Thread by @somehotelguy

1/ If you’re looking to build (or buy) a hotel, you’ll need to project revenues for at least 5 years from opening. Here’s how I do it.

First - look at local competitors and determine the most comparable hotels.

2/ You’ll want at least 5, and there are @STR_Data rules around weighting by brand / brand family, but you then take that list and order a STR trend report.

3/ This will tell you the blended Occ / ADR / RevPAR (along w/ supply, demand, etc.) for your most competitive hotels historically, and if there’s enough data you’ll get a fair bit of history (back to 2012). This is your comp set!

4/ If you’re acquiring, the hotel will almost certainly have a comp set already, and the first thing you should be examining is the ESTAR report, which is just a trend report for an existing hotel’s defined comp set.

5/ Second - based on location, relative quality, amenities, brand, etc., you’ll want to figure out how your hotel would perform relative to that comp set, had it been stabilized in the most recent full year; e.g. “a few points higher Occ because my hotel is smaller than the…

6/ …comps, but a 5% lower ADR because the comps are in better condition”. This part is almost entirely art / experience based. Stabilized in the most recent full year - think “if my hotel had been open and complete / fully renovated”.

7/ I will often try to track down individual property performance for my comp set (from owners, management co’s, brands, etc.) so I can more accurately position my hotel against the most directly competitive of the bunch.

8/ Third - project out how the comp set is going to perform over the next X years (for both Occ and ADR) - you can get guidance on this from industry econometrics firms like STR and CBRE who often publish projections by market (for major markets) and asset types (upper-priced,…

9/ …midscale, etc.). Your trend report will also help - it’ll show how the comp set reacted to previous business climates and supply changes, and should guide your thinking. You’ll also want to factor in potential impact of new supply, which will dilute the demand basis.

10/ To do that, you want to think about how much existing demand a new hotel will cannibalize and how much new demand it will induce. Unaccommodated demand and induced demand are also more arts than sciences.

11/ Once you have your comp set projection and your relative positioning, you can easily calculate your hotel’s Occ & ADR. HOWEVAH (Mike Francesa voice), you won’t hit that relative performance immediately!

12/ If you’re opening a new hotel, your hotel will take time to ramp to stabilized performance - usually three years for new builds, but varies by market.

13/ If a value add, you’ll need to factor in declines during renovation and a post-renovation ramp up period - shorter than a new build, but still not immediate.

Fin.