Fri, Sep 08, 2006 - Page 8 News List

Some hotels should be renovated, not replaced

By Li Ken-pei 李根培

Media reports have indicated that the Miramar Garden Taipei, which came into being on a build-operate-transfer (BOT) contract, has been over-charging, with room rates far exceeding the NT$2,300 limit that was stipulated in the contract.

BOTs are arrangements in which the government enters into a contract with a private organization to build and operate a facility. After a specified period of time it is turned over to the public sector.

The "annual average room rate" refers to the number of rooms rented and net income over the course of the entire year. Since the hotel hasn't been in service for a year, how is it possible for anyone to have calculated the annual average rate?

According to the Tourism Bureau's Monthly Report on Tourist Hotel Operations in Taiwan, income from room rentals is greatest in June and July. Room rates and profit are not necessarily as high in the following and preceding months.

CHANGED PROJECTIONS

Reports also say that after being awarded the contract, the Miramar Group conducted a citywide survey and discovered that market demand for hotels necessitated that the firm double its investment.

With more investment dollars required, later financial projections were different from the original ones.

Since the Miramar is designed to be an affordable hotel charged with maintaining five-star standards, it is necessary to approach this situation from the perspective of planning and design and by improving staff management. This was not reckless or superfluous expenditure.

Any business enterprise has a life cycle, and hotel construction is no exception. With the opening of the Miramar, the hotel proprietors and managers wanted to gain the highest possible market share. In the excitement-packed first stages of their development, new hotels become the favorite places of tourists and business travelers.

In the second stage, the arrival of new competitors splits the market and the hotel's market share falls. If bosses don't invest in renovation, this process accelerates.

In the third stage, a change occurs in the market whereby owners may choose to sell the hotel and invest somewhere else, or they can choose to update and remodel their facilities and upgrade outdated systems. They can give new life to old hotel buildings with renovations and re-establish their place in the market.

UP TO DATE

The government could gain from helping to bring old hotels up to date, rather than using BOT incentives to encourage the construction of lower-end hotels to meet increasing tourism demand.

Newly built hotels require considerable investment. Even excluding the cost of the land, which is free under a BOT deal, hotels will not see a return for quite some time because the process of planning and building lasts at least five years -- often more than 10 years. Delay in construction is another variable that has to be taken into consideration.

If the government can change strategy in an attempt to encourage owners of old hotels to take on renovation costs and spruce up their buildings, then before long they should be able to get back in business and turn a profit.

This policy would be beneficial for the government, the public and travelers alike.

Li Ken-pei is a former construction project manager for the Grand Formosa Regent Taipei.

Translated by Marc Langer

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