What are Hotel Property Developers?

Property Developers

A property developer is the original owner and initiator of a property development project, the intermediary between property and the project service providers, and the party responsible for managing the overall project through to its realization. They develop properties in order to make a profit.

A developer is not a property investor, who purchases completed buildings and sells or rents them for profit. Nor is a developer a contractor, who is appointed to carry out construction works.

In the pre-construction phase, developers acquire the land, determine the marketing of the property, develop the building program and design, obtain the approvals, and raise the financing. In the construction phase, they improve the land and develop the facilities. Post-construction, they sell the property or rent out and manage it.

A pure-play property developer focuses solely on the development of build-to-sell projects, which are disposed of either before or upon completion of construction. Other property developers may undertake build-to-own development projects, which they hold and manage as long-term investments and lease out to tenants (build-to-rent).

A project sponsor is the original investor in a development project. Sponsor equity is the amount of equity capital the sponsor (property owner/developer) invests in a project when it is initiated, commonly in a special purpose vehicle (SPV) established for the development project.

Property owners, construction companies, institutional investors, public or quasi-public agencies or some special-interest group could be a property developer. Property developers generally take the greatest risk in real estate development projects, but they also have the greatest potential reward.

It is the property developer who provides all other stakeholders the opportunity to benefit from the sustainably developed project throughout the property's life cycle. For this, the property developer must adopt and implement sustainable development principles along the entire development project value chain.

Hotel Developer Responsibilities

Hotel developers initiate new hotel development projects and are responsible for project structuring and coordination. They organize the economic and human resources, motivate and direct the resources, and coordinate the development activities.

The developer manages a project throughout its life cycle to ensure it is completed on time and according to the expectations of the stakeholders. They provide the project parameters, enter into contact between the various project participants, and manage the relationship between the property and the project service providers.

The developer coordinates the involvement of architects, engineers and site planners, market consultants, attorneys, environmental consultants, surveyors, title companies, and lenders. The developer selects the hotel operator, hires the consultant for the feasibility study, contracts the hotel asset manager, and hires the real estate broker to intermediate the sale of the property for project exit.

Property developers are distinguished from project managers and general contractors, while they may also act in these capacities. Developers are also distinguished from hotel operators, although they frequently operate the properties they develop upon construction completion.

Together with the operator and asset manager, the developer oversees the installation of the operational structure and inauguration of operations. Unless continuing as the operator, the property developer exits the project at construction completion.

The developer prepares construction progress reports during the construction phase of the project. They inform the developer's management, project lenders, prospective investors and other stakeholders on the on-going property development.

The developer negotiates the disposition of the developed property and project exit with hotel management companies, which take over management of the property for its owners upon the developer's exit.

Developers, lenders, operators and investors must work together to integrate sustainability into property development projects - from pre- to post-construction. This allows for the best financial benefits to be realized along the hotel value chain.

Developer Project Exit

Project exit occurs with the termination of the developer's involvement in a project. The project exit strategy establishes the plan to terminate the involvement of a stakeholder in the project, which is commonly upon completion of property construction.

Project exit is a complex process that can involve various interested parties - the developer, brands, asset managers, industry consultants, and real estate brokers. It requires knowledge of property operations and capital formation for the seller to make the best case for value and evaluate the offers.

Developers frequently use forward sales, in which the asset is sold before project completion, or forward financing, to achieve certainty of funding for the project. Sale proceeds may be used for general business needs, to reduce the developer's outstanding debt or to invest in new projects.

Several legal and commercial issues may arise from project exit. For a hotel property, these include relationships between the developer and the operator as well as the relationships with employees, guests and suppliers.

Transaction due diligence must be performed by buyers and sellers to address issues and risks and to overcome transaction obstacles. The risks when exiting a hotel project or selling the property include:

• Entity risks- Risks on the part of the sponsor, lender, contractor, operator, supplier, government, equity investor, and other project stakeholders and participants;
• Transaction risks- Operational, financial, country/political, legal, environmental, regulatory, force majeure and other risks resulting from the transaction itself; and
• Project exit risk- The inability to exit from an investment project without incurring a loss.

A project is said to be sustainable when it continues to deliver benefits for an extended period post-construction - after developer exit from the project. There are a variety of factors that must be considered to ensure that project achievements will be sustained post-construction, after completion of the development project.