Hotel Development: The Risk of “Something for Nothing”

By Julia Watson Project Director / Sr. VP of Business Development, FARROW Commercial, Inc. | October 30, 2011

As the bottom fell out of the United States housing market in 2007 resulting in a crash of both the domestic and global economies, hospitality construction nationwide came to a near-screeching halt. The almost immediate cease on hospitality construction which was rooted in the prime mortgage sub-crisis coupled with high oil and commodity prices, consequently led to a radical economic slowdown.

As a result, many constructors within the industry were forced to shut down their operation, while others laid-off employees, decreased overhead, and reduced their prices to survive the recession.

In the short-term, hoteliers have been able to take advantage of incredible savings from drastically reduced rates, but the long-term effects of this behavior may prove risky for both construction service providers and hoteliers alike.

The probability that hospitality construction will soon recover from this cyclical conundrum, while unrealistic expectations for pricing become more and more entrenched, is slim. As the crunch for reduced fees gets more severe, desperation to sustain may lead to increased use of unskilled and illegal labor, additional bankruptcies, and further default on contracts, putting both the project and investors in jeopardy.

In order to understand the possible ramifications of the economy on hospitality construction, we must first explore how we got to this point. As we entered into the decline of new-development and hospitality renovation projects following the crash of the housing market, competition among service providers increased exponentially. As a result, prices took an immediate hit.

Additionally, hoteliers who had more time on their hands due to slower construction schedules began to realize their ability to shop numbers and solicit numerous competitive bids. Where reputation and quality of service once mattered, getting the most out of what little money hoteliers were able or willing to pay became the precedent.

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Coming up in February 2018...

Social Media: Engagement is Key

There are currently 2.3 billion active users of social media networks and savvy hotel operators have incorporated social media into their marketing mix. There are a few Goliath channels on which one must have a presence (Facebook & Twitter) but there are also several newer upstart channels (Instagram, Snapchat &WeChat, for example) that merit consideration. With its 1.86 billion users, Facebook is a dominant platform where operators can drive brand awareness, facilitate bookings, offer incentives and collect sought-after reviews. Twitter's 284 million users generate 500 million tweets per day, and operators can use its platform for lead generation, building loyalty, and guest interaction. Instagram was originally a small photo-sharing site but it has blown up into a massive photo and video channel. The site can be used to post photos of the hotel property, as well as creating Instagram Stories - personal videos that disappear from the channel after 24 hours. In this regard, Instagram and Snapchat are now in direct competition. WeChat is a Chinese company whose aim is to be the App for Everything - instant messaging, social media, shopping and payment services - all in a single platform. In addition to these channels, blogging continues to be a popular method to establish leadership, enhance reputations, and engage with customers in a direct and personal way. The key to effective use of all social media is to find out where your customers are and then, to the fullest extent possible, engage with them on a personal level. This engagement is what creates a personal connection and sustains brand loyalty. The February Hotel Business Review will explore these issues and examine how some hotels are successfully integrating social media into their operations.