Plan Your Hotel Investments on Reliable Data

A feasibility study measures whether a hotel investment stands up financially — before the money is committed. The question is the same on every project: with this building, in this location, at this room count and this investment budget, how many years does it take to pay itself back, and under what conditions does it fail to? The answer comes from a projection with its assumptions written down, not from a guess.

The need is not limited to ground-up projects. In each of the situations below, the decision is too large to make without numbers in hand:

• A ground-up hotel project — the site is secured or about to be; room count, room mix and concept are still open.
• Acquiring an existing property — the asking price has to be tested against what the operation can actually produce.
• Repositioning — a change of star rating, target segment or concept is on the table.
• A brand or franchise decision — the net return of independent operation is being weighed against a chain agreement.
• Raising debt or finding a partner — the lender or investor wants an independently built projection.
• Refurbishment and CapEx decisions — the ADR and occupancy return on a room renovation has to be calculated.

A feasibility study is not an approval document. “Not at these numbers” is a valid outcome; the real cost is the cost of making the wrong investment.

A feasibility study is not a single spreadsheet but a chain of calculations stacked on one another. Each step takes the previous one's output as its input, which is why breaking the order does not weaken the result — it removes the ground the result stands on.

1. 01Market and location analysis — demand is separated by source: corporate, leisure, group, MICE, transit. Access, the seasonality curve and the local supply pipeline (rooms scheduled to open) are mapped. New supply directly affects occupancy in the year the project opens.
2. 02Building the competitive set — which hotels will compete for the same guest is defined. A comp set is selected on price band, location and segment proximity, not on star rating. A comp set built wrongly puts every projection that follows on the wrong footing.
3. 03Occupancy projection — market occupancy, the property's expected penetration within its comp set and the post-opening ramp-up are modelled together. A new hotel does not deliver mature performance in its first year.
4. 04ADR projection — built on comp set price positioning, room mix and segment distribution. Inflation and currency assumptions are kept on a separate line so real growth is never confused with nominal increase.
5. 05Revenue model — non-room revenue is modelled alongside rooms: food and beverage, meetings, spa, parking. Total production becomes visible through TRevPAR.
6. 06Cost and profitability — departmental costs, undistributed expenses and fixed charges are separated on USALI logic; the GOP and EBITDA lines come out of this step. It is also where the lower margin of non-room revenue becomes apparent.
7. 07Investment return — land, construction, FF&E, pre-opening and working capital are consolidated into one investment budget; ROI, payback period and discounted return (IRR) are built on top of it.
8. 08Scenarios and sensitivity — an optimistic and a pessimistic scenario sit next to the base case. A table shows how the payback period moves when occupancy drops a few points or ADR softens.

Every metric used in a feasibility study is industry standard. What creates the value is not the formulas themselves, but whether the assumptions feeding them can be defended.

All of these rest on a single figure: total investment. That is also where feasibility studies most often fall short — the investment budget is frequently taken to mean the construction cost alone. A hotel does not begin generating cash on the day it opens its doors.

1. Occupancy starts at mature levels in year one

A newly opened hotel does not reach its target occupancy in its first year. Channel agreements settle in, guest reviews accumulate, corporate contracts start with the next budget cycle. When ramp-up is not modelled, the cash gap of the early years stays invisible — and working capital is exactly what runs out there.

2. ADR is entered gross

The rate that belongs in a projection is not what the guest pays but what the hotel keeps. Leave OTA commission, channel and payment costs, agency discounts and taxes unseparated and the room revenue line is systematically overstated. The moment the channel mix shifts, that gap widens.

3. Non-room revenue is optimistic, its cost ignored

Food and beverage, spa and meeting revenue inflate a projection easily, because the cost of those departments is rarely modelled at the same pace. The margin on a room sale and the margin on a restaurant sale are not the same. Without departmental gross profit, total revenue grows while GOP does not.

4. A single scenario is presented

One base case makes risk invisible. What happens to the payback period when occupancy drops a few points, or when the opening slips by a season, matters as much as the investment decision itself. A feasibility study without a sensitivity table is a document that asks no questions.

When reading a feasibility study, the first page to turn to is not the conclusion but the assumption list. If the assumptions are not written down, the conclusion cannot be verified.

• Executive summary — the few lines the decision rests on, and the frame for a lender or partner conversation.
• Market, location and comp set analysis — demand sources, supply pipeline and competitive positioning.
• Occupancy and ADR projection — ramp-up included, year by year, with the reasoning behind each.
• Revenue and profitability model — a departmental P&L projection with GOP and EBITDA lines.
• Investment budget — every item above, with contingency set aside.
• Return calculation — ROI, payback period and discounted return.
• Three scenarios and a sensitivity table — how occupancy and ADR variances move the payback.
• An explicit assumption list — which assumption produced which figure, on a single page.

What you are left with is a financial forecast you can defend a decision with, and one that makes the risk visible. I do not make the decision; I make the ground it stands on visible.