Identifying the Right Market to Maximize your Resort Investment
April 6, 2018 11:55am
By Hector Medina
Gross domestic product is growing at a global scale, and travel to new and emerging markets remains strong, leading to an extended cycle of extremely positive hotel investment performance. While hotel investors are building their pipelines in highly marketable, beachfront destinations in the western hemisphere in locations like the Caribbean and Mexico, the all-inclusive sector is also continuing to grow in popularity around the world.
Several resorts following this model have opened in destinations like Korea and Japan while others, like us at Apple Leisure Group, consider expansion into Thailand as part of a long-term growth strategy.
Given the opportunities that exist, owners may want to consider looking outside their comfort zone or current geographic portfolio to identify new markets to invest in. Often times, these new markets will present two clear options for owners and investors: a ready-to-develop beachfront site, or an existing resort asset with incoming cash-flow that in most cases needs to be repositioned via a brand conversion and inevitably a new alliance with a hotel management partner.
However, before investing it is imperative that both parties have a thorough understanding of the destination’s present-day status, key attributes, limitations, and potential outlook and risks.
To fully understand the impact that any of these elements may have, it is important to analyze the macro-economic environment, specific operating and labor challenges, the project’s potential investment risk-reward index, the key tourism and lodging indicators, and any new regional or local new lodging developments.
There are several factors that affect the viability of a new market, so it’s key to work with the right partner that can conduct the thorough market analysis outlined above. This is achieved through a market intelligence due diligence exercise that ends up serving multiple purposes, with the most important one granting the resort management partner the analytical support to best guide investors and owners in making the best investment decision.
Like any investment, an integral part of the resort investment decision process is based on the investor’s experience, which ultimately dictates their risk tolerance and either eliminates or increases the potential options within new markets.
More importantly, understanding that the lodging industry is capital intense, investors should also be provided with a destination comparative assessment in which the new market being considered is benchmarked against more mature and established all-inclusive destinations like Mexico, the Dominican Republic or Jamaica.
Each new resort opportunity within a new market should be assessed, measured and scored against other mature all-inclusive destinations using an in-house investment matrix comprised of several broad categories for which dozens of individual key market attributes are analyzed.
Aside from just providing a data-driven analysis, the intention should be to provide investors with a qualitative analysis that includes a clear assessment of each individual market attribute, a detailed interpretation of how these unique attributes compare quantitatively, and, more importantly, why these attributes make the destination more or less appealing.
To help visualize the process, below is a sample analysis of one of the major market categories, Airlift and Connectivity, outlining the key factors that are analyzed during the market evaluation process.
Airlift and Connectivity
Resort-goers traveling abroad today have access to a wider array of choices than ever before when it comes to beach destinations. ALG’s distribution companies tend to focus on the US-based traveler, which represents approximately 50 percent of stopover visitation to the Caribbean and 58 percent of international visitation to Mexico (Source: Caribbean Tourism Organization).
American Baby Boomers expect to take four or five leisure trips in 2018, spending almost $6,400 on travel expenses, according to a national survey of adult travelers conducted by AARP, 2018 Travel Trends. Millennials estimate they will shell out about $6,800 for vacations. Our research illustrates that concerns like prior experience, price, and proximity are more likely to influence destination selection, versus cultural attractions and amenity appeal.
We also know from traveler behavior analysis that very few begin the planning process with a blank slate – they typically have a few destinations in mind before starting the planning process.
It is also very important to consider the below influencing points.
Operators and Cost
Historical and new airline operators flying into the destination, this includes any potential increases in existing services via seasonal flights and/or aircraft upgrades, as well as fluctuations in cost of airfare.
Seat load factor trends play a crucial role in determining the future health and viability of a destination.
Connectivity and Travel Distance
Is the traveler prepared to go long distances to enjoy the destination and if so, are there direct flight options versus multiple connecting flights? Will traditional modes of air transportation suffice to reach the destination or does it require the traveler to consider additional types of transportation, which for some travelers is a deal-breaker.
Major issue and potential limitation for a new destination is whether a tourist visa is required, its cost, and application ease.
Intelligence Trends and Forecast
What aviation intelligence is available to understand the sizing and scale of available airlift? In the Caribbean, for example the air service landscape is immensely competitive, with destinations having to compete for airlift service and passengers.
Within the past 24 months the Caribbean and Mexico Caribbean have been negatively impacted by a series of headwind events, including two back-to-back hurricanes that caused much physical damage to specific islands, which in turn created the misconception that the entire Caribbean region had been impacted.
While some may see the glass half-empty and believe there is a long road to recovery, it is important to note that regardless of what has happened, these two regions have remained resilient despite the encountered headwinds.
Opportunities exist, but the key is having the right partner to guide the process. As our EVP and Chief Strategy Officer Javier Coll says, “through the inevitable economic and geo-political fluctuations that regularly impact travel and tourism, the most profitable and enduring properties have been guided by owners and management teams with real market awareness…”
Find the right market to invest in to deliver the best return on your investment.
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gross domestic product
As Senior Manager for New Market Development, Hector Medina leverages extensive hospitality and real estate advisory experience to foster the future growth of Apple Leisure Group’s rapidly expanding global footprint.
In addition to identifying and determining the feasibility of potential new markets, Hector is also responsible for coordinating the research and planning efforts of new market development projects across Apple Leisure Group business units.
Prior to joining Apple Leisure Group, Hector was a Manager with Alvarez & Marsal’s Hospitality and Leisure Group advisory practice. During his ten-year tenure at Alvarez & Marsal, Hector advised key clients on strategic planning, asset management, due diligence, feasibility, and valuation engagements throughout the US, Caribbean, and Latin America.
Hector earned a B.S. in Business Administration with a concentration in Finance from Louisiana State University – EJ Ourso College of Business, a Culinary Arts Diploma from the Art Institute of Houston, and a Master of Science degree in Hospitality Management from the Conrad N. Hilton College at the University of Houston.
Contact: Sloane Fistel
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