Unlocking hidden value in hotel real estate

Room or venue hire is typically very profitable and complements bedroom revenues, with large events creating demand for accommodation and ancillary services. Shopping centres and sporting arenas have traditionally hosted activities including ice rinks and radio broadcast facilities, and hotels are increasingly tapping into this lucrative source of income. Other potential revenue-generating activities on-site include culinary schools, solar panels on the building or lands, and monetising unused land for long-term parking or a logistics base.

Bedrooms have traditionally been adapted as meeting rooms during the day for smaller meetings. However, this is most effective in specific locations such as airports and city centres. While larger multifunctional spaces and conference rooms are still in demand, since the Covid-19 pandemic some companies have moved towards smaller, more focused team meetings with some participants joining remotely. That said, bespoke one-off events such as product launches often require temporary marquees and even larger structures. “Dry hire” – renting out spaces or a plot of land without catering or audiovisual equipment – can be very lucrative. In this arrangement, a conference organiser can build the event from scratch to the client’s specifications.

Another area typically receiving little attention is the rooftop (assuming it is flat and has passenger lift access). Many hotels in warmer climates have installed swimming pools, rooftop bars and event spaces, often with excellent panoramic views. Even in northern Europe, hotels including the Montcalm Royal, Sea Containers and ME in London and Anantara The Marker Hotel in Dublin have created robust revenue streams as sought-after venues serving high-margin F&B offerings.

In locations where the weather is inclement or the building shape does not lend itself to public access, mast income from telecom companies is an excellent source of passive income, particularly with requirements such as electric and service ducts already in place. The hotel can also leverage this commercial agreement by availing of telephone services by way of a contra deal or similar arrangement.

Some hotels located near sporting stadiums and event venues already leverage large volumes of match-day footfall, hosting marquees and tailgate parties and providing outside catering services such as food trucks. A branding partnership can allow hotels to avoid the setup cost of facilities. In return, they exclusively sell a given brand of beer and merchandise. A good example of this is the Sandymount Hotel in Dublin, next to the Aviva Stadium, where the management team offers tailored match-day packages and catering for rugby and football fans and event patrons. Its location and wide-open spaces make it a popular destination, and hospitality services make it a go-to venue for pre- and post-match experiences.

Weddings and civil ceremonies are highly lucrative events for hotels where all the services can be combined, thus retaining the accommodation, F&B and ancillary spend on site. ‘Day 2’ events such as a BBQ or party for additional guests can also provide an immediate impact to the bottom line, as most of the setup, administrative and fixed costs are already covered. This results in less bedroom cleaning costs and related services such as porterage.

Finally, it is worth considering padel (a hybrid between tennis and squash) as one of the world’s fastest-growing sports. Many hotels have unused tennis courts or outdoor space that can relatively easily be converted into several padel courts through partnership agreements with specialist operators. The benefits of attracting not only additional external players (availing of hotel F&B) but also tournaments and sporting holidays requiring guest accommodation can positively impact the bottom line for minimal capital expenditure.

For lenders and investors, alternative revenue streams enhance EBITDA and ultimately the value of the asset. The positive knock-on effects on financing can include reduced loan-to-value ratios, reduced financing costs, and less risk. By spreading the income sources across existing and new categories, hotels will unlock hidden value and future-proof the asset. A word of caution: hoteliers need to be aware of compliance regulations and local legislation to ensure events or facilities meet the required safety and insurance requirements.

So why not take a step back from your current hotel product offering and consider what additional revenue sources are possible? Is there a piece of unused land or parking that is not required and could be put to alternative use? Is your rooftop suitable for antennae installations providing passive income?

Looking strategically at where additional revenue streams can be monetised will not only future-proof your business, but can also reduce trading risk and improve cash flow.

This article was originally published on hotelmanagement.net