About a 5-minute read
Every few weeks an owner sends me a feasibility study and asks, “Is this good enough for the bank?” Often the honest answer is no. Not because the numbers are wrong, but because the study answers the wrong questions. A feasibility study is not a formality. It is the document that decides how big your hotel should be, what it should look like, and whether it will ever pay you back.
Here is what I believe a hotel feasibility study in Egypt or Saudi Arabia must include, and what lenders and investors actually look for when they read it.
Start with demand, not with the building. Who comes to this location today, and why? Business travellers, families, tour groups, pilgrims, people visiting a hospital or a university nearby. How does that change between summer and winter, weekdays and weekends? A good study names the demand generators within a few kilometres and explains which of them your hotel can realistically win.
Compare your project with hotels of the same category in the same area, not with a five-star hotel across town. For each one: star rating, current room rates on the booking sites, distance from your site and guest review score. If the study compares a four-star project with the best five-star in the city, the bank will notice.
The market tells you what to build. How many rooms, which room types, how much space for food and beverage, meetings, a pool or a spa. I have seen many projects that would earn far more with fewer rooms and better facilities. This is the cheapest moment to get it right, because it is still on paper.
Banks do not trust a hotel that reaches its best year in year one. A credible study ramps up over three to five years and explains every assumption: why this occupancy, why this average rate, which market segments fill the rooms. Show a realistic case, and also show what happens if things go slower.
Revenue is only half the story. The study should build the operating budget the way a hotel is actually run: rooms, food and beverage, other departments, then the undistributed costs, payroll, energy, maintenance and management fees, down to gross operating profit. That is the number owners and lenders care about most.
Total project cost, pre-opening budget, working capital and the financing structure. Then the return: cash flow over ten years, payback period and the value of the hotel at the end. If these pages are missing, the study is a market report, not a feasibility study.
Who will run the hotel, and on what terms? A brand, an independent operator or the owner directly? Lenders want to see experienced management behind the numbers. That is often where a management company like ours joins the project.
Honest demand, a fair competitor set, a slow and believable ramp-up, a full operating budget down to gross operating profit, and an experienced operator. If your study has these five, the conversation with the bank becomes much easier.
At LOOK Hotels International we prepare market and positioning studies and feasibility studies for owners, developers and banks in Egypt and Saudi Arabia. If you have a project on the table, send us a message and we will look at it together.
— Maged Farid, Managing Director, LOOK Hotels International
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