CONSTRUCTING A TOURISM INFRASTRUCTURE A Hotel and Resort Developer’s Perspective Presented at AfrICANDO 2003 Miami, Florida July 23, 2003 By: John R. Crow Crow Hospitality Investment Group, LLC Outline of Key Points I. Introduction The cost of developing tourism infrastructure is high, but the returns are even higher II. Basic Infrastructure Requirements There are basic infrastructure requirements necessary to attract private capital for the development of hotels, golf courses, and attractions, including: a. Transportation -Airports -Seaports -Roadways -Local public transportation b. Utilities -Water -Sewerage and solid waste disposal -Electricity -Telecommunications c. Trained, or trainable, labor force in the immediate vicinity of the tourism developments III. Why Governments Initially Pay for the Basic Infrastructure, not Private Developers Basic infrastructure such as those listed above are very expensive, but typically provide benefits to multiple projects as well as the residents and businesses in local communities. Individual hotels, resorts and attractions cannot afford to bear that burden. IV. The Economics of Hotel, Golf and Attractions Developments The Development Cost of Hotels, particularly luxury hotels is high, and returns on investment can be low, especially in the first several years of operation. a. A 5-star luxury hotel built to US or European brand standards can cost anywhere from US $200,000 to $400,000 or more per room. A 200-room luxury hotel with a golf course may cost US $50 million to US $90 million to develop. b. A mid-price hotel can cost between $100,000 and $150,000 per room c. An economy limited service hotel can cost between $40,000 and $75,000 per room d. If land cost is high, as it can be in many countries, the development cost is even higher e. In order for hotels to be profitable, they often require tax breaks, duty waivers, and other concessions, as well as government commitments tourism marketing, job training, etc f. In the case of luxury hotels, they still may not be profitable without the ability to also develop surrounding real estate, for example, residential condominiums, time-share, single-family lots, or commercial development. This becomes difficult if non-citizens are not allowed to own property or to get clear title to property g. It takes a minimum of three years, and usually more to develop a luxury hotel. That includes two years or more of design and construction and another year or more of planning and permitting. The more lengthy the time required to go through the process with the local governments, the more expensive it becomes and the less likely it becomes that private investors and developers will remain interested. There are too many other places they can go and get a quicker return on their investment IV. Local Ownership vs. International Ownership In an ideal situation, hotels and attractions are varied in size and quality, appealing to a broad sector of the market. The smaller hotels are often locally owned and the large luxury hotels and resorts are usually owned by international investors. They both have strong economic impact on the local government, but a portion of the income from investment in large projects is often repatriated to another country, reducing the impact on creation of wealth in the local community. Further, top management positions are often given to non-citizens because of a lack of qualified individuals in country. Over time one of the goals of tourism development should be to enhance local ownership and to grow the local, trained work force to develop qualified and management. The strength of local ownership and local management candidates in turn enhances localities attractiveness for outside investors in additional new projects. V. Summary and Conclusions Development of tourism infrastructure is best done with private investment, with strong government support. There are a number of things that national and local governments can do to create an environment to attract private capital for investment in hotels, resorts and attractions. With these in place to create opportunity, private development will follow. Biographical Information John R. Crow President Crow Hospitality Investment Group, LLC Atlanta, GA 30319 404-261-0969 404-261-1129 Fax email@example.com Mr. Crow is a 30-year veteran of the hospitality industry. He was formerly Senior Principal with Pannell Kerr Forster (PKF), an international hotel accounting and consulting firm, and Senior Vice President and Regional Director of PKF Consulting, Inc. He has served as an advisor for the development and management of hundreds of hotel, resort, golf, and attractions in more than 20 countries in Africa, Asia, Europe, Latin America and throughout the US and Canada. His clients have included developers, investors, lenders, major hotel companies and governments. For the past 8 years, Mr. Crow has headed his own hotel development company and his own management consulting company, specializing in international destination resort projects.
Pages to are hidden for
"Crow Afr ICANDO speech"Please download to view full document