Hospitality Property Management and Development Strategies
This subject develops the specialised skills required to use professional judgement in the choice of property management strategy. The subject has a multidisciplinary approach integrating the legal, accounting and design aspects of developing and managing different classes of property within hospitality business structures. The student will gain advanced understanding of the application of contract law principles and contract management in complex scenarios and reflect on the risks associated with different types of leases. Students will also gain technical knowledge in the evolution and use of different types of business ownership and critically analyse the possible competitive advantages associated with complex multi-owner arrangements separating real estate, brand and management functions.
On successful completion of this subject, students will be able to:
Assessment 1 Outline
|Assessment title: Regency International Case Study||Assessment weighting: 20%|
|Assessment type: As||Word limit: 1500 Equivalent|
With reference to provided facts from The Regency International case study with the set of scenarios (which will be provided), critically analyse the options on offer, identifying the different categories of property involved. Determine and evaluate the best deal structure and identify the relevant owner and key players. Determine if the new purchase is held under a finance or operating lease.
Critically analyse the scenarios and options on offer.
Present a recommendation on the deal you would suggest and provide your reasons and evidence as to why.
Business Document with CDU Harvard style referencing. You may use headings and subheadings in the document. If applicable, you may also include comparison tables and calculations to back up your recommendations.
Provide evidence of academic research and wider reading on the topic.
Regency International Case Study
The details given under the case law defines the different scenarios in which James, the owner of land has given several business alternatives by other businesses. To evaluate the profitability and financial feasibility of different deals, a financial analysis has been considered by James. Identification of relevant owner and key players in every different deal and scenario has been determined. Also the issues of risk, control, structure and opportunity in different available deals has been assessed. The case has been discussed and examined to find out the adequate business option for James, the owner of land on the basis of financial feasibility and other aspects of different deals.
2. Available Deals and Scenarios
3. Financial & Feasibility Analysis
The present value of land which James has in Rothbury is $4.8 million and as described in above mentioned scenario, he has received number of offers against such land. Afterwards James thinks to build a hotel with 110 rooms on his land which would cost to $198 million in total (each room costs $180000). To assess the feasibility of options and to choose the favorable alternative, financial analysis of alternatives has been done which is as follows:
a) Selling of finished project an investor of Cest Hotels who is already having 20 Cest franchised properties. James can raise equity funding from the funds received from investor for right returns.
b) James could retain the property as landlord under the franchising model and obtain a guaranteed rental income for the property (Montajabiha, Khamseh, and Afshar-Nadjafi, 2017). Hence James could allot his property on lease for gaining regular rental income.
a) Lease buy back arrangement in which he could get the funds for business by selling his land to Allwood Group.
b) Conventional management agreement in which the Allwood would be authorized to operate the business of hotel of Regency group (Souza, Gimenes, and Binotto, 2019). This option will mitigate the risk of project and influence the lender for financing the project.
Recommendation: -As per the given details in the case law, James found the offer of Cest Apartment favorable but he also has another option to raise capital equity. In this option it has been considered that if Regency group sells a portion of units to small investors with guaranteed returns then he will be able to sell his management rights up to $2 million for raising the funds. For such purpose he has to sell almost 10 units of project. Hence it could be recommended that he could go with the option of sale of units to small investors or could also purchase the franchise to brand the development of project through which the potential risk involved in the project could be removed.
4. Relevant Owner & Key players
The detailed scenario of this case law reflects that there were several interested parties and companies which wanted to invest their funds in the hotel project of Regency group. On the basis of evaluation and relevance of deals offered by different investors it could be inferred that the major players in these scenario are Cest Apartment Hotels and Allwood Hotel Group because they had offered some feasible and viable funding offers to Regency Group. On the other hand the identification of owner could be done by the acceptance of offer (Abdallah, and Sicotte, 2018). If Regency group accepts the offer of Cest Apartment Hotels of selling the project to one of their investor then the title of owner could be transferred to such investor. Hence the relevant owner and key players in the case are dependent on the scenario and acceptance of the deals.
5. In case of finance or lease arrangement
The past situations would be different if the company accept the finance or lease arrangements. If the company would accept the finance options offered by banks then they have to pay high interest on the loan amount which is also higher than the cost of capital of company. Hence it will cause extra and irrelevant cost to the company without any favorable return. On the other hand if the company goes with the lease arrangements then James will get a regular rental income on his leased land which will cause no cost to him (Cox, 2017). However in both the situations, the land would be entitled under the ownership of James but the difference of cost liability on James will differ.
6. Issues of risk, control, structure and opportunity
The risk involved here is that on the failure of this project, the financial liability can occur on the personal head of James which will ultimately cause damage to the financial health of Regency Group.
On the other hand James will lost his opportunity of rental revenue which he was getting from the warehouse if will pursue for the hotel project on this land.
The Regency group has no experience in the hotel business hence it is difficult for James to take control over his new hotel business and to operate the business with efficiency (DINI, 2017).
The issue of structure is relevant to the capital structure of company hence the capital structure of company would become complex and more based on debt if the company goes for financing from the bank loans.
In the conclusion of entire case study, it could be inferred that to choose the favorable option for financing of project James should undertake an analysis of financial feasibility. Every available option has different risks and opportunities attached with them hence to assess their viability; it is must to analyze all the relevant aspects of finance options.