When is a Proposed Hotel Simply a Rumor?

Presented by Jennifer Kane

There are several ways one can find out about proposed additions to supply within a defined market. Interviews or discussions with representatives of existing hotels, convention and visitors bureaus, economic development bureaus, chambers of commerce, or local planning and zoning boards can often introduce information regarding proposed hotel developments. Additionally, reports are available from industry sources such as Smith Travel Research, Hotel Online, and Lodging Econometrics. These organizations publish (for-purchase) pipeline or new construction reports and present details on proposed developments in every stage of the planning process – from pre-planning to final review, to those developments under construction.

Once you discover the spectrum of proposed additions to supply, there are several factors that can help verify whether or not the project will get developed. The first step would be to contact the planning and zoning board of the respective municipality. The information to uncover from this source includes:

• location of the proposed hotel,
  
• developer of the project,
  
• has application been submitted and status (approved; if not, where are they in approval process)
  
• timeline for approval/denial; when will it go before the board),
  
• does it meet zoning requirements or will it require a zoning change application

Hotel franchise representatives are another valuable point of contact regarding proposed additions to supply. Franchise representatives are responsible for a specific geographical area and certain brands within their company. Once you find the proper contact, appropriate questions may include:

• Have you heard about the development?
  
• If so, who is the developer?
  
• What brand are they considering?
  
• Have they submitted an application?
  
  • Have they been approved? If not, what is the timeline for such?
    
• How many rooms are proposed for this location?
  
• What amenities will the hotel have?
  

Lastly, communication with the developer will permit an understanding of the following:

• Do you own the land? Or have you signed a lease for the land?
  
• Do you have financing in place for the development?
  
• Have you had a market study done?
  
• When do you expect to begin construction?
  
• How long do you expect construction to take? When will the project be completed?

From time to time, answers to questions will not be available or readily provided. To determine projects status, three criterions are commonly used: the submission and approval of an application to the planning and zoning board, the ownership (fee simple or leasehold) of the land by the developer; and financing in place for the proposed project by the developer. If the answers to these criterions are affirmative, then it can be determined that the proposed project is in a more developed stage of the planning process. If these criterions are negative, it can be determined that the proposed project remains in the preliminary planning stages. The following considerations should be taken into account when deliberating on a proposed development:

• How long has it been since any progress has been made on the development? For instance, if the proposed development was approved several years ago and construction has yet to begin, the project can be deemed in the preliminary stages of the planning process as there must be issues holding it up.

• How has the market performed in recent years? If the proposed project was introduced into the market several years ago when the market was thriving, but since, growth in the market has slowed or even crashed, the proposed hotel development may no longer have market or economic feasibility.

Once you have mulled over these deliberations, you can determine whether the proposed addition to supply is real, or simply a rumor.