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2013-03-07

Feasibility study encouraging

By Carolyn B. Edwards BCC Staff Writer

In a study jointly financed by the Bandera Economic Development Commission (EDC) and the City of Bandera, Source Strategies Inc. has found that a 55-unit hotel in the city would be economically feasible for developers at this time.
The study was ordered by the EDC and City Council to determine if a new hotel would be a successful venture for a two-acre site on Main Street previously occupied by a lodging and restaurant facility.
Source Strategies Inc. noted their key finding as "Developing and opening a Best Western Plus property at this site should generate an unleveraged, pre-tax return on total invested capital exceeding 14 percent, with a return on equity approaching 37 percent."
The study was based on the construction of a facility described as a "Best Western Plus" designation with 55 rooms.
After taking into consideration "the recent downturn in the Texas hotel market," the study concluded, "We anticipate that the recent moderate recovery will continue long term in subject markets."
A key statistic used in the study is REVPAR, which means revenue per available room per day. It is the average daily room revenue yield of every room in the project, whether occupied or not.
The study discovered that the average hotel room in the Bandera area market, which includes Bandera, Hondo, Castroville, Medina and Boerne, is 20 years old "and well past its peak performing years." This is a key factor in the study's conclusion that a new hotel could succeed here. "New means clean" and "clean" is a priority for consumers looking for lodging.
The study found that "over the past nine years, the local Bandera area market has shown an annual real growth (room nights sold) of 4.9 percent, annual growth of 4.3 percent in total room revenues, and a modest 1.1 percent annual gain in REVPAR."
That growth has steadily increased and the 12 months ending Sept. 30, 2012, "shows real demand rising a strong 12.3 percent, rates rose by 1.2 percent, revenues increased 13.5 percent and occupancy gained 14.2 percent....REVPAR rose 15.5 percent for the average hotel."
The study also concluded that the Main Street site was ideal. Its "central location, prominent visibility, and proximity to nearby amenities," are big pluses.
Bandera lodging facilities examined by the study included Bandera Homestead Resort with 31 rooms, Bandera Lodge Motel with 43 rooms, Flying L Guest Ranch with 41 and 50 rooms, Old Texas Square, which had 20 rooms but is now demolished, River Front Motel with 11 rooms, and River Oak Inn with 28 units.
The study did not look at bed and breakfast type lodging or guest ranches.
The study contains statistics and graphs to support the building of a smaller facility. Empty rooms bring down the REVPAR, and thus the financial success of the hotel.
Source Strategies compared 55 Texas Comfort Inn properties, looking at the financial returns of a branded property ranging in size from 36 to 75 rooms. In addition, the study looked at all branded hotels built during a set period of time. "In almost every case, small hotels outperform larger ones," the study concluded.
"Developing a more conservatively sized property helps insure that a profitable level of those room-nights can be captured," the report said. "Building a hotel is not the 'Field of Dreams' - if you build it, they won't come - with the exception of destination resorts and some unique convention hotels, people do not go someplace because there is a hotel. Rather, they stay in a hotel because they want to be near someplace."
Source Strategies Inc., headed by President Bruce H. Walker, uses a database that covers 98 percent of all hotels. The data is based on audited tax files from 1980 to the present. The company produces "The Texas Hotel Performance Factbook," a quarterly newsletter called "The Hotel Brand Report," over 150 financial feasibility studies annually, appraiser's packages, and litigation support and data analysis.
A copy of the feasibility study can be studied at Bandera City Hall.
When Courier Editor Judith Pannebaker asked Mayor Don Clark about the study, he characterized it as "very helpful to the city."
The writer serves on the Bandera EDC.