The value and risk of investing in a hotel (i). Risk section

The value and risk of mid-range and below hotel projects are mainly reflected in the cost of construction and the expected benefits of the operation, and this paper focuses on high-end hotel projects.

In the 19th National Congress proposed to meet the people’s pursuit of a better life, high-end hotel consumption will also be accompanied by the increase.

The inevitability of the existence of high-end hotels

As a green and labor-intensive industry, hotels promote more employment and foreign exchange. The completion of high-end hotel projects can enhance the local regional business image and the government’s more stable and considerable tax revenue;  So that local government in land planning, deliberately binding high-end hotel construction and requirements.

The feasibility study report of the government in land planning is generally more than ten years ahead of the project. Excessive  “researchable” or even  “advance”  longer.

Of course, it is not ruled out that planning of the nature of land use requires a small adjustment in use, but ahead of planning must be a huge risk of overinvestment in the project.

Risks of investing in hotels

High-end hotel pit, how many corporate blood and tears of the lesson is really hard to say. Let’s start with the risks of investing in hotels and understand their blood and tears.

1, the local government’s overall planning of the city, there is a considerable number of purely from the perspective of political performance to develop hotel development planning, hotels are often as systematic planning of the sub-project, it as the image of the city and the community supporting facilities, social benefits are sometimes far greater than economic benefits.

For real estate developers, the threshold of hotel investment is relatively low, it is easy to create excess market and hotel investment risk, fierce competition. As a result, hotel revenue is not guaranteed.

2, local governments in the transfer of land or investment, to build hotels and other high-end buildings and facilities as a quid pro quo, improve the hotel facilities and facilities requirements. The number and size of hotels should be determined rationally by the market.

Such as supporting star hotels and must meet the conditions of the corresponding facilities, but the actual utilization rate is quite low. Supporting functions and equipment, facilities more, and these facilities are equivalent to the cost of sinking, the huge investment in fixed assets in the early stage, but also almost determine the high cost of late operation, thereby restricting the hotel’s return on investment.

3, high-end hotel projects for non-profit investment projects, long recovery period, easy precipitation of funds, cash difficult. Sunk costs are high, asset liquidity is low, and performance is difficult to show explosive growth, it is difficult to have a single large cash inflow. Static returns are not high, and cost-recovery periods for well-run four- and five-star hotel projects are typically 7 to 15 years, while more hotel projects fail to meet this expectation.

Although its own hotel assets have some appreciation expectations, from the return on net assets, its profitability is often not high. Hotel sale and acquisition of large funds, the hotel auction or transfer rate is extremely low. Once the hotel is built, it is not easy to get rid of, it is extremely difficult to turn or transform.

4, the hotel industry is not displaced by the service industry, the ability to resist risks is low. Social unrest, financial crisis, natural disasters, geographical customer base advantage offset, etc. will have a great impact on the hotel, and even devastating damage. The hotel’s dependence on the environment is continuous and its own ability to resist risks is extremely low.

Systemic risks are higher and economic dependence on the macro-economic environment, especially tourism and vacations, is high.

5, the hotel is a special industry. Successful hotels are a combination of physical hardware, design planning,  operational strategy,  service experience, and so on. Otherwise, it will inevitably be a bottomless hole, leaving investors in a dilemma.

The number of hotels increased relatively rapidly, and the business model is relatively single, and the growth of the scale of customers is relatively limited, which determines that the hotel to the source of the competition is more intense.

6, investment intangible assets of real estate developers and hotel investors, in the land and real estate appreciation of the environment and economic conditions, the overall appreciation of the investment of hotels. But in the case of socio-economic downturns, the tangible assets invested by hotels may also depreciate at the same time.

Investment High-end hotels have known that there are so many “pits”,  but why are there many enterprises to drill in?