Blake Anderson-Buntz: My Hotel Dream Abroad

I hope that this section, will not become horror stories engraved in your minds for ever, so that you decide not to start a hotel project abroad at all. I would therefore like to say, at the start, that all the examples that I use here have become success stories in spite of what happened early on. Mistakes can happen to the best of us and as long as it does not break you, it will make you stronger.

The examples that I’ll use are also combined with the fact, that it’s their first hotel experience. However, I’ll do my best to separate “first time experience” from the “abroad experience”, as I go though these few examples and at the end, I’ll try to come up with a “to-do-list” of what’s needed in order to avoid ending up in similar situations.

It’s a beautiful seaside resort with sandy beaches, a warm climate, most people speak Russian, good wine, cheap food and a fantastic natural garden, an ideal place for a relaxing holiday. The investor enjoys this fantastic place and comes here regularly. I see a closed hotel for sale in front of the garden and decide to call and ask for the price. I get a really good contact with the existing owner and the price is fair, but as I’m not really sure that we want it, we ask for a really good discount and……the owner ACCEPTS it. Being a developer, I know how to increase the building volume and the quality of the building and the square meter price is way below the publicly know market price for real estate.

I choose the strategy of making the building much bigger and of a higher quality since we want to turn it into an apartment hotel in order to sell apartments. As we have an excellent view of the botanical gardens and the sea, we make the apartments quite big (from 40 to 90 m2) and with terraces and balconies. In addition, the aim is to make it into serviced apartments, so I add a restaurant, bar, pool, spa and a medical center (the location is know for health benefits and good doctors). The total costs of this is about five times the purchase price and we get a total of ninety plus apartments.

During a period of about 2-3 years, we try to sell these apartments, but were only able to sell 5 apartments to about 5 close contacts and friends. At this point (the project has been in process for about 6 years all together), three decisions gets made, I put the entire building on the market for sale (I’m trying to exit the project) and I decide to turn it into a four star hotel in order to generate revenues from tourists, as well as making it more attractive to potential investors/buyers and I start searching for consultancy and/or management help, in order to develop solutions for the property.

• Market: The sale of apartments in Bulgaria has seen a steady period of decline, as other more developed destinations reduced their prices for similar products. The apartment sale boom finished about two years prior to the purchase of the property.
• Market: The apartment sale that still continued was not foreign clients, but Bulgarians living abroad or locally. Their demand was for smaller apartments at a cheaper price.
• Architecture/Building Process: Being a foreign investor from a more expensive market, all offer for materials, furniture, equipment, labour and other services were inflated above local market prices, so difficult to establish what’s the fair costs.
• Architecture/Building Process: The speed and quality of all works done were of a very low standard, so schedule got postponed, works had to be re-done and even after the building was finished, lots of building problems became evident later (wrong wiring of electricity, the pool leaked, the gym got affected by ground water and mushrooms, the whole back-wall of the building was un-insulated, so SPA got flooded twice as rain cam down from the mountains in rainy periods and went straight through the wall and into the SPA/Medical center.
• Laws & Regulations: Many laws and local regulations were either not in place or at the very least unclear. This had to do with moving from old Bulgarian system to new EU regulations, as well as, the local officials abilities to explain them clearly.
• Local Administration: The main aspect was a constant push for us to use certain companies, hire certain experts, etc…. Very often the wife or brother/sister of somebody.
• Staffing: Very few local staff had necessary skills and experience, as well as poor language skills like English and Russian.
• Staffing: Very strict labour laws and high social costs, like taxes, pensions, benefits, etc…
• Staffing: Most hotels close for the winter season, so staff were used to working by the sea in summer and in the mountains during winter and during the shoulder seasons they would not work. Since the hotel was due to be open all-year round (we had to service our apartment owners and it had a pertly city type destination close to a bigger city).

• Staffing: A fairly high tendency towards stealing if not controlled properly.
• Seasonality: Very short high season, roughly about 45 days and a weaker “shoulder” period of another 45 days.
• Tourism/Market: The traditional tourists to this destination were cheap to low-mid market, so a very low price level in general on the market.
• Tourism/Market: Since the concentration of hotels in this area was much fewer than other destinations 20 plus km further south, the total number of rooms on this local market was very small. This is usually good for an attractive destination, but in this case the number was so small that the big tour operators chose not to work with this city/location at all.
• Tourism Market: Beach/Water quality. The beaches in this destination are much “thinner” and “shorter” than other locations further South, as well as being more “rocky” and not so white. In addition, this location is close to the Romanian border, so it used to be a fairly big port location with industry and farming close by, all of this and less white sand made the water less transparent and of a darker colour than other destinations, i.e. less appealing.
• Tourism Market: Almost all shops, restaurants and other infrastructure was kept closed from November till end of April, so city had a “dead” feeling during this time.
• Location: All main tourism is bound to the beach/sea, so an upper location in front of the gardens is considered less attractive. Also, in this location there was a souvenir market for day tourists coming by buss and going to the gardens. This looks very cheap, messy and is not conducive to more up-market customers in a four star hotel.

• Rooms: Since they were built as apartments, they were big, so more furniture/decorations/fixture needed and therefore bigger investment costs.
• Rooms: A bit too few rooms (90+), for working with larger tour groups coming with busses which was the main business, a couple of groups and the hotel is full. Not enough scale in order to generate enough revenues at the market pricing levels.
• Rooms: In order to build the pool at the back, the 2^nd floor rooms were lower than the pool area and their balcony’s could be seen down upon from the pools which made the rooms very un-attractive.
• Conference Rooms: Are absent, so almost impossible to work with the local MICE (Meeting Incentives, conferences and event market.
• Breakfast Restaurant: It was built as a bar and a-la-carte restaurant, so not enough seats to accommodate breakfast guests when full.
• Administration Space: Not enough office/back-of-house/storage areas.
• Floor Corridors: Since there was added “towers” on each side of the building in order to increase more building volume/higher ceilings and add lifts, the side/central corridors had a level difference and steps. This made it almost impossible to work with trolleys for housekeeping staff.
• Budget: Little to no interest in investing in marketing, staff/management and the fitting out of the hotel, so reduced capacity and slower working processes. This is a very natural reaction to having endured losses over a long period of time.
• Purchasing: A tendency towards buying cheaper furniture, equipment and products, rather than a more balanced price/quality variant. This leads to two things, a lower quality perception and a higher replacement rate.