Attracts travelers who must stay in the area for an extended period of time. Average length of stay at Marriott Residence Inn is 10 days. Typical guests include relocated employees, auditors working on long-term projects attorneys involved in lengthy trial and engineers assigned to building project.
CASINO HOTELS:
Provide guests and visitors with on-site gaming facilities. Casino hotels offer buffet-style restaurants, cocktail lounges, retail outlets and entertainment facilities. Depending on extent and orientation of gaming facilities, guestroom range from moderate to luxury. Suites are provided for "high rollers" and other high-profile guests.
BED & BREAKFAST
Offer quaint, residential-style accomodations along with breakfast. Usually in historic areas.
MOM & POP MOTELS:
Small, independent, family-operated motels. Older-style lodging facilities usually have fewer than 50 units and offer limited amenities. Tourist cabins and camps are included in this category.
BOUTIQUE HOTELS:
Small lodging facility that caters to upscale patrons looking for intimate, quiet sorroundings. Often converted from historic structures, these properties offer high-quality amenities and furnishings, signature upscale restaurants and expensive personalized guest services. Public areas and meeting facilities are minimal in this category.
HEALTH SPAS:
Hotel that provides various health-oriented services and activities such as special diets and dining plans, exercise programs, medical supervision, massage and therapy and health education and training.
BOATELS:
Lodging facility that is specifically associated with a marina development. Generally accomodates leisure travelers who wish to enjoy nearby bodies of water along with boat owners seeking accomodations and other amenities on shore. Amenities typically offered include restaurant, lounge, ship's store, laundry facilities, docks and marine equipment repair and service.
LOCATION & CLIENTELE:
AIRPORT:
Situated either at or near airport facility, this type of hotel attracts commercial travelers, small meetings and groups, airline related visitation such as crewes and distressed passengers.
HIGHWAYS:
Designed for guests traveling by automobile. Properties with highway locations attract commercial and leisure travelers. Proximity to major roadway, accessibility and visibility are major attributes required for this type of property. Features limited meeting facilities, restaurant on property or nearby, and amenities such as swimming pool, playground, complimentary hot beverage service, sundries and road maps.
DOWNTOWNS:
Cater mostly to commercial and meeting and convention market segments.
SUBURBS:
Generally located near office, retail, and light industrial areas. Development costs are lower for suburban hotels than for downtown properties.
CONVENTION CENTERS:
Draws patronage from events held at the nearby convention center. Typically provide food and beverage facilities.
RESORTS:
Located in areas with considerable scenic beauty or recreational opportunities. Attracts leisure demand segment of the lodging market and leisure-oriented meetings and conventions such as corporate-incentive groups.
MIXED-USE FACILITIES:
Facilities situated in multiple-use developments that contain both hotel and non-hotel elements (office space, retail property, residential property).
GUESTROOM DESIGN
Microbudget motel:
Total area is 190 sq feet and provides enough space for one bed. Although guestroom is small, it has all normal amenities found in conventional budget motel guestrooms.
Budget motel:
Total area is 236 sq feet and provides space for two double beds. Window is adjacent to entry door which means property has exterior corridors.
Mid-rate facility:
Total area is 300 sq feet and includes larger bathroom, separate closet and sleeping area containing king-sized bed and two chairs. Guestroom contains desk/dresser with television. Corridor to which room has access is interior.
Luxury:
Total area is 450 sq feet. 25 feet length and 18 feet wide - creating feeling of greater open space. Bathroom is above average in size and sleeping area has capacity for desk, two small couches and coffee table.
Suite:
Contains separate sleeping and living areas. Rectangular guestroom in which living area is in front and leeping area is to rear. Approx 400-500 sq feet space only slightly larger than typical luxury guestroom.
Extended stay:
Provides greatest amount of space of any lodging facility. Guestrooms consist of full-size living rooms, kitchen and bedrooms. Two floor duplex - 580 sq feet 1st floor; 244 sq feet second floor - Total of 824 sq feet.
AMENITIES:
Such as swimming pool, room service and personal care items play large role in marketing of hotel rooms. A survey was done to quantify usage of amenities. Although swimming pool is frequently an expected feature - it is used by less than one-third of the guests. Should a costly swimming pool which guests expect but rarely use be included in design on property? The answer is yes because the need to conform with the local competitive environment - despite the low usage.
Hotel Investments: Part 1
HOTEL AQUISITION
PLANNING STAGE:
Select region of country
Narrow selection to cities or market areas
Look for market niche
Look for product / available properties
Perform preliminary economic market study & appraisal
IMPLEMENTATION STAGE:
Tie up property with letter of intent, option or contract
Negotiate terms of sale
Go to contract on property
Line up operator
Line up franchise
Commission a formal economic market study & appraisal
Line up mortgage financing
Line up equity financing
HOTEL DEVELOPMENT
PLANNING STAGE:
Select region of country
Narrow selection to cities or market areas
Look for market niche
Look for product / available sites
Perform preliminary economic market study & appraisal
IMPLEMENTATION STAGE:
Tie up property with letter of intent, option or contract
Obtain zoning and permits
Assemble project team
Line up operator and franchise
Prepare architectural plans and estimate project costs
Commission formal economic market study & appraisal
Line up mortgage
Line up equity capital
SELECTING MARKET:
Proximity to home office: Hotels are labor-intensive that require constant supervision and direciton. When aquiring or developing a facility its advisable to keep it close to home so that it can be given full attention.
Signs of economic growth: Regions exhibiting strong growth trends are generally better suited for hotel investments than regions that are economically stagnant
Competitive environment: Carefully evaluate regional supply of competitive facilities in conunction with economic growth. Even if economic trends are favorable, an adverse competitive environment brought by the oversupply of hotel rooms can make a region undesirable location for aquiring or developing a facility
Evaluating market area: Look for situations that exhibit a need for specific hotel product. Consideration is given to protective charecteristics known as barriers to entry - which include restrictive zoning or license approval process, limited suitable land or acquisition opportunities, rapidly escalating construction costs and unavailablility of appropriate chain affiliation or management company. Unique market position can quickly change to overbuilt position if no barriers to entry exist and other competitive products can enter the market without difficulty.
Market niche: May be necessary to reposition an existing property. Hotel can be repositioned through a renovation or upgrading, changing franchise affiliation or introduction of new management.
PROPERTY & SITE SELECTION:
Once type of hotel is determined on basis of evaluation of market niche, investor must start looking for available hotels if an existing property is desired or suitable sites if a new development is desired
When looking for existing hotel, investors use services of broker whose practice is concetrated in the lodging industry. When looking for potential hotel sites, best to use a land broker familiar with local area - particularly the zoning regulations, building codes and related laws. One of the difficult aspects of accomplishing a hotel development is obtaining necessary zoning changes and variances. Knowledgeable land broker understands these issues and can direct developer to suitable sites requiring minimal zoning changes and approvals. Brokers are compensated by seller with commissions based on a % of sales price - generally 1-4% for existing hotels and 4-10% for vacant land.
PRELIMINARY MARKET STUDY & APPRAISAL:
Before any $ is commited to the purchase of property, investors perform or commission a thorough preliminary economic market study and appraisal. Information yielded by this analysis is used to determine the type of hotel and facilities best suited to the location and type of management and franchise affiliation that would be most effective. Another important product of a market study is a forecast of revenues and expenses that the subject property can be expected to realize. This information is vital to the buyer during the negotiation of sale of property because it can be used to determine the value of facility.
First step in evaluating a proposed investment is to analyze the site of the proposed or existing property. The suitability of site for hotel operations is important determinants of success of investment. Site analysis involves such factors as physical suitability of land, access and visibility and availability of utilities and other services and applicable zoning regulations.
Once site is selected, the area in which it is located must be evaluated. This evaluation includes both immediate neighborhood o fthe site and its market area. Extent of relevant neighborhood can be usually determined by simple observation of surrounding area, including roads and land-use patterns. The market area is hardeter to identify because it involves a larger area and depends on more factors (competition/travel patterns). Another important step is an examination of the supply of lodging facilities in the area. Before success of proposed investment can be determined the appraiser must determine the degree with which other hotels in the area would compete with the subject property.
After supply of hotels is evaluated, existing demand must be quantified to determine the ability to support new hotel or acquisition of existing facility. Demand analysis can be performed using - demand generator build-up approach or lodging activity build-up approach. In addition to local supply and demand, appraiser must determine the competitive positions of all local facilities and how the subject property would fit into this picture. This involves determining current market share, average room rate and occupancy rate of existing competition. Once this determination is made, appraiser can forecast the variables for subject property.
Final step in preliminary appraisal is to forecast the income and expense of the proposed hotel investment. Income projection focuses on hotel's main categories of revenue - such as rooms, food and beverage and telephone income. The expense projection examines hotel's main items of expense - such as rooms, food/beverage, telephone, administrative, management and marketing costs.
A property valuation along with forecasts of revenue and expense allows appraiser to make recommendation regarding the feasibility of proposed investment. First step in property valuation is to determine overall worth of subject property. This step entails appraising appraising existing hotel or forecasting value of proposed property. This value is contrasted against the cost of the property which is either the cost of acquisition or construction.
FRANCHISE AFFILIATIONS & HOTEL MGMT
Two important steps in investment process are obtaining a franchise affiliation and selecting a hotel management company. Franchise affiliation is important decision in investment that should be made early in the acquisition or development process as possible. Franchise company will want the opportunity to participate in decisions regarding designs and specifications for a lodging facility because most have companywide standards that must be met by each of their properties. An early decision also enables owner to accurately determine the cost of the franchise affiliation and use the information when analyzing economics of the project.
PROPERTY MANAGEMENT
Management company should be retained as early as possible. Management company should be brought in before any significant amount of time is spent on architectural drawings so the mgmt co will have opportunity to provide suggestions regarding the layout and general design of the facility. Securing mgmt co is important for acquisition because the company will often be able to generate valuable information regarding projected operating performance of the property. Mgmt company will indicate changes that must be made to the property if improvements are required in order to meet the company's operating standards.
MANAGEMENT CONTRACTS
Proper execution of management contract is vital step for the development of the investment. This document spells out relationship between owner and operator. Each party must be able to negotiate the contract with full understanding of the consequences of including or disallowing a particular provision. If either party is permitted to include provisions that are disproportionately favorable to its position the working relationship between the parties can be damaged. Basic provisions include - fee structures, financial reporting, budgeting to termination, assignment of employees and indemnification.
PLANNING STAGE:
Select region of country
Narrow selection to cities or market areas
Look for market niche
Look for product / available properties
Perform preliminary economic market study & appraisal
IMPLEMENTATION STAGE:
Tie up property with letter of intent, option or contract
Negotiate terms of sale
Go to contract on property
Line up operator
Line up franchise
Commission a formal economic market study & appraisal
Line up mortgage financing
Line up equity financing
HOTEL DEVELOPMENT
PLANNING STAGE:
Select region of country
Narrow selection to cities or market areas
Look for market niche
Look for product / available sites
Perform preliminary economic market study & appraisal
IMPLEMENTATION STAGE:
Tie up property with letter of intent, option or contract
Obtain zoning and permits
Assemble project team
Line up operator and franchise
Prepare architectural plans and estimate project costs
Commission formal economic market study & appraisal
Line up mortgage
Line up equity capital
SELECTING MARKET:
Proximity to home office: Hotels are labor-intensive that require constant supervision and direciton. When aquiring or developing a facility its advisable to keep it close to home so that it can be given full attention.
Signs of economic growth: Regions exhibiting strong growth trends are generally better suited for hotel investments than regions that are economically stagnant
Competitive environment: Carefully evaluate regional supply of competitive facilities in conunction with economic growth. Even if economic trends are favorable, an adverse competitive environment brought by the oversupply of hotel rooms can make a region undesirable location for aquiring or developing a facility
Evaluating market area: Look for situations that exhibit a need for specific hotel product. Consideration is given to protective charecteristics known as barriers to entry - which include restrictive zoning or license approval process, limited suitable land or acquisition opportunities, rapidly escalating construction costs and unavailablility of appropriate chain affiliation or management company. Unique market position can quickly change to overbuilt position if no barriers to entry exist and other competitive products can enter the market without difficulty.
Market niche: May be necessary to reposition an existing property. Hotel can be repositioned through a renovation or upgrading, changing franchise affiliation or introduction of new management.
PROPERTY & SITE SELECTION:
Once type of hotel is determined on basis of evaluation of market niche, investor must start looking for available hotels if an existing property is desired or suitable sites if a new development is desired
When looking for existing hotel, investors use services of broker whose practice is concetrated in the lodging industry. When looking for potential hotel sites, best to use a land broker familiar with local area - particularly the zoning regulations, building codes and related laws. One of the difficult aspects of accomplishing a hotel development is obtaining necessary zoning changes and variances. Knowledgeable land broker understands these issues and can direct developer to suitable sites requiring minimal zoning changes and approvals. Brokers are compensated by seller with commissions based on a % of sales price - generally 1-4% for existing hotels and 4-10% for vacant land.
PRELIMINARY MARKET STUDY & APPRAISAL:
Before any $ is commited to the purchase of property, investors perform or commission a thorough preliminary economic market study and appraisal. Information yielded by this analysis is used to determine the type of hotel and facilities best suited to the location and type of management and franchise affiliation that would be most effective. Another important product of a market study is a forecast of revenues and expenses that the subject property can be expected to realize. This information is vital to the buyer during the negotiation of sale of property because it can be used to determine the value of facility.
First step in evaluating a proposed investment is to analyze the site of the proposed or existing property. The suitability of site for hotel operations is important determinants of success of investment. Site analysis involves such factors as physical suitability of land, access and visibility and availability of utilities and other services and applicable zoning regulations.
Once site is selected, the area in which it is located must be evaluated. This evaluation includes both immediate neighborhood o fthe site and its market area. Extent of relevant neighborhood can be usually determined by simple observation of surrounding area, including roads and land-use patterns. The market area is hardeter to identify because it involves a larger area and depends on more factors (competition/travel patterns). Another important step is an examination of the supply of lodging facilities in the area. Before success of proposed investment can be determined the appraiser must determine the degree with which other hotels in the area would compete with the subject property.
After supply of hotels is evaluated, existing demand must be quantified to determine the ability to support new hotel or acquisition of existing facility. Demand analysis can be performed using - demand generator build-up approach or lodging activity build-up approach. In addition to local supply and demand, appraiser must determine the competitive positions of all local facilities and how the subject property would fit into this picture. This involves determining current market share, average room rate and occupancy rate of existing competition. Once this determination is made, appraiser can forecast the variables for subject property.
Final step in preliminary appraisal is to forecast the income and expense of the proposed hotel investment. Income projection focuses on hotel's main categories of revenue - such as rooms, food and beverage and telephone income. The expense projection examines hotel's main items of expense - such as rooms, food/beverage, telephone, administrative, management and marketing costs.
A property valuation along with forecasts of revenue and expense allows appraiser to make recommendation regarding the feasibility of proposed investment. First step in property valuation is to determine overall worth of subject property. This step entails appraising appraising existing hotel or forecasting value of proposed property. This value is contrasted against the cost of the property which is either the cost of acquisition or construction.
FRANCHISE AFFILIATIONS & HOTEL MGMT
Two important steps in investment process are obtaining a franchise affiliation and selecting a hotel management company. Franchise affiliation is important decision in investment that should be made early in the acquisition or development process as possible. Franchise company will want the opportunity to participate in decisions regarding designs and specifications for a lodging facility because most have companywide standards that must be met by each of their properties. An early decision also enables owner to accurately determine the cost of the franchise affiliation and use the information when analyzing economics of the project.
PROPERTY MANAGEMENT
Management company should be retained as early as possible. Management company should be brought in before any significant amount of time is spent on architectural drawings so the mgmt co will have opportunity to provide suggestions regarding the layout and general design of the facility. Securing mgmt co is important for acquisition because the company will often be able to generate valuable information regarding projected operating performance of the property. Mgmt company will indicate changes that must be made to the property if improvements are required in order to meet the company's operating standards.
MANAGEMENT CONTRACTS
Proper execution of management contract is vital step for the development of the investment. This document spells out relationship between owner and operator. Each party must be able to negotiate the contract with full understanding of the consequences of including or disallowing a particular provision. If either party is permitted to include provisions that are disproportionately favorable to its position the working relationship between the parties can be damaged. Basic provisions include - fee structures, financial reporting, budgeting to termination, assignment of employees and indemnification.
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