Smart CAPEX Strategies for Your Hotel

May 10, 2022

Mindi Mitchell

Mindi Mitchell

Subscribe to Our Blog

The Transcendent Beat! Get the latest updates from us.


Subscribe

It’s Monday morning and your hotel’s general manager requests a list of assets to include in next year’s capital expenditures (CAPEX) budget by the end of the month. As the director of engineering, you assign the task to your team. Unfortunately, by month end they’ve only come back with an incomplete and inconsistent list of assets potentially needing repairs or replacement.

The problem is that the list is comprised of individual subjective viewpoints rather than intelligence or data.

What you need is a consistent, consolidated data-driven system for capital planning and budgeting across your portfolio. Transcendent offers a robust solution that helps you manage all aspects CAPEX, allowing you to build a solid capital plan that can make a substantial difference in your bottom line.

 

Make a CAPEX Plan

A good CAPEX plan includes a thorough evaluation of your property and assets, including everything your property needs to operate efficiently: product improvement plans (PIPs), building systems and exterior projects, brand-required upgrades and more. Your plan should also consider the owner’s investment objectives. For instance, it won’t make sense to waste funds replacing individual pieces of FF&E if your property is scheduled for a complete renovation.

 

Establish Your Budget

With the planning process complete, you can establish your CAPEX budget. For many hotel portfolios, owners simply reserve a percentage of gross revenue – typically 4 percent – for budgeted capital expenditures, even though the International Society of Hotel Consultant’s 2018 CAPEX study revealed that percentage isn’t nearly enough. Rather than aiming your dart at an arbitrary percentage on the gross revenue dartboard, there’s an even more strategic way to budget for CAPEX. And that’s using data.

Transcendent simplifies the budget creation process by standardizing and centralizing relevant data across your portfolio – allowing you to auto-generate each property’s CAPEX line items 10+ years into the future. You can establish a rolling forecast for capital replacement based on each asset’s date-in-service, expected useful life, maintenance histories, condition and performance. Longer-term projections for major expenses such as roofs, elevators and HVAC systems can incorporate an inflation rate, ensuring you’re prepared for years when additional capital is required.

 

Find the Right Supplier

When the time comes to select a supplier for your capital projects, you want a vendor with extensive hospitality industry experience. Gain a solid grasp of their background by speaking with the company employees who will be handling your account. Find out if they have local service personnel ready and available to support you upon request.

The CAPEX module from Transcendent allows you to link all documentation with its associated asset. You can attach new bids for review. And you can also view historical data from previously used manufacturers and vendors, giving you the visibility you need to help determine who to use in the future.

 

Get the Best Purchase Price

According to the U.S. Lodging Industry Capital Expenditures Trend Analysis Report, capital expenditures are forecast to increase by approximately 70 percent this year, and projected to hit record numbers through 2024. Yet hoteliers are perennially short on capital funds. So, it’s crucial to find ways to maximize the return and minimize the cost of CAPEX.

One key is to compare benefits and costs. While the purchase price of a particular CAPEX asset may seem high, consider whether it may lower operating expenses over the long term, such as LED lamps that are guaranteed for five years, or ozone laundry systems that save on water, energy and chemical usage.

When it comes to negotiating purchase price, Transcendent’s CAPEX solution provides across-portfolio insights for increased buying power.

 

Experience the Benefits of Smart CAPEX Planning

One of the most powerful value-adds hotel owners can make is through strategic capital investment. Yet too often, hotel owners don’t sufficiently prepare for necessary capital projects, resulting in less competitive positioning, potential loss of franchise affiliation and even loss of the asset. Long-term capital planning with the right technology solution ensures that your equipment and portfolio is always operating at the highest level of performance, giving you a competitive edge in the market and better preparing you for the future.

 

Would you like to experience the benefits of data-driven CAPEX planning at your hotel?

Mindi Mitchell

Mindi Mitchell is the Content Marketing Manager for Transcendent® Solutions, LLC. She helps Transcendent grow by building brand awareness through content and product marketing efforts. She's focused on developing a deep understanding of our customers, product, and building a data-informed performance marketing system.

More From Transcendent