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How much does it cost to build a country hotel?

Anton Basin
Anton Basin
Founder and director BASINN hotel development

Investing in hotel real estate. Speech at the RBC.

Speaking as an expert on the program “Private Property” on RBC, we discussed investments in the hotel business;

  • What kind of hotel can be built for 10 million?
  • Entry threshold and payback period;
  • Domestic tourism in Russia is booming;
  • Why pay attention to country hotels?
  • Ways to invest;
  • Entry threshold and payback period;

Hotel, hostel, glamping, camping, cottages – what brings more income. Sale-and-leaseback – what is this strategy and how to earn on it. How room stock affects profitability. How to use the HIH in the hospitality business.

How much does it cost to build a country hotel?

Anton Basin

My name is Anton Basin,

  • I am a Hotel Developer, I create Concepts, design, and open hotels. I have more than 200 projects in my portfolio.
  • I've been in the hotel business for 15 years. I worked in the Azimut hotel chain as the Deputy General Manager for development, built and opened the famous Lepota hotel near Moscow.
  • I created the Association of Country Hotels, where I am currently the President.
  • I am the Owner of BASINN Hotel Development Company.

Paul: I, Pavel Demidovich, am a private property, program in which we discuss real estate investment today about hotel property. Vacationing at home, in 2022 the number of tours in Russia increased by more than 10% to 62,000,000, domestic tourism will continue to grow, and this year. Market players expect a good season!

The biggest growth is in demand for travel to Dagestan + 35%, but as noted in the Association of Tour Operators of Russia, the market development is hampered by the lack of accommodation for travelers.

Tour booking demand forecast for 2023.

Dagestan +35%
Anapa +25%
Gelendzhik +23%
Abkhazia +18%
Krym +15%
St. Petersburg +12%
Altai +10%
Kislovodsk +8%
Moscow +7%

Source: Association of Tour Operators

Is it time to invest in hotels or hostels or maybe camping or glamping?

As usual, our guests are my colleague Ignat Bushukhin, and our current studio expert Anton Basin, owner of Basinn Hotel Development and president of the Country Hotel Association. Anton, we are glad to see you!

First question I usually have for Ignat.

Ignat, have you wondered how much money is invested in this business?

Ignat: I googled, went through the main open sites, it’s clear that many hotels are sold in closed, between their own, but nevertheless here is what I found. The most expensive hotel in Moscow limited by the Moscow Ring Road, which in the open bases are sold today is an operating hotel near the metro station Okhotny Ryad.

It seems to me that this is not a hotel for sale, but the land with the hotel function, on which you can sell something in the future, however it says here that the hotel has regular guests, parking for cars, excellent location, all the infrastructure within walking distance and so on.

In order not to scare away the audience 5.2 billion is of course a lot, investors are looking at us, but still, let us look for something smaller and cheaper. You can buy a hotel as a ready rental business GAP, that is, you are not buying a property, you are buying a business that manages the property.

The cheapest ready-made business mini-hotel 3 700 000 ₽, it is a metro Arbatsky mini-hotel, works since 2019, has 8 rooms, projected payback on current turnover 24 months.

Paul: This is the view, from a journalistic perspective. Anton, what does the real hotel business look like, because for most of our viewers, after all, a person of 5 billion rubles is too much.

Anton: Friends, first, the rental business, you essentially have to understand what we are paying for. We pay there for the property that’s there, it’s not real estate and we pay for some kind of staff and an established flow of guests.

When we say

If we go to country hotels, then you can safely multiply these figures by about 1.5, if we are talking about classic country hotels.

Paul: Country building will cost even more, because to an enlightened person it is a paradox.

Anton: It is not a paradox, it is very explainable! A country hotel has an area, the average size of a country hotel is 8-10 hectares, this area needs to be developed in this area you need to create 2-3 food outlets. We say for one country hotel three urban give simply because in the city hotel its essence, in what you have provided sleep guest breakfast in the morning, and, in general, in the evening bar, the whole day the hotel is empty. Out of town, where mostly family guests come, 24 hours a day the hotel has to entertain those guests.

This is why the infrastructure will be more and in capital investment to build a country hotel, too, of course, is more expensive.

Ignat: These country hotels are being built today, as I understand.

Anton: Now there is a boom in country hotels and this is due to the pandemic and the well-known events. We have almost no flow of foreigners now, and it was mostly city hotels so the city hotels were loaded. We have a reduced flow of business activity (business trips, etc.), although they are recovering now, but the remote has led to a reduced flow of business tourists.

The only flow that is doing well now is recreational tourism in cities, with the premise why out-of-town hotels are the ones shooting up now.

  1. T is harder to go abroad, many countries are closed to us altogether. Tourists have unsatisfied demand, respectively, it is satisfied in a local way throughout the country. We have people from all over the country, it’s another matter where they go, we will come back to that.
  2. There is such understanding since covid that people started paying more attention to health, recreation, sports. So we’ve had a dramatic increase in the flow of sanatoriums, we’ve had a dramatic increase in the demand for reactive infrastructure elements of spa, wellness centers, fitness centers, outdoor sports, and so on. These can all be found in country hotels.

The tourist coming to a country hotel has 3 main options for accommodation:

  1. Detached cottages
  2. Located units, it’s something in between.

If before there was about a 50/50 split of demand between block rooms and freestanding cottages, since the pandemic, that demand has flowed from block rooms to freestanding cottages.

Ignat: Is it like a tourist farm, you know?

Anton: A tourist farm does not sound good, we call it a country hotel. Abroad they call it a holiday village.There is a difference between a country hotel and a holiday village. In a holiday village, the specifics are that they only live in detached cottages. Since it is associated with country living, there is much more demand since the covid began and they closed the exit for recreation abroad. Country hotels, of course, feel very much like resort hotels.

Paul:Anton, we understand anyway that the entrance fee to the hotel business is quite large, if you build some sort of hierarchy from the most expensive options to the most affordable What can be identified in this market as the most affordable options.

Anton: For the big ones, we will take hotel clusters for several billion rubles.

Paul: That doesn’t suit us.

Anton: OK, there is a classic mid-size hotel. The Basinn Hotel Development team does a lot of such country hotel projects and you get an average price tag of 700,000,000 to 1,000,000,000 ₽

Paul: Scale down, I understand, is often bad for the economy.

Anton: Very bad. I’ll let you in on one of the secrets of the hotel business. The biggest expense of the hotel business is the expense in the operating room, the payroll (FTE). It reaches 40-60% of all revenue. The secret is that whether a hotel has 20 rooms, 30 rooms or 40 rooms, the size of the payroll does not change. The number of maids who will clean the room changes, but fundamentally the size of the FOT does not change, because all the top people: the manager, the accountant, the commercial director of housekeeping, they all yes they are all put into these fixed costs.

Hospitality business’ secret is the size of the room stock.

Paul:Lower down, where the price tags are even lower.

Anton: If we go lower by reducing the size of the room stock, sooner or later we will find that the hotel will stop being interesting in terms of dormant investments. When conventionally there is a billion in your pocket, although no one invests for a billion, so that there is an understanding, when a hotel is built and it costs a billion, it does not mean that someone has a billion in his account and it was taken.

Ignat:take a loan?

Anton: Of course they do. The investor should have 10%,15%, 2o% of the amount to buy the land, do the project documentation. In general, the money comes from the investor, they take loans, turn to the state, by the way, which has now allocated a lot of programs for lending and subsidizing such construction.

Paul:then maybe change the format. Focus not on a hotel, not even a family hotel, but on something more newfangled like glamping.

Anton:We’re getting to that now.

The important thought is, “As soon as we reduce the number of rooms, we stop creating businesses that are interesting as pure investments!”

I call it buying yourself a job. If you have a 20-30 room hotel also with catering, it just doesn’t have enough cash flow to keep a management team.

Paul: 20-30 rooms so a management 30 is a hotel to yourself.

Ignat: I see it that way and I think the minimum cost is the cost of building a cottage for which you can build and rent it out as such a hotel in nature.

Anton: Yes, it is. If we go down to someone who has, for example, an average of 100,000,000 to 150,000,000 ₽ in their pocket, a total investment that can also come from credit or from the government. Then the amount of 150,000,000 is some kind of budget for a good glamping, a good average vacation base.

Paul: So glamping 150,000,000. Anton, the 40% yield looks very attractive according to our estimates, what accounts for that? Unsaturated market or high demand.

Anton: First, unsaturated market indeed. Glamping is still new to us. On the subject of why it’s very hard to open a glamping and recreation base for 10,000,000,000 right now. One of the first glamping sites I opened, we invested 10,000,000 ₽. Why did those numbers come out that way? Each tent in the area there 500,000 ₽, the cost of land, communications and in principle you can do it for 10,000,000 ₽, but in the middle belt it is definitely impossible, because everyone wants, so all seasonal glamping.

Ignat: Anton, it makes sense to find a manager somewhere in Altai. Allocate this 10-20 million, hire a manager who will support you all this and transfer you just monthly money.

Paul: Not to do it yourself. Here’s not to rent an apartment by yourself, to have a kind person do it for a small commission.

Anton: We opened hotels, where we had the same hypothesis somewhere, that it would be the manager. It doesn’t just work with managing partners. It works with managing partners, when that same on-site manager at least minimally, but invests his own money, becomes a managing partner.

By the way, the first business I opened, the hostel on Old Arbat, I opened as a managing partner, so I got 30%. I invested very little, but it was my business project. I found an investment, so 70/30 is the normal rate. 30% is taken by the managing partner, he spends his time, he deals with it, he is responsible to investors. It’s interesting to open a resort in this format somewhere far away in the Altai Mountains. This is really the format we used to open holiday bases and glamping sites.

Ignat: If I may ask one question. When I was looking at some of the listings for big Western brand hotels that are apparently leaving our market, and here they are selling the business. They’re not always selling real estate; they’re selling specific businesses, specific buildings; there are some in Moscow. Do you have a lot of proposals like that in your practice, and what to do with them? Is it worth buying? “>

-the building owner:

-the company that gives the brand and all the standards to the company;

-the company that operates.

In our country, the first hotel companies that emerged, they combined a third function. But in fact, when we say someone is selling, and the foreign brands that left, almost all of them were not owners.

Worth it or not to buy, it is very individual, how interesting it is. Honestly, I see more prospects now in suburban and resort hotel development than in urban development.

Paul:Anton if you are talking about

Anton: In the Moscow suburbs it is difficult with mountains, so the forest and water are important here! There are a lot of properties that come to me with plots of just a clearing, and there’s not even a forest nearby. Guys, what are we talking about! You can’t build a hotel here, there’s just no recreational component.

The ideal plot for a country hotel, glamping and country recreation is a plot on the waterfront.Water is very critical, water is an opportunity to place a restaurant, a beach, water sports.

Man leaves the metropolis, he wants to get somewhere on the water, so these are ideal sites.

Paul: So Anton, if for our viewer to formulate, not that recipe, but a certain proposal of the tools that are now in the hotel market in terms of investment. Here’s what would be worth looking at?

Anton:Depending on how much investment amount are we talking about?

Paul: Let’s start with some basic story that we often look at, which is the 10,000,000 ₽ to 20,000,000 ₽ range, that alternative one, two, three bedroom apartment.

Anton:Look, if we are rejecting the GAP, that is the rental business. We are talking specifically about real estate, it is unrealistic to build something more or less serious on 10-20 million rubles!

Ignat: And on the Azov Sea you cannot even?

Anton: You can certainly build from 2, 3, 4 rooms, but we are talking about something more interesting that you can call a business, right?

Here, for that amount, there’s an interesting financing scheme now for country hotels called SELL & LEASE BACK that is, sell and get back into management.

The bottom line is, the developer, we’re speaking on behalf of the developer now, takes or buys or leases a site that meets those requirements that we said. He divides it into lots, most often, of course, because it can be divided.

Divides these lots into smaller lots, builds cottages suitable for daily living, puts minimal infrastructure: reception, bathhouse, playgrounds, landscaping. These plots with cottages are sold by investors.

Paul:As an investor, just me buying a house in this village?

Anton: Yes.

Ignat: Because it is cheap 6,000,000 to 10,000,000 ₽ total.

Anton:It comes from 15-20 million rubles, but with a check there from 4 000 000 000 you can already come.

Further you investor buy this house, give it back to the management company, here the management company operates it and divides the profit in some proportions. From 25% to 50% usually management companies take depending on what costs they take on.

Paul: Are such projects now mostly in the Podmoskovje or around the country?

Anton:A lot of innovations, I know for sure, in the hotel and restaurant business come from St. Petersburg and the Leningrad region.

Ignat: Aparthotels, as a business?

Anton: City aparthotels, originated in Petersburg absolutely, then moved to Sochi and to Moscow. Likewise, the country hotel holiday village first appeared in the Leningrad region, then in the Moscow region. Now there are more of them in Krasnodar region, because it is a very convenient way of financing.

We just need to understand that, after all, residential housing is not designed for hotel business. It works very well in this format and in this small investment when we have virtually no hotel infrastructure.

We have a tourist product, what guests come for is the cottage itself. The most popular cottage format is 2 bedrooms, because either a large family or company comes. What do they do there? They relax there, socialize, roast meat, spend time, so it is very important of such cottages to have a good, decent living room if the weather is bad and a good terrace with a grill area if the weather is good.

Ignat: By the way, many cottage settlements in New Riga or even Rublevka have such outhouses and cottages, which they keep for hotel services and rent out.

Paul: Anton, thank you very much! That was private property. Watch it on our YouTube channel RBC Investments, subscribe, comment, we want to know what you are interested in!

How much does it cost to build a country hotel?

Anton Basin
Anton Basin
Founder and director BASINN hotel development
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