In this months Public Property magazine (news and analysis on the management of the public sector estate) the following article which touches on public sector involvement in hotel related projects was published and covers examples of some of the work carried out by Arc Consulting Partners during the year...
Douglas Grant of Arc Consulting Partners explores the issues
The challenges facing local councils and developers alike in sensitive hotel development situations is a daunting one.
Investors, owners and developers are understandably keen to maximise the footprint of sites and businesses to create the maximum potential to create additional income, profit and long-term value in any existing or hotel site opportunity.
Councils are generally positive about hotel development.They recognise the hotel sector’s benefits: hotels are a desirable facility that raise the profile of the location, attract tourism and create jobs.
On the other hand, they are constrained by the need to follow predetermined local planning policies and other considerations in a range of situations but particularly in sensitive sites such as the Green Belt and Areas of Outstanding Natural Beauty (AONB). As a result even modest projects such as developing a spa or additional bedrooms can result in considerable debate and challenge if not handled sensitively and objectively.
Why hotels are different to other property types
Hotels, given that they represent ‘a business within a property‘ are in some ways a niche asset class. An understanding of the business dynamics is relevant in almost every case and value and viability can be influenced by a range of issues such as:
As a trading business, they experience fluctuations in earnings often linked to the issues listed above. A positive economic case today may not be a positive case tomorrow. Inherently there is no right answer for all situations.
In some situations we have also found that beneath the surface of the pure commercial and investment logic presented in documentation, the underlying project rationale is sometimes driven by personal, ego or lifestyle motivations of the promoter. The final outcome to an application can also be influenced by fear of the potential loss of an existing amenity by local officials. Seeing through these issues is the job of the independent advisers that can hopefully highlight the more subjective points and provide an objective analysis.
In summary, there are often local circumstances and very specific hotel project characteristics that need to be considered in any assessment. These invariably require knowledge of industry-related issues and an experienced planning team.
Scenarios where these issues play out
The issues arise across Europe in various forms but taking the UK as an example we’ve picked out a few choice phrases and examples to illustrate some scenarios.
The construction of new buildings in the Green Belt constitutes ‘inappropriate development’. The presumption is to turn down a proposal and the project sponsor/promoter needs to take this into consideration in any application knowing that referral to the Secretary of State is a possibility.‘Very Special Circumstances’ need to be demonstrated to justify the development. [Section 9 of the National Planning Policy Framework (NPPF) (2012)]. Similar restrictions apply to Areas of Outstanding Natural Beauty (AONB).
Other scenarios include sites needing to address the presumption to favour centrally-located development over outlying areas. A ‘town centre first’ approach aims to enable sustainable economic growth and provide a wide range of social and environmental benefits to towns centres. For proposals outside of the town a sequential test (assessing various options inside then gradually further from the town centre) and an impact test (ensure that the impact over time of certain out of centre and edge of centre proposals on existing town centres is not significantly adverse to the town centre).
Evidence, evidence, evidence sits alongside location, location, location
Investors are faced with what can be unfamiliar processes, local planning criteria and a myriad of technical and industry specific issues to balance such as:
These in turn throw out queries such as what is ‘the minimum amount of development necessary’? What is ‘appropriate’ or inappropriate?
The imposition of these various criteria becomes difficult to analyse and conclude in simple ‘Yes’ and ‘No’ terms and more a matter of judgement, appropriateness and scale.
We are not experts at planning policy or case law, both of which are highly relevant, but we have contributed to an understanding of the commercial, market and industry issues at stake.
In almost every case no ‘one rule fits all’ exists despite lengthy processes and procedures that need to be adhered to. In the end evidence and the assessment of experts, locals and planners together with a healthy degree of subjectivity will play a part in determining a conclusion. The lesson to developers and investors in our view is to
The alternative - rushed schemes, limited evidence and generalisations - can place the investor on the back foot and incur additional expense and time delays. They also place the Council concerned into a difficult position of having to engage specialists to challenge and objectively identify the appropriateness of any proposal.
Douglas Grant is a Partner in Arc Consulting Partners, a specialist industry advisory firm located in London. http://arcconsultingpartners.com
At Arc Consulting Partners we have contributed our commercial and industry knowledge to assist associates, planning specialists and lawyers involved in a range of situations including:
Arc assists owners and investors to identify, appraise and maximise the performance of businesses, development and project opportunities in hotels, resorts and hospitality throughout Europe. The full article and other issues covered are accessible on http://ebooks.hgluk.com/~production/ebooks/publicproperty/publicproperty1218_ebook/