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Hotel Branded Residences. The 2 nd Annual Indonesia Hotel Investment Conference 2014. Bill Barnett, Managing Director C9 Hotelworks. Grand Nikko Bali June 6 , 2014. The Good.
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Hotel Branded Residences The 2nd Annual Indonesia Hotel Investment Conference 2014 Bill Barnett, Managing Director C9 Hotelworks Grand Nikko Bali June 6, 2014
The Good • Funding – full development funding to completion irrespective of unit sales, or an existing property with units as an extension, or already in progress; • Ownership – freehold or registered land title; • Management – branded, international, or otherwise credible/ recognizable. Maintenance of unit inclusive; • Market – product proactively created to match requirements of pre-determined end user; • Investment: • Opportunity for strong ROI through rental yields and/or capital appreciation; • Pricing to comp set and with reasonable developers margins • Low completion risk due to full developers project funding • Financing available: bank or developer financing • Legal Structure – full due diligence pack and clear and thorough transaction documents; • Quality – strong partners and stakeholders across the board (developer, designers, contractors, consultants); • Tax / Revenue Structure – clear documentation on tax liabilities and treatment of rental revenues;
The Bad • Often have over reliance on unit sales to complete, but perhaps have fall back funding if required • Often are on leasehold tenures; • No international brand standard management and an only average attempt to show “new brand” or boutique management capabilities; • Product often created “reactively” based on developer or designers thoughts / ideas / preferences; • Often not flexible on rental management structure: i.e. mandatory vs. non-mandatory; • Often not 100% solid / clear in treatment of rental revenues; • Often difficult to generate a solid ROI as priced too high; • Financial Forecasting often done internally - subjective • Often difficult to derive capital appreciation because of lease tenure; • Often high perceived “completion risk” due to lack of clear developers funding or existing facilities on site; • Often unclear on tax obligations and rental revenues;
The Ugly • Often try to sell off plan with no funding in place; • Often utilizing strategy of not starting project until a certain number of unit sales completed; • Often are on leasehold tenures; • Often have poor or no management in place; • Product often created purely on developer preferences; • Often very week in Legal Due Diligence and Transaction Documents – selling on Booking Forms only; • Often extremely unclear in treatment of rental revenues; • Financial Forecasting almost exclusively done internally – highly subjective • Often high perceived “completion risk” due to lack of clear developers funding or existing facilities on site; • Often unclear on tax obligations and rental revenues; • Often unrecognizable stakeholders (developers, designers, management companies, contractors, etc.); • Often lots of hidden fees in transaction costs, taxes, ongoing maintenance costs, etc.
The Good • Legian Beach, 112 Apartments sold out
The Bad • Brand new 3 Star Hotel • Selling Rooms for $24 per night • Front page Agoda assume 30% commission • Hotel takes $17 Gross
The Ugly • Selling Fast, 50% already completed • Overlooking Canggu’s last rice paddies