The business case is used by a property developer to solicit interest from prospective project participants – lenders, operators and investors. The decision to participate in hotel development projects is based on the expected costs, the likely rewards, and the financial and legal risks.
Developers undertake feasibility studies to determine the cost of projects, justify the investment of resources, and establish the approach to maximize profit until project exit. Separate feasibility analyses are also undertaken by lenders, operators and investors.
Unless continuing as the operator, the property developer exits the project at construction completion and delivers the facilities to its operator and asset manager. For execution of project exit strategy, the hotel operator must be selected.
Operator selection typically occurs during a project's design phase. This is necessary for project definition and to ensure that the physical facility standards of the operator are met as the facilities are being constructed.
A hotel's interior design and its exterior design must be coordinated with the operator. The asset manager must be engaged in regular progress meetings and property visits to monitor the project's development during its construction.
For closeout, operational testing is performed to allow the operator to have the problems rectified before the facility's actual opening. Unless continuing as the operator or property manager, the property developer exits the project at closeout.
To commission a building, the developer conducts the punch list walkthrough and places the facility manager in charge of its operation and maintenance. Property snagging is performed by the operator to ensure the facilities have been completed according to the operator's design specifications for handover.
Hotel owners and operators address the development risks and allocate additional costs in their hotel management contract. The owners must ensure that any tender or proposal invited from operators requires that the operator identify all fees it intends to charge in relation to the hotel (both at pre-opening and post-opening) and the basis of their calculation.
