Overcommunicate for CapEx project success

NATIONAL REPORT – The age-old wisdom of “if you fail to plan, you plan to fail” could have been coined to describe CapEx strategies.

Today, one must add to the saying “if Plan A doesn’t work…” that there are 25 more letters in the alphabet. No matter the industry-cycle, the fundamentals of maximizing investments in renovations remain the same: assemble the best project team first, establish the overall project scope and budget before doing anything else, and plan way ahead and “overcommunicate” with the entire team.

As we await the release of the International Society of Hospitality Consultants’ 2023 CapEx Study later this summer, Alan Benjamin, ISHC, and Sarah Churchill, both of Benjamin West, a leading hospitality FF&E procurement firm, provide insight on how to best lead the project team with clarity and decisiveness.

1. What are some key questions that an owner should pose to prospective team members to make sure all parties are aligned in order to meet their ROI goals?

a. Was the design team given a budget to design to upfront, and is the entire project team working off the same budget? Did all stakeholders agree that the budget was feasible for the scope and design?
b. What contingencies should I add to my project budget to cover for current inflation in 2023-2024?
c. How much time should be added to the project schedule for a model room and model room review process? What are the overall current lead times?
d. Should we utilize international sources, domestic sources, or both?
e. How long should the project plan on utilizing a warehouse to store the FF&E? How should we plan to liquidate all the current FF&E?

2. How do some of the advances in technology that identify benchmarks and CapEx metrics impact owners’ ability to plan, avoid cost overruns and stay on schedule?

AB: There are a multitude of technological advances that can be utilized on a project to assist in streamlining the project process, while providing a positive impact to the bottom line. Be sure to engage with a strong purchasing firm that will provide an owner and all project parties full transparency in the reporting process with access to critical reporting and information such as: what items are ordered, what items are left to order, tracking the current budget, the budget to variance, expediting, funding received (including cash needed to complete the project), and accounting reports. Strong reporting capabilities will allow the team to be able to quickly identify any key items that may pose a risk to the project cost or lead time.

Be thinking ahead to minimize the risk of displacement of revenue by allowing a slightly longer warehouse schedule so that items can arrive before they are needed, and do not liquidate the old items until the new items are received and are correct.

Alan Benjamin

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SC: In addition to software, during COVID, there was an uptick in the use of virtual model rooms. After specifications are approved, a virtual model room can be prepared for review within weeks, not months, and at a fraction of the cost of taking one or two rooms out of commission and building out physical model rooms. While the virtual model room cannot address all the aspects that are beneficial to review in a physical room (i.e., construction and material quality of FF&E pieces, hardware, drawer glides, the sit/feel of a lounge chair, etc.), it can greatly benefit a project from an accelerated PIP perspective to keep a project budget and schedule on track. A virtual model room is also a great option for an owner not currently considering the time and expense of a traditional model room.

3. What are some tips for optimizing the basics better to drive higher returns?

AB: Overall, it is important to make sure the owner has done a thorough competitive set analysis upfront to ensure that after the CapEx investment, the property is the best choice within its comp set. One example of this would be to identify upfront if an owner’s hotel is losing a lot of business due to lack of meeting space, or lack of a roof top bar, or something else that other properties nearby possess in the immediate comp set. Sometimes, especially for older hotels, a lot of CapEx funds must be invested in areas that are not guest-facing, i.e., repair the roof, the window seals, a lack of hot water, etc. before focusing on the items that are guest-facing such as the FF&E. In addition, be sure to negotiate your PIP with the brand before hiring anyone on your team to ensure the overall scope is confirmed before the design process starts.

SC: It is also critical for an owner to provide the design team with a budget upfront and clarify with the entire project team to ensure that everyone has the same understanding of the budget they are to be working off of. If the interior design team has budget parameters to design within, the project will benefit from any time saved by having to value engineer or modify the design to meet the budget requirements. Along with the budget, be sure to lead the entire PIP team with clarity and be definitive in your decision-making. Don’t second-guess design decisions, or change design direction altogether, just because you see something new elsewhere.

AB: Lastly, be thinking ahead to minimize the risk of displacement of revenue by allowing a slightly longer warehouse schedule so that items can arrive before they are needed, and do not liquidate the old items until the new items are received and are correct.

4. Provide a couple of examples of how clients put these strategies to work, and how these strategies ultimately helped their bottom line.

AB: When a client assembles the best possible project team early on, the interior designer and purchasing agent can work together on vendor selections and due diligence, to identify decisions that are best when made upfront on a project. For example, when an interior design and purchasing team start communicating early in the process, they can review items such as the custom patterned carpet for the public space. When reviewed by the designer, vendor, and installer, and with the vendor performing a field verification upfront, the purchasing team can secure a production lead time that allows the vendor to manufacture on specific width looms, which is tied to each unique pattern repeat and ideal carpet width. This process can lead to significant waste reduction, often reducing the quantity needed by as much as 10%, or more.

SC: In addition, a client that plans to execute a model room the year prior to when production orders are needed are setting the project up for success in the long run. When the client directs the project team to have items in the model room sourced from a minimum of two vendors per specification/commodity, and ideally from two countries of origin, it allows for multiple options and the ability to pivot as needed when it comes time for the full production run.

As we have witnessed throughout the COVID-19 cycle, it is difficult to pinpoint what part of the world will endure the next round of challenges. A client must also listen to the project team if the interior designer and/or purchasing agent does not have any experience or relationship with a given vendor. Strong relationships and purchasing power are king in this climate. Recently, when many factories in Vietnam were 95% closed and those in China were 95% open, we had a vendor change a large casegoods order from their Vietnam to their China factory, ultimately preventing any displacement of revenue for an owner.

Alan Benjamin, ISHC, is president, and Sarah Churchill is director of business development, Benjamin West

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