THERE’S A LOT that goes into opening a new hotel, so much so that even experienced developers may need a little help determining pre-opening costs. A new story from the HFTP Americas Research Center offers some guidance.
The study, done in collaboration with the University of Houston Conrad N. Hilton College of Hotel and Restaurant Management, focuses on pre-opening budgets, staffing and technology installation. It seeks to answer questions arising from new standards adopted in the Uniform System of Accounts for the Lodging Industry 11thEdition and past Financial Accounting Standards Board pronouncements.
It made use of a four-section survey of 20 hotel executives, most of whom had decades of experience in the industry. Most worked for management companies while about a quarter worked for owner/management companies or directly for an owner.
“The researchers identified a significant blind spot in industry knowledge and took bold steps to fill that gap,” said HFTP CEO Frank Wolfe.
The respondents oversaw an average of 22 hotels each across five continents. Most of the properties were luxury or upscale. The responses to the survey were compiled to form best practices for pre-opening budgeting covering a chart of top expenses by property class and labor costs, hiring timelines and employee relocation benefits. The report also provides timelines for selecting, installing and training on computer systems.
“An interesting aspect of this study was the variety in the interpretation of what should be contained in the pre-opening budget,” said the authors of the study, Agnes DeFranco and Arlene Ramirez of the Conrad N Hilton College at the University of Houston, and HotStats Director of Customer Success Tanya Venegas. “The study reflects the need for more clarification and guidelines on the timing and types of costs that should be included in order to be compliant with GAAP and provide management with information that is useful in making decisions during this phase of project development.”
Some findings in the study include:
- Pre-opening budgets were completed for 100 percent of new construction projects, while they were only completed for 65 percent of conversions and takeovers.
- For 71 percent of respondents, the pre-opening budget was determined based on a budget completed during the development phase of the project. For 17 percent the basis is an amount included in the management agreement or a negotiated amount based on a prior hotel opening. Finally, 12 percent of the respondents indicated that the budget was a brand standard based on key count.
- Labor is the overall most significant pre-opening cost. Payroll costs in 47 percent of pre-opening budgets are typically derived from previous pre-openings while project pro forma determines the cost in 41 percent of the budgets. Other methods of determining the pre-opening staffing make up 12 percent.
“The pre-opening process involves many aspects; however, with project management and understanding of the concept, the process can meet the desired results,” the report says. “From this study, it can be seen that there is no one consensus within those in industry surveyed as to an optimal process or even the components of the process. While that may be cause for concern by some, it does not seem atypical for the hospitality arena as each project can be different in many ways. Overall, what can be concluded from the study is that there is room for more clarity in understanding this process.”