Owner-Developer Critical Path (GA 2017)

Strategic planning and Step-by-Step Processes Needed for a Successful New Hotel Project (green-field)
 
By Giovanni Angelini      Jan. 2017
 

 
Purpose of this document;
For owners/Developers use. Chronological process from A to Z on developing a new hotel project and practical check-list.
Note that this document does not address details/specific works as those have to be done by the respective parties/consultants involved in the project based on their respective scope of work.
 
Final objective;
Project “on-time and on-budget” and prevention of planning mistakes during the planning and development process.
 
 
1. Purpose and objective of the development (What it is?);
Define purpose of the development; 
- Long term investment strategy? 
- A short term investment with an early exit strategy? 
- Expand the brand presence? 
- To give prestige/added value to a multi-purpose complex? 
(Is there a phase’s development and in which phase is the hotel?)
- Define objective of the hotel development and expectations
- Others
 
2. Owner/Developer "Brief";
A simple-one-page document reflecting the owner/developer "Vision" covering the basics;
- Desired quality product
- Desired position within the market-city-community
- Desired facilities and sizes
- Desired brand/operator
- Desired timing/opening date
- Desired unique selling point & special features
- Others
 
3. Delegation of authority;
- Who drives the project?
- Driven directly by the owner/developer? Whom/responsible person?
- Or by a qualified owner representative with delegated authority, responsibility and accountability? 
- Project organization chart with clarity on reporting line, responsibility and accountability
 
- Who will approve what and accountability
(Warning; confusion on the authority-responsibility-accountability and on the clarity/efficiency/timing of the decision making process at the very top of the organization, are normally one of the main reasons for project's delays and costs overrun)
 
4.  Shareholders, Investors and Board;
- Principal investor and shares %............
- Minor investor and shares %..............
- Board of Directors composition and board responsibility
- Board meetings (quarterly?) and reporting formats
- Others
 
5. Financing;
- Equity and source
- Main loan, from where, (rates and repayment schedule) 
- Mezzanine loan, from where, (rates and repayment schedule)
- Others
 
6. Site & Land;
- Location and land use/business rights (commercial, tourism, residential or…)
- Free-Hold or lease, terms and conditions
- Tender process or direct negotiations?
- Cost of land, related expenses and payment schedule
- Ownership transfer, process and timing
- Size, plot ratio, height restriction, planning parameters, available GFA above and below ground
- Traffic, access, parking, open space requirements and pedestrians
- Land/site investigation and demolition/clearance if any
- Is the land/site subject to floodings/earthquakes?
- Situation in the immediate surrounding areas and proximity to public transport
- Soil test
 
7. GFA; (Reconfirm)
- Plot ratio
- Maximum allowed GFA/CFA
- Maximum allowed Height of building
- GFA above ground
- GFA below ground
- Total GFA
- Restriction?
- Space for phase 2/expansion?
- Clarify if covered outdoor balconies and terraces are part of GFA. What is the calculation?
8. Initial (1st) Area program and concept architect;
- Based on developer vision and on allowed GFA
- List and desired size of all facilities and supporting space
- Clarify car park requirements and include in the area program
- Selection & Appointment of concept architect/s and get first exterior proposals
- Importance of proper/efficient space allocation (GFA) i.e. profitable/revenue area vs. non-revenue area and space allocated to F&B, Banquets and other low profitability profit centers and back of house
- Assess total CFA divided by no. of rooms
 
9. Market survey;
- Engage a professional consultant to do a full market survey covering the present and future spending power of the community, the immediate past and present performance (rooms and food & beverage) of the existing hotels/competitive set and future supply & demand. The business activities, places of interests and reason/purpose to visit the area and the seasonality
- Existing and future public infrastructures including airport & flights, roads and rail access, port and of any other key issues related to the area i.e. extreme weather, heart-quake zone, floodings etc.
- Availability and anticipated cost of labour including union activities need of accommodation, supply & demand situation
- Recommend an appropriate hotel product & size (classification) and do the first/preliminary (10 years) financial projections
(Once on board, the operator to review and comment on this survey)
 
10. Initial cost projections;
Appoint a QS to assist/guide with preliminary total development costs including;
- Land, construction, interior, FF&E, operating equipment, consultants, etc…
- Include the Pre-Opening budget and related costs, working capital 
- Interest expenses during construction, allocation of contingency and soft & grand opening costs
- Indicate total development cost by the number of modules and of keys plus the cost by M2
 
11. Internal projections;
- Produce first budget/total development cost, 1st version. Important to take into consideration the inflation (based on a 3 years project) and of the anticipated exchange rate fluctuation and import taxes
- Allocation of contingency for eventual costs over-run (normally not less than 10%)
- ROI
- IRR
- Schedule of cash requirements
- Source of cash & cash flow
- Any tax incentives & tax structure pre & post opening (VAT, withholding, business etc.)
- Assess the yields per M2 generated by the hotel vs. other business (offices-retails-residentials)
 
12. Final decision to proceed or not;
- Who will make that final decision?
- Directions to all concerned
- Update the “Owner brief” document, one page
- Brand/names and trademark registration
- Obtain government/authorities consent & approval to proceed/develop
- RFP for interior designer & scope of work
- Selection & Appointment of interior designer
 
13. Project Management;
- Assess possible qualified experienced management companies
- RFP document to potential PM’s (Area program, scope of work & timing)
- Interviews and selection
- Define scope of work, responsibility and accountability
- Agreement
- Project Manager and supporting team on site
- Critical path development and approved by owner
- Kick-off meeting with all concerned (As per TS check-list)
- Project offices
- Pre-Opening offices including training and employee facilities
 
14. Brand/Operator;
- Assess and invite potential brands
- Interview and selection
- LOI
- TS agreement
- License agreement
- HMA: term, base-incentive-marketing fees, loyalty, production, performance, exclusivity, reserves, termination, etc.
- GM & Executives candidates, appointments and starting dates
 
15. Delegation of Authority & Responsibility (Check & Balance);
- Define who is the ultimate decision maker scope of work
- Appointment of a full-time project co-ordinator reporting to owner/representative
- Handling of project manager on site
- Regular meetings, schedule, attendance requirements and reporting
- Management of the critical path
- Management of costs/expenses
- Full use of operator’s TS team
16. Accountability & project control;
- Appointment of full-time internal accounting Manager/Director with clear reporting line
- Accounting policy for Depreciation, Amortization, and Taxation (pre & post opening)
- Definition of accounting terms
- Bidding and awarding process
- Purchasing process and approvals
- Receiving, quality checks and storing
- Issue of goods and general control
- Signing of cheques/payment process
- Control of funds and check & balance system
- Monthly financial statement format
- Insurance coverage during development
- On site security 
- Asset ledger system (most forgotten process....)
- Establishment a monthly or bi-monthly report on schedule & total costs
 
17. Building Exterior:
- Preferred basic construction method (Steel frame, post tension, column & beam?)
- Overall look/image
- Materials and tones
- Color of windows
- Location for signage on top of building (make provisions in advance)
- Location for signage on the podium & driveway (make provision in advance)
- Method of cleaning of the building exterior (gondola? or…)
- Floor to ceiling windows is the preferred way. Sound-proof
 
18. Operator brief (done by operator and to include);
- Position statement
- Operating philosophy
- Competitive set
- Market position
- F&B concepts
- Review and up-date the 10 years financial projections reflecting the up & down business cycles. Focus on room occupancy, room rates, REVPAR, GOR, GOP, EBITDA
- Manning & outsourcing philosophy
- Staffing guide and salary scale, staff accommodation if any
- Operator Pre-Opening critical path
- Reconfirmation of Pre-Opening budget, consumables and working capital
- Make use of operator standards & manuals  
19. Up-dated projected costs breakdown (2nd version);
- Cost of land (freehold/lease?)
- Cost of construction
- Pre-Opening budget
- FF&E's
- OS&E's (operating Supply)
- Working capital
- Include cost of mock-up room based on owner and operator guidelines
- Total project cost
- Total Project Cost per room
- Total project Cost per square meter
- Anticipated average room rate to cost per room (1 to 1,000). Achievable?
- Contingency (must include as may face delays)
- Site security, safety measures and insurance coverage
- Must also address the anticipated soft renovation of all areas after 7-8 years of operation and major full renovation after 15-16 years
- Plus of course the ROE, ROI, IRR
- Assess if there is need for a second value engineering by a Qs
 
20. Final (2nd version) Area Program. “Freeze” any future changes;
Final area program based on;
- Total project Cost
- Feasibility and market survey-study
- Indoor & outdoor facilities, product, and on developer request/desire
- Required support areas/back of house
- Parking, indoor & outdoor
- This final area program to be endorsed by owner and architect
(Important: Note that every time that the area program is changed the costs will increase and the project is delayed).
 
21. Appointment of Consultants;
- Design & License architect (local?)
- Traffic consultant
- Structural engineer
- Specialist interior designer i.e. F&B
- M&E consultant
- Lighting consultant
- Kitchen & Laundry consultant
- Fire & Life Safety consultant
- Landscape consultant
- Graphic and Signage consultant
- Acoustics consultant
- Vertical transportation consultant
- Art consultant
- Operator project coordinator on site
- Clarify schedule and delays penalties
- Others
- Note: Document “Brief” for each consultant is a must
 
22. Appointment of Main Contractor and of sub-contractors;
- Selection process and appointment
- Scope of works.
- Construction standards.
- Building Certification; Leed certified building?
- Schedule and delays penalties
- Sub-contractors
- others
 
23. Timing and Critical Path (For planning purpose, target: 40 months); 
As guideline (From the approval to proceed)
- 6-8 months for planning and design
- 6 months for land clearance and foundations
- 12 months for the super structure
- 12-18 months for the interior works and Pre-Opening
- Define when Hotel GM and key executives comes on board
- Sourcing of employees, hiring time and training
 
24. Ordering of Goods/Purchasing;
- Define if purchasing is done in house or via a professional firm (it has proved that a professional firm is more efficient and more economic)
- Define what are the FF&E’s items and the OS&E’s items, this based on the definition of accounting terms
- Who will make the lists? Normally the FF&E’s items list is made between the project management, interior designer and consultants with the input from the operator to ensure brand standards. The OS&E’s list is made by the operator.
- Establish requirement for temporary external storage
 
25. Licenses and process to obtain (Must plan in advance as normally is the main reason for delay of opening for business);
- Business
- Fire and life safety (most complicated to obtain)
- Hygiene
- Operation
- Liqueur
- Others
 
26. Driveway;
- Minimum two lanes. Sufficient space for 2 cars with doors open
- Canopy/repair from rain/sun
- Coaches parking
27. Arrival;
- The “Wow” factor on entering the lobby, height of lobby ceiling
- Day light and view
- Prevent that front desk and elevators face directly the main entrance
- Large revolving door to prevent wastage of heat-air condition
- Provision for security checks if/when needed
 
28. Vertical Transportation (Prevent basic mistakes);
- Minimum one large elevator for each 80-100 rooms, with 2 guest elevators as minimum
- Guest elevators to serve car park as appropriate unless dedicated elevators 
- Service elevators, one large elevator for each 150 rooms, minimum 2 service elevators
- Service elevators to serve all floors
- Linen shute for high buildings
- Access to swimming pool & health club without going through the public areas
- One service elevator with access from ADD for room service
 
29. Podium;
- Separate entrance for ballroom?
- Access to ballroom, need of escalators?
- Size of ballroom, no pillars, ceiling height
- Break-out rooms
- Meet & feed facilities
- Storage space
- Provision for toilets and cloak-room
- Location of Restaurants, outlets on ground floor are normally the most successful
- Should avoid shops in the lobby as much as possible
 
30. Tower;
- Number and size of rooms
- Number and size of suites (more than 5-6% of inventory is a waste)
- Room mix, based on market
- Number of connecting rooms (connecting door sound proof normally major problem)
- Club lounge? location-size-function
- Space for maids area and store-room (staff toilets every second floor)
- Access to water raiser-pipes for future replacements
- If at all possible, avoid public F&B outlets on top of building as security is becoming a major issue
- Fire and life safety facilities and escape routes. Smoke detectors, pressurized water sprinklers, alarm system simply a basic need
- Pressurized staircases with fire proof doors
- IPCCTV coverage
- Openings for fresh air? (Room windows)
- Room door; sound and fire proof
- Mock-up room/s (About 15-18 months before opening)
31. Back of House (Consult with the operator & TS for adequate space);
- In house laundry or not?
- Adequate space for large M&E’s equipment
- Importance of employees’ dining & kitchen plus all other employees’ needs
- Importance of employee’s entrance and of security/fire control room
- Loading and unloading space
- Receiving area 
- Toilets for visitors
- Sufficient storage space
- Garbage rooms (dry & wet-refrigerated space), away from receiving area
- Most hotels gets this wrong/hygiene problem
- Others
 
32. Planning for opening (Operator role);
- Define soft opening date
- Hiring and training of rank & file employees
- Security coverage after taking over the areas
- Receiving of operating equipment
- Marketing activities and positioning of the new product
- Testing & Commissioning process and appointment of 3rd party consultant to validate
- Dry-run activities
- Soft-opening
- Grand-opening
 
33. Update (3rd version) the total development cost;
- Include all new items/expenses
- Compare with 1st and 2nd version
- Usage of contingency
- Need of additional funds? Source?
 
34. Very important, (In many cases the followings not done, big mistake);
- Process for the official fixed asset register for all FF&E's and OS&E's endorsed by both the owner and the operator
- Corrections of all defects and punch list
- Final building drawings (as built), 2 sets, one to operator and one to owner office
- Equipment's guaranty/documents
- Note: Should not make final payments unless all the above are in order
- Closing of project books
35. Reasons for delays on opening for business and of costs overrun (Professional/realistic planning from the very beginning is imperative);
- No clear responsibility/accountability
- Lack of delays penalties on the contracts
- Wrong planning/scheduling & critical path
- Construction delays
- Changes on area program and designs
- Delays on delivery of goods/equipment and installations
- Delays on payments to contractors, consultants and goods/equipment
- Project over budget and needs to make cuts/amends
- Change of key players; project manager, contractor/s, consultants, operator etc.
- Non-compliance with licenses requirements, Fire/Life safety in particular (about 50% of all new projects faces delays due to this)
- Warming; once the employees are on board, any delays on opening becomes extremely costly and must be avoided
 
Final objective/Result;
In business with objective to become the market leader within the competitive set and generate the anticipated ROI.