Blake Anderson-Buntz: My Hotel Dream Abroad (part 2)

• Hotel General Director: Since the investor does not speak English or Spanish and I trust my local business partner, I gave him a very wide power-of-attorney in order for him to be able to act independently.
• Passive Ownership Style (my other business is bigger and more important): I therefore do not send any representative to control the process and I do not visit the hotel for a long time and I do not come often. Nothing invites theft like a uncontrolled environment.
• Management System: No structure, no formalisation and minimal request for reporting. They basically looked at bank accounts and accounting reports. Absence of a system and correct reporting makes anything very hard to control and their General Director used this for his own purposes.
• Spanish Legal System: The management responsibility lies squarely on the General Director and protects the owners from legal risks. The backside of this protections, is that the General Director is consider as a very independent and responsible position with his own legal protections. It’s therefore difficult for the owner to act directly with authorities, banks, etc.. If you combine this with strict labour laws, where it’s very difficult to fire a General Director. Unless you’re able to find an agreement, you can only fire based upon a court decision and/or conviction of serious crimes. This makes the process long and difficult.

• Locals Loyalty: Local permanently present on the market have thighs bonds and try to favour the interests of locals as opposed to foreign elements. This means that they can create all sorts of problems and contorted stories in order to get what they want, simply put, making the situation difficult and blackmailing (soft & hard). When the working group came to check the first time, the General Director did not like that we demanded access to premises and information, so he called the police and asked to have us removed. Even if we could document property rights, they asked us to provide originals and to get a court order.
• Timely Payments of Costs: In many distressed locations, utilities and other charges tend to be relaxed on collecting payments and making it difficult for local businesses to operate since they provide employment and tax income. This increases the risk of unpaid debts piling up. In our case, the General Director had not paid the utility bills for almost two years.
• Distance: Being far away means that you don’t see what’s going on, so employees and managers are free to act. This increases the ability to agree, work out systems for earning money on the side, especially since hotel and restaurant businesses carry a lot of cash transaction. It’s a breathing ground for theft. In this hotel, there were many areas of theft, commissions from suppliers, using companies belonging to relatives, not providing services according to contract, giving discounts in return for cash payments, showing bills paid in the accounting reports even if they have not been paid, not closing the tax check on the cashier, selling the same item five times, providing less volume than in recipies, etc….. the list is endless and where all used in this case. They finally cut of the electricity, so it took us a long time to get it back on. In our case, the General Director kept on selling rooms even when he had been asked to close down the hotel and of course taking cash payments and putting the money in his own pocket. We estimated the yearly theft to be between 1-1,5 MEUR per year.
• Distance: If something breaks down and does not get fixed. The pool was leaking and had damaged the two top floors and since it was expensive to fix the General Director just closed off the rooms and let the walls and rooms get rotten.

• Market: This location/town was between many other major seaside resorts, but not the in the group of major seaside resorts, so it’s mainly used by locals. This is something that could have been foreseen if a decent feasibility study had been made. There’s not so many hotels and rather small, but a huge number of apartments and the local traveler statistics are easily available showing a small percentage of foreigners.
• Price: The selling price of this location is much lower than that of other major seaside resorts close by. This is often an indication that something is wrong with the market.
• Tourism: lack of attractions, infrastructure, the best quality beaches, variety of restaurants and in general lack of things that tourist needs.

The “Foreign Challenges” are due to local circumstances and the “Hotel Challenges” are mainly due to lack of experience, as it’s the first time of building, buying and/or running a hotel. These two examples are maybe leaning towards the “extreme”, but most hotel investors will encounter some forms of what I have described above and I have seen cases that are even worse. In this articles, I also do not mention general challenges when building and managing hotel properties. Hotel Real estate is more difficult than many other sectors of real estate since you need to manage people and processes (like a factory) and not just simply provide m2 for rent.

What can I summarise as golden rules of doing hotels abroad from your home country that will hopefully be useful if you’re thinking of getting into hotels abroad and establish the right mind set.

1. Why do I want to get into hotels at all and what do I want to get out of it? This is like the Russian saying, measure 7 times before you make the cut. Keep it on paper till you feel comfortable with it and know exactly what you want to get out of it. This will be very important for the next steps coming since you’ll measure those against the results that you want.
2. If you start using words that carry emotional content for yourself and/or if you catch yourself trying to convince yourself. In this case, you must stop everything and involve as many others as possible in order to get some balancing opinions, unbelievers are the best. If you can’t convince friends, family, business partners, etc… then it’s probably not worth doing.
3. If you don’t have the necessary experience and knowledge then get professional help. Even if it’s a short term, it’ll be worth it. And remember, the sooner, the better!
4. You must understand and take the time to learn about the business, location and country that you’re about to operate in, even if it means loosing some first opportunities. Only when you’ve read everything and seen everything can you make a quick decision. If you don’t understand all aspects of the property/business then don’t make the decision to get into it, no matter how much you like it.
5. Market Research and Feasibility study: You don’t need to hire an expensive specialist (even though this is what I recommend), but the work must be done. If you can’t make it work on paper then you can’t make it work in real life and you must get a “reality check” on what you or somebody else has made. Talk to somebody that has done it before you in a similar type property and location. If it does not hold up to scrutiny then go back to the drawing board.
6. Make sure that you have the necessary finances and/or know where to get it from when needed. Nothing increase costs like delays due to financing and the revenue opportunities that you miss by not being on time, it must be calculated.
7. Choose contractors (in case of new builds and renovations) that have a serious background and a portfolio of objects that show that they have done it before.
8. Due Dilligence: Not only on the the property/company, but also on the legal/administrative framework. Establish problems and elements of risk.
9. People & Control: The Russian saying goes like “trust, but check”. You must have a plan and you must control. The English saying goes “if you can’t measure it, you can’t manage it”.
10. Give yourself room for errors, both with the budget and the timeline.

No matter how much finances you have, the property must have a fair market price and must be able to carry itself financially ones put into operations. There are lots of good opportunities out there and if you work right, you can make it happen. Good luck!