You really understand what makes a place special when you start to canvas a new market. Every market is different. We categorize them as primary, secondary, or tertiary to easily define our investment criteria. Nevertheless, they still have different demand drivers, supply profiles, and community norms. Businesses, regulations, terrain, and demographics are a few of the factors that influence the market vibe.
There are many benefits to knowing the ins-and-outs of a market with productivity as the leader. Energy you spend getting to know the market on the front-end will save you tremendous energy when it’s time to make a deal. Further, you’ll know where to look for opportunity, and it becomes easier to defend your thesis with well-formed arguments for lenders and investors.
Start in the Office
Every battle starts with a plan. Whether you follow it is a different issue entirely.
Planning is more important than the plan itself. It helps to structure your thoughts and get a lay of the land. There is a lot to learn when you canvas a new market. A framework of your objectives is helpful to have before hitting the road.
Explore with Google Maps
All art starts with nothing. It is the most excruciating part of the artistic process, but it is also the freest. There are no expectations or known limitations.
New market entrants surprise the incumbents because they don’t accept the status quo. You understand the business, but your knowledge of the status quo does not cloud your judgement. This is a difficult mindset to maintain because our mind is always looking for shortcuts.
A map is the blank canvas for your art.
Google is the biggest free GIS database available. While it doesn’t have the functionality of a paid program, it does provide many of the important tools you need to get a feeling for the market.
Start your exploration with an epicenter. For example, you can start with a property that is on the market or pick a hotel like one you already own. Radiate from there. Get a sense of major landmarks, restaurants, retail, and the configuration of major and minor streets.
Clear your schedule and prepare to feel like you’re wasting time. Poking around at this stage is crucial to the creative process. You want to spend at least an hour exploring all the nooks of a market. Additionally, don’t be afraid to head down some Wikipedia, TripAdvisor, and Yelp rabbit holes.
Build Your Lists
It’s time to start building your lists after you get a good feeling for the landscape. We’ll go into what to look for, but at this stage, consider how you will approach your list.
Real estate supply and demand is fully geographic. Many big cities make it easy to get around with street grids and intuitive address numbering. Others (I’m looking at you, Boston) just do things the way it’s been done, and you just need to figure out a method that works for you.
Spreadsheets, mapping apps, and summary sheets are the best way to prepare for a few hours in a market.
You can poke around the market on Google Maps in a slow period for your business. This time is cheap. An entire day or two spent on the road is expensive. Therefore, preparation is essential to ensure the most value for your time.
Set Some Meetings
All touring and no human interaction make for a very boring trip. It is also a wasted opportunity to touch someone that can positively impact your business.
Hotel investing is a relationship business. You take the time to canvas a new market to get to know the landscape, but you can’t forget that people create the built environment. Many are also regularly involved in transactions.
Deals come from three sources:
- Owners: Direct outreach to buy off-market
- Brokers: Intermediaries that have a deep and broad network of owners
- Third-Parties: Influential service providers that work with owners on non-transactional aspects of their business
The scope of your human interaction depends on the reason for your visit. For example, a simple property tour will probably involve the broker and General Manager. Still, you can usually fit one more 30-minute meeting to the mix.
A value-oriented meeting with an influential third-party, like an attorney, could have a greater impact on your success in that market than the hours you spend touring properties. Additionally, you can use this time to deepen relationships with investors, lenders, and others that you rely on and that rely on you to make a deal.
Be careful to allocate your time appropriately and keep objectives in perspective.
Revenue First, Always
Every business begins and ends with sales. It is the lifeblood of a business, and without it, you really don’t have much of a business to speak of. Therefore, it makes sense to understand what drives consumers to the market.
It’s easy for analysts and investors to lose sight of the daily sales churn of a hotel, as each check-in rolls up to a few lines on a financial statement. You lose the personal touch, but more importantly, you lose the appreciation of the intangible aspects that influence guest value.
Your primary focus, when you canvas a new market, must always be on what motivates travel in that destination.
Drive the Market
Your first familiarization with the market was a high-level aerial experience with Google Maps. This gave you a sense of major landmarks and street configuration. It was good enough to build a list of sights and major demand generators.
The view from a car gives you a sense of the terrain – hills, valleys, and waterways. It will also provide insight into the best way to get around town. For example, you may find that it’s more efficient to walk two blocks than take a taxi.
Consider driving with a colleague or hiring a driver. Give your full attention to the sights and sounds, and be ready with your lists, notepad, and camera.
Take more notes and photos than you think you’ll need. You can always pare back. The worst feeling is getting back to the office and forgetting something important.
Focus on signs of demand and real estate influencers. Take note of office and retail leasing signs, as these brokers have their finger on the pulse of the market. They get only occasional calls from hotel investors. Therefore, you will likely stand out in their mind as a proactive investor, even though they may not have any current deals for you.
Walk the Area
“Place” has such an enormous impact on our perception. In fact, neuroscientists have discovered more than 20 senses that play into our perception of the world. You just can’t get a full appreciation of the environment from sitting behind a computer or in a car. You must walk it.
Take a minute to absorb all the sights, smells, and sounds when you get out of your car to walk the area. You or someone else will probably push you to get moving as soon as you step out. Resist the urge to jump right in.
There is so much to absorb in a new place. You’ll probably miss some material environmental variables if you rush to get on with your day.
Population of a market changes by the minute. Time has as much to do with market dynamics as the natural and built environment.
An urban hotel may be very busy in the morning and evening, while a resort may be most active mid-day. Similarly, travel activity may be extraordinarily seasonal and vary wildly throughout the year.
Visitation and financial reports help you deduce travel patterns and revenues, but the best way to judge the impact of time is by engaging a local. Talk to a few front desk agents and bell staff. Their presence in the lobby gives them a good sense of where and how guests like to congregate. They also know best how guest profiles change by the day and time.
Note: It’s probably best to engage hotel staff at a competitive hotel. Your host would not appreciate you stirring up the staff at a hotel that is actively on the market.
Finish with Competition
An attractive deal is the most common reason for you to get out and canvas a new market. Often, you’ll have a STAR Report with a list of competitive hotels. You may even have a list of comparable sales provided by the broker or generated internally.
Tour the comps.
That’s it. Plain and simple. You need to get out an understand what is working (or not) within the market. Recognize what competitive properties are doing that the subject property is not doing. Further, determine how you can improve the guest experience by bringing in a different perspective.
Developers build hotels for many reasons, and these are rarely just ego-driven. However, the demand that exists when you build a hotel is not the same demand that exists 5-10 years later. Consumer preferences change, and markets evolve.
Consider the hotel development landscape today as opposed to 10, 20, or 30 years ago. Modern hotels are smaller and serve a more defined niche guest than the full service hotels built in the 1980s and 1990s.
Major brands spend lots of time and money qualifying a market. This goes for retail as much as the hotel industry. Get a sense of the quality and quantity of brands in the market. If you see more economy and midscale brands, for example, you’re probably best served to align with that trend.
Your knowledge of the supply and demand can only take you so far. At some point, when you canvas a new market, you need to consider the guest needs and desires that the incumbents do not satisfy. This is a challenge, and you can’t answer it in a vacuum.
The best way to get a sense of what’s missing is to engage the hotel staff. Expect rejection. Many hotels are very protective of their business, and you’d probably expect something similar from your staff. However, you’d be surprised what can slip when you have a friendly conversation with someone on the front lines.
Ask the General Manager about the top guest complaints when you tour the subject of your visit. You may have to read between the lines, but don’t let up on this question.
Guests that complain are upset about value and product fit. Try to understand how to solve those problems. Another way to put it is, “if you had an unlimited budget, what would you change about the property?”
How Can You Fill the Void?
Major brands define product specifications to accommodate the needs of most guests. However, you need to step outside those brand standards and surprise your guests with something special and unexpected. This is the best way to optimize the performance of a hotel.
Loyalty and word-of-mouth promotion are the rewards for this kind of leadership.