Resort investment companies have become increasingly popular investment vehicles in recent years. As leisure travel continues to grow globally, investors have taken notice of the potential these companies hold. Resort investments can provide exposure to the tourism and hospitality industries while also offering diversification across geographies and resort types. However, not all resort investments are created equal. Careful analysis of resort properties, business models, and market conditions is required to identify sound investments in this sector. When approached strategically, resort investments can deliver attractive returns with moderate risk profiles.
Location is crucial for profitability and valuation of resort properties
A resort’s location plays a pivotal role in its profit generating potential and valuation. Prime locations near major tourist attractions, airports, or city centers command significant premiums. Proximity to natural amenities like beaches, lakes, mountains, or golf courses is also desirable. However, some of the best resort investment opportunities are in up-and-coming or undervalued markets before prices peak. Investors must assess potential changes in accessibility, local tourism demand, and new development when selecting locations.
Resort types and business models dictate revenue streams
The type of resort and its business model largely determine the revenue streams available. Full-service resorts with amenities like hotels, restaurants, spas, retail, and entertainment venues offer more diversified income. Resorts focused solely on vacation rentals rely more on occupancy rates. All-inclusive resorts collect most revenues upfront while à la carte models have ongoing per-use fees. The business model also impacts the fixed vs variable cost structure, with all-inclusive models having higher fixed costs. Evaluating these factors is key to projecting performance.
Market cycles influence valuation and exit opportunities
Resort investments are heavily impacted by economic cycles and capital market conditions. Entry valuations tend to be lower during recessions while exits bring stronger returns in periods of economic expansion. Transaction volumes also rise and fall with tourism and real estate market cycles. Investors must assess where key markets are within their cycles to optimize entry and exit timing. Market analysis also informs hold periods, as longer holds may be prudent to ride out downturns.
Management expertise is vital to operational success
A resort’s management team is integral to driving performance and financial returns. Investors should evaluate management’s experience in the hospitality industry and with specific resort types. Expertise in areas like marketing, revenue management, cost controls, asset management, and customer service all contribute to success. The best teams adapt their strategies to changing market conditions. Strong existing management can justify paying a premium while lacking expertise may require a value-add investment.
Branding boosts visibility and perceptions among guests
Branding plays a key role in guest recognition and sentiment toward a resort. Affiliation with leading global hotel brands like Marriott, Hilton, and Hyatt provides significant marketing exposure and consumer confidence. Even regionally strong brands curry favor among certain visitor segments. Alternatively, some independents successfully cultivate their own unique brands. Assessing brand strength and positioning aids investment decisions and value enhancement strategies.
In summary, resort investment decisions require scrutinizing location attributes, business models, market cycles, management capabilities, branding, and competitive dynamics. Carefully weighing these factors allows investors to maximize long-term returns and create value through active asset management. When aligned with investment objectives, resorts can be attractive portfolio additions.