Is It Advisable to Invest in Tourism in Costa Rica Without Conducting a Feasibility Study?

The vast majority of independent hotel owners in Costa Rica would sell or have their hotels for sale;
there are very clear reasons for this and on the other hand the characteristics of the typology of the
Costa Rican hotel offer, are two topics that we would also like to address, but we deviate from the topi
of hotel viability that we deal with in this article. It is estimated that, in general terms, five years after its
opening, more than 80% of independent hotels barely reach the point of balance, the rest are in
technical bankruptcy.

We know that the day they opened, their owners must have bought even the spoonsful to serve a
coffee. Clearly, the need for investment in land, construction or construction, equipment, furniture and a staffing base for service is much higher than that of another basically service business, such as a travel agency, which should not build and operate a building. After these initial investments, many simply
continue to float.

Another success figure, of course, applies to hotels that started from a positive feasibility study.
However, in our experience, and I say it with regret, we have seen that when it comes to independent
hotels, a positive feasibility study and a record first year of positive results and income have been self-
annihilated in a large majority, by the harmful decisions of their owners with an independent hotel
mindset. They believe that the model will continue to work by magic. So, in a matter of three years at
most, they add to the negative statistics, of whom did not even start from a viable business study. On
the contrary, this would never happen with an international franchise hotel, which adheres to the
business plan and budget. As fantastic as the journey of their first year of operation may be, they will follow the road map in all aspects including investment, marketing and maintenance to name a few.

The banks know these statistics and the evolution of the credit history and the internal structure of these, towards tourism confirm this.

The internal structure of these, towards tourism confirm this.

We all want to do business or engage with a company that is very likely to be still on the market and growing in the coming years, rather than one that has at least 50% and on average 80% chances of
failing or simply floating. This statistic is real and well-founded for independent hotels and without the
need for you to have access to studies or intelligence tools, you can simply consult any analyst from a rural bank, with enough years of experience.

See the odds that an investor, backed by a feasibility study of an international hotel franchise, will obtain a loan to build and operate a hotel versus on behalf of a local entrepreneur or an undertaker with
no experience in hotel management.

You and I know that the vast majority of independent hotels did not do a professional and serious feasibility study before starting to build, something absolutely unthinkable for a hotel to get an international franchise. Without standardization, a small hotel of only thirty rooms in three years can become quite exhausting and complicated to manage for a landlord who doesn’t know the business. On the contrary for hotel franchises up to the minimum cost-effective number of rooms, the services,
distribution and proportion of type beds is highly studied and proven.

Life is short for everyone, we all have the same number of hours a week and as far as investments and work are concerned, it is advisable to devote it to earning instead of losing money and self-trapped in a business, which should not even have been born. Although since the 2.016 we can support quantitatively the wreck in the international demand of tourists to Costa Rica with the explosion of international flights, as at no other time since the country is someone on the tourist map. Achieving record years of visitors and with new and promising growth figures. Not all the country is a consolidated international tourist destination such as Manuel Antonio, Tortuguero or La Fortuna. Not all tourists demand hotels of a single category in a given destination, not even tourists come from a single country of origin or have the same preferences. No matter how paradisiac someone considers a beach, how beautiful his estate is, the view of his land, the number of tourist buses passing through his village and even no matter how much own capital he has, his investment may not be viable. Not profitable right now, not in the next twenty or thirty years. The moment when you will have spent your productive life wasting on “creating” a tourist destination by yourself, which is almost unattainable or in your square, category and segment, there is not enough demand to fill some of your rooms every night throughout the year, which will at least allow you to reach the point of balance.

While this article is written the hospitality giant Marriott International, announces the opening of 100 hotels in the next two years, operating about 8,500, Wyndham Worldwide operates more than 9,100 hotels and Best Western almost 4,000. On four continents with teams made up of people from very different cultures and even languages, and even with this proven success, none of these groups think of
granting a franchise to a hotel without presenting a feasibility study.

The question is, why would you do that? Do you have more experience and knowledge of the business?
how to sell it, how to rent their rooms every night? Did you know of a single case in the world in which
these experienced hoteliers, invested based on “their entrepreneurial instinct” “his experience in other”
or “arguments” of this type? Because he would risk his capital, his time, and even his personal freedom,
in an investment based on incidents and speculation without a quantitative basis.

A feasibility study gives you the answers you need to invest. Our studies have given answers to consolidated hotel groups with the ground and capital that it is not time to invest in a particular place or that a given place in a certain category is already experiencing over-supply, so another destination should be selected. A feasibility study, even if it is negative or not feasible, is the best investment you can make. And of course, there are many studies that are positive, an absolute yes, we can mention cases of clients like the Hotel Gilded Iguana in Nosara or the Hotel Amor Arenal in Fortuna, but even if it has a positive viability, you should not abandon the business plan for incidents of inexperienced people who do not know the business, even if these people are the same investors.

The decision-makers of the big chains are cautious, lacking in arrogance, their attitude is not “here
comes the giant to do everything in his way”, on the contrary, it is “let’s study how this giant has to
move here to succeed” and they triumph. Successful investments, with short, profitable returns, that
will improve their quality of life and complement what Costa Rica really needs, is what I wish you.

Susana Guevara MBA. Director and Senior Consultant at Consuhotel.