Invest in exceptional people for capex success

NATIONAL REPORT from ISHC - At a conference last November, I had the pleasure of participating on the “ISHC CapEx 2023 Update” panel. The moderator posed a question that should always be front of mind for all key project stakeholders: “Regarding capex, what is the number one item that should be on the minds of hotel owners today?” The obvious answer is “capital, or lack thereof.” However, a very close second is “focus on the people running your project.”

Despite an owner’s primary focus on maximizing every dollar of an investment, now is not the time to pick the “low bidder on the spreadsheet” for any aspect of the capex process, from consultants and service providers to product vendors. The age-old advice of “you get what you pay for” has never been more true.

One must slow down and invest the proper upfront time to perform the necessary due diligence before hiring all key players on the project team. There is a vast difference in business models, processes, skill sets, and overall service across all team members. For your project to be a success, it is essential to focus on properly vetting all firms, even those appearing qualified and well known in the industry. After the initial vetting of any one firm, it is then critical to review the qualifications of the specific people who will be responsible day-to-day for executing their role in the capex process.

When it comes to deciding on each key team member for your project, look to the following five C.A.P.E.X. areas:

C – Competency: An owner cannot afford to hire the wrong firm or vendor, as the time and money forfeited will result in unplanned displacement of revenue that can never be recovered. Keep in mind that a capex team on a project is going to be working together for at least 12 to 36 months, sometimes longer. Therefore, selecting the most competent team members who encompass the ability to work together and communicate seamlessly will help an owner avoid potentially disastrous operational and financial consequences.

A – Accuracy: Accuracy is at the forefront of a project’s success, and everything from a firm’s communication and documentation, to reporting and accounting practices, must be flawless. For instance, every element of the FF&E process that a purchasing agent is responsible for on a project eventually winds up in accounting, and it must be 100% accurate. Is the project team receiving the correct cash flow forecast to reduce borrowing costs throughout the project with today’s higher interest rates? Are sales and use taxes being accrued correctly to ensure that there are no tax surprises at the end of the project?

P – Performance: Perform a deep look under the hood of every firm you retain for your project. A firm that you may have had success working on a project with pre-COVID, unfortunately, may no longer be able to provide the same level of service and overall performance today due to organizational and/or staffing changes. Be sure to select a firm that currently encompasses the necessary depth and breadth, and a team that prioritizes remaining at the forefront of industry specific knowledge and expertise. For instance, while container shortages are now in our past, is your chosen project team up to speed on Panama Canal shipping issues due to the drought in that region? Is your purchasing agent reviewing FF&E sources from different parts of the world to reduce potential risk? Is your design firm providing an accurate FF&E matrix and counts, along with precise and biddable specifications?

E – Ethics: This is a binary core item; there are no gray areas. Are the disclosed consultant’s fees their sole source of compensation, or are there other forms of compensation at play such as kickbacks, rebates, credit card fees, or software subscription fees? For accounting, are your capex funds being commingled with other client/project funds, or are they in a separate, dedicated bank account with no interest accruing to the consultant?

X – eXceptional: This is the time to focus on a true flight to quality for every key player on the project team. Remember what a project team is made of: people. Assembling a team of truly exceptional people is essential to the success of a capex project. It is not easy work, so make sure the people on your team are prepared and willing to go the extra mile, or two, to create the overall win that your project deserves.

There are many internal and external factors that determine the success, or failure, of any given project. One of the best ways to control the controllables is to hire the best people to mitigate the downside risk throughout the process. Focus on the C.A.P.E.X. key points to ensure the best return for your capex investments.

Alan Benjamin, ISHC, is the founder of Benjamin West, Boulder, Colorado

The views and opinions expressed in this column do not necessarily reflect the opinions of Hotel Investment Today or Northstar Travel Group and its affiliated companies.