BANKERS' Attitudes About and Satisfaction with Lodging Feasibility Studies

Settling for Less: The Institutionalization of the Hotel Feasibility Study

“…Although there is no such thing as a standard hotel feasibility study (Beals, 1990;Damito et al, 2009;O'Neill, 2013;Singh & Schmidgall, 2010;Ward, 1989), they typically include several common elements such as occupancy and rate projections, supply and demand forecasts, and expected figures for income and expenses (Damito et al, 2009;Morey & Dittman, 1997;Rushmore, 2011). These elements are meant to help determine the prospective hotel's potential economic value added and return on investment (Ward, 1989).…”

“…Feasibility studies are meant to help reduce this arbitrary or subjective decisionmaking by ensuring that the relevant stakeholders, such as owners, lenders, and operators, are able to evaluate a project according to objective criteria. Feasibility studies are most often prepared by management consulting firms because, for example, lenders require independent analyses, which are not overly influenced by the investor and/or operator (Damito et al, 2009;Bolukoglu, 2011;Singh et al, 2011). These different stakeholders do, however, influence the process and results associated with feasibility studies, and therefore might contribute to the weaknesses associated with them.…”

“…Lenders require that the feasibility study demonstrate that the hotel's operations can cover its debt service (Damito et al, 2009;Singh et al, 2011;Ward, 1989). Although loan to value ratios have dropped considerably from their highs of 70% to 80% in the mid-2000s, lenders still often bear the largest stack of capital risk of all parties involved in the development process (Singh, Schmidgall, & Beals 2004;Tutag & Singh, 2011).…”

“…Although ubiquitous in the hotel development process, and generally performed and provided by professional consultancies that specialize in this area, feasibility studies are rarely accurate at predicting the performance of prospective hotels (Beals, 1989;Morey & Dittman, 1997;Rushmore, 2011;Tarras, 1990). Practitioners and academics blame this on various weaknesses including outdated structures, inaccurate data, and methodological limitations Damito, Schmidgall, & Singh, 2009;Rushmore, 1996;Singh and Schmidgall, 2010;Singh, Schmidgall, & Damitio, 2011).…”

“…Although numerous improvements have been repeatedly recommended, including new methodologies and better data collection techniques, most have yet to be adopted (Damito et al, 2009;Overstreet, 1989;Rushmore, 2001;Singh & Schmidgall, 2010;Walker, 1978). This is problematic because ineffective feasibility analyses are often to blame for the poor brand and design choices (Morey & Dittman, 1997), overbuilding (Overstreet, 1989), and failed real estate projects (Sorenson, 1990), which have regularly plagued the industry.…”