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A Beginner’s Guide to Hotel Investment
2 Min Read
Total Words: 248
Dipika Patel
Co-Founder
GreatX
Co-Founder
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- Published on November 3, 2022
- Location: USA
For retail investors, investment in the hospitality industry, particularly in hotels, seems an attractive strategy. Hotels have always been a sought-after investment opportunity in the institutional real estate segment. The strength of the tourist and business industries drives demand. However, similar to other sectors, the hotel industry saw tribulations after the Covid-19 pandemic hit. Hotel demand, including domestic and international travel, was halted. Since March 2020, many US hotels have closed their doors, especially luxury hotels. So one begs the question: is a hotel investment still as attractive as it was prior to the pandemic?
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The situation is neither grim nor discouraging. As the world recovers from the great pandemic, countries have opened their borders to international travelers, both business and leisure, bolstering demand for the hotel industry. As per McKinsey & Company’s latest report, “The path to recovery for US hospitality”, leisure travel is driving the recovery, especially in outdoor, beach, and nature-focused destinations. This means the hotel industry continues to offer strong investment opportunities. While hotel investment is alluring, it is important to understand the whys, the hows, and the whats of hotel real estate investment.
Here’s a hotel investment guide for lenders and owners
1. Type of hotels
Before investing in hotels, one must understand hotel classifications. Like other commercial real estate properties, there are different types of hotel segments. Each hotel type has its incentives, ROI, advantages, and challenges. Here are the common hotel categories.
- Full-service hotels: These hotels, which include luxury hotels and resorts, offer multiple services and amenities like on-site retail, spas, meeting rooms, restaurants, golf courses, etc. Full-service hotels rely on a large staff with a dependence on the competitive positioning of their amenities.
- Select-service hotels: These hotels offer fewer amenities and often include free breakfast, a swimming pool and a fitness center. They generally come without restaurant or banquet facilities. These hotels can differentiate themselves by location and brand and have lower overhead than full-service hotels. Because of the smaller staff, efficiently run select service hotels can be strong performers.
- Budget hotels: Focusing purely on cost-effective services, these hotels offer little to no amenities or services.
- Extended stay hotels: These hotels cater to longer-term stays, for example, families undergoing relocation or business travelers on extended assignments. Usually, they offer suite-style rooms with at-home features like a kitchen and access to laundry.
2. Hotels are unlike other real estates
Unsurprisingly, hotels differ in many ways from other real estate properties. Hotels have a heavy operational aspect and depend on daily guests to determine profitability. Typically, in hotels, it is a one-night lease compared to a one-year lease for apartments or a 10-year lease for office property. As a result, hotels are highly sensitive to market changes since they price daily and, thus, should be treated as such. Furthermore, to remain relevant, hotels must upkeep capital and operational improvements quicker than other sectors.
3. Key metrics in the hotel sector
Hotel investors should learn the terminology and variables of hotel real estate investment. For instance, ADR or average daily rate, measures the average nightly rate paid for rooms at a hotel. It is calculated by dividing room revenue by rooms sold over a specific period. The driving number for hotels is RevPAR, or revenue per available room which is calculated by multiplying the ADR by the occupancy rate. Hotel owners and operators use daily, weekly, monthly, and annual RevPAR to gain valuable insights into the hotel’s performance.
In comparing hotels, look at the RevPAR compared to the competitors’ RevPAR year on year. Demand segmentation of clients is important to understand for hotels, namely business travelers, tourists, or groups. The demand for hotels can also be seasonal, for example, ski resorts experience peak occupancies during winter, while beach resorts witness peaks during summer or winter, depending on their location.
3. Key metrics in the hotel sector
There are many ways one can invest in hotels. One straightforward way is to buy a hotel property, although it requires a significant amount of capital upfront. One can also invest in hotel stocks, crowdfund a hotel real estate investment or invest in a hotel REIT. However, embracing technology allows for investments in digital form, which add greater transferability with secondary trading and greater transparency with real-time data and historical information. Digital assets have skyrocketed in the past few years, and tokenized assets-backed opportunities are following in their footsteps.
4. Getting started with hotel investment
There are many ways one can invest in hotels. One straightforward way is to buy a hotel property, although it requires a significant amount of capital upfront. One can also invest in hotel stocks, crowdfund a hotel real estate investment or invest in a hotel REIT. However, embracing technology allows for investments in digital form, which add greater transferability with secondary trading and greater transparency with real-time data and historical information. Digital assets have skyrocketed in the past few years, and tokenized assets-backed opportunities are following in their footsteps.
Are you ready to invest in hotels?
To Own A Hotel Room can be a lucrative and sophisticated investment opportunity. It is up to investors how they approach these investments. The above-mentioned factors will guide one to make more informed decisions. However, since the hotel sector is generally a new investment opportunity for most, it is always prudent to speak to an investment professional.
GreatX presents the first asset-backed tokens focused on savings. We offer hotel tokens as an institutional-grade investment opportunity backed by US Treasury Bonds. This means the capital is protected. The GreatX tokens enable the global investor community to own US real estate asset income. GreatX fulfills aspirations allowing retail investors to partake in a market now limited to institutions.
Disclaimer
This commentary is provided as general information only and is in no way intended as investment advice, investment research, a research report or a recommendation. Any decision to invest or take any other action with respect to the securities discussed in this commentary may involve risks not discussed herein and such decisions should not be based solely on the information contained in this document.
Statements in this communication may include forward-looking information and/or may be based on various assumptions. The forward-looking statements and other views or opinions expressed herein are made as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated and there is no guarantee that any particular outcome will come to pass. The statements made herein are subject to change at any time. GreatX disclaims any obligation to update or revise any statements or views expressed herein.
In considering any performance information included in this commentary, it should be noted that past performance is not a guarantee of future results and there can be no assurance that future results will be realized. Some or all of the information provided herein may be or be based on statements of opinion. In addition, certain information provided herein may be based on third-party sources, which information, although believed to be accurate, has not been independently verified. GreatX and/or certain of its affiliates and/or clients hold and may, in the future, hold a financial interest in securities that are the same as or substantially similar to the securities discussed in this commentary. No claims are made as to the profitability of such financial interests, now, in the past or in the future and GreatX and/or its clients may sell such financial interests at any time. The information provided herein is not intended to be, nor should it be construed as an offer to sell or a solicitation of any offer to buy any securities. This commentary has not been reviewed or approved by any regulatory authority and has been prepared without regard to the individual financial circumstances or objectives of persons who may receive it. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
Dipika Patel leads GreatX as co-founder and a member of the board. A third-generation hotelier, Dipika comes with extensive experience in hotel asset investment. She is detail-oriented and has a strategic eye for all things financial. In her previous roles, Dipika has displayed innovation and leadership at its finest.
About the Company
GreatX is a new-age wealth creation digital asset backed by the full faith and safety of U.S Treasury Bonds. These digital tokens are revolutionizing legacy products with modern instruments to open global avenues, especially for investors across the globe who are interested in investing in the U.S. GreatX enables global investors to own real estate in the U.S and earn guaranteed returns, assured security, and unmatched benefits. GreatX are smart securities democratizing wealth through decentralization and opening the gates of opportunity to a global audience.
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