THE LAUNCH OF A LUXURY RESORT IS A SCIENCE.....AND POTENTIALLY A BLACK HOLE
Too many Developers have lost their fortunes from the belief that resort development is quite simple and all they need to do is design the resort, hook a hotel brand & operator and then get the financing.
Our company has the luxury (and privilege) of reviewing hundreds of project plans each year to determine whether they are investment-ready and financeable. The projects range from smaller projects of USD$30-$50 million up to larger projects that often anticipate from $1.5 to $2.0 billion. The sweet spot are those that are estimated in the $75-$150 million range that may well represent the first phase of the $1.5 billion projects. The hard ones are the mega-resorts..... or the small ones.
As reviewer of a projects' readiness to finance, readiness to work over a period of 20+ years, we are in effect 'resort scientists'.
However hundreds of great projects are languishing on developers' shelves gathering dust. Why? Because it looks so easy. Get an architect and design your dream residential resort, get an operator and then find an investor. Quite easy really!!
But resort development is also intricate detail, in-depth experience and careful timing. Why therefore would one try to build a resort without a resort scientist? You wouldn't build a rocket ship without a rocket scientist.
It really is sad!! So many people. So much money. So many dreams. All down deep black holes because they were not conceived properly, sequenced or even treated as a science.
Here are the Top Ten Red Flags in resort development that are committed around the globe.
- Huge project on land that is not owned by the Developer. No financial institution will ever lend or invest in a paper document developed for a project that will be built on a stranger's land. The title must be owned outright, zoned appropriately with environmental studies complete.
- Developer has no resort development experience. Lenders lend to experienced people, not projects. If the developer has experience in another business, this has value. If the developer has and/or will invest 10%-30% of the project's cost including the value of the land, this will add value and strength.
- Developer has no internal experienced team. Plans on external consultants only. The development company will need the internal experience to provide expert oversight of the project manager, the architect, the GC, the consultants, the operator.........and control the budget.
- Well-advanced architectural drawings and artist renderings for which the architect was paid handsomely. Additional work possible only if he is paid more. Design only to the level where the project can be financed, no further. Once financed, the architect, engineers and consultants can take it to the next level.
- Construction budget that omits all the development costs. A development model is a complex, detailed description of every aspect of the development and the operation that includes everything from a space plan for each square metre of the resort to the number and type of employees, their wage and benefits. Projected profits from development and operations need to be detailed and supported.
- Feasibility Study done by a local 'expert'. The study must be current and be completed by a recognised, independent consultant company that in addition provides a valuation of the land/project As-Is and As-Completed.
- Enthusiasm from multiple resort operators/brands with not one cent invested or at-risk. It is relatively easy to be enthusiastically encouraged by the hotel company that is committed to grow their portfolio without investing. They will be quick to be enthusiastic but slow to commit before proof of feasibility and financing. Needs a valid LOI and business terms. Contract negotiation needs an experienced resort expert.
- Expensive brochure describing the project for unknown investors, more suitable to guests. Spectacular photography and glowing texts describing a completed resort, details of an award-winning restaurant, tantalizing spa and treatment centres. Thousands of dollars wasted on script writers, photography and printers. Useless.
- No formal plan for structuring the financing. Most developers have assumed that the detailed plan, artist renderings, the spectacular brochure and the one page revenue and profit expectations will be all that is needed to 'find me an investor'. Virtually none will have detailed sequencing of the budget plan with phasing. None will have realized that this is not a hotel resort, but is a residential resort with real-estate as its foundation. Some are looking to sell equity when all they need is a loan!!
- Run out of money, now looking for experts to donate their time to fix & finance it. There are solutions for most projects that we review. For those that are investment-ready, financing can be facilitated by an investment bank without further cost. For those that need extra work, it can be done. However most have already run out of money. Some former multi-millionaires even now need grocery money.
The solutions to even the worst conceived resorts with the right potential take from 3-5 months. To plan it from scratch, we need a maximum of 6 months, 3-4 months to finance and 18-24 months to build.
Some of these projects need no more than a loan and can be debt-free before the resort is complete.
To discuss your plans, contact Axis Hospitality