Friday, February 22, 2008

$1.5 Million-plus Dove mountain homes are linked to high-end resort hotel

The Residences at The Ritz-Carlton, Dove Mountain, will ultimately include 324 homes built in and around the two golf courses associated with the Ritz-Carlton Golf Club, which is tied to the Ritz-Carlton resort hotel being built in Marana's Dove Mountain neighborhood.

The grand opening was held earlier this week for the development's first three neighborhoods, totaling 91 homes and 16 custom lots, just in time for the thousands of people in town for the WGC-Accenture Match Play Championship to view the models and their minimum $1.5 million price tags.

Karen Jernigan, vice president of sales and marketing, said The Residences is a housing concept that The Ritz-Carlton has at a handful of its more than 100 worldwide locations.

"They're in some of the nicest places on Earth," Jernigan said. "If you look at where they've decided to build The Residences, it's where the exclusive jet set would like to go."

Such a description is not one often associated with Marana, but some local Realtors feel that Dove Mountain has rapidly become more appealing to high-end buyers who want a home in the Tucson area.

"It's going to be someone who likes the resort lifestyle," Debbie Valdes, a real estate agent based out of Oro Valley, said of prospective buyers. "What's bringing them to Tucson is what is bringing everyone to Tucson -- the mountains, the sunshine and the golf."

David Mehl, whose Cottonwood Properties is developing the housing with partner Greenbrier Southwest Corp., said Ritz-Carlton has been the pioneer in the five-star-hotel world in terms of incorporating a full-time living aspect to its properties.

"It started with attaching penthouses to the top of downtown hotels, and then the first to use the residential golf- course concept was in Jupiter, Fla."

Unlike standard housing developments, The Residences will include many of the services and amenities available to people staying at The Ritz-Carlton.

Jernigan said homeowners will have access to the Ritz's spa facilities and catering services and be able to use a version of the hotel's concierge services to schedule maid service or to have something fixed in the home.

"It's really personal service. Whatever you need, they get for you," Jernigan said. "They will call the plumber for you."

All of The Residences' homeowners will also be members of the Ritz-Carlton Golf Club, which starting next year will be the site of the Match Play tournament currently under way just to the east at The Gallery Golf Club.

The Residences' residents will be required to be members of the club, Jernigan said, and they will make up most of the club's 495 members.

With such amenities and exclusive membership comes a high price.

The homes range from $1.5 million to $3.5 million, while land for custom homes ranges from $750,000 to $1.8 million. The cost to join the golf club: $100,000, plus monthly dues, which are not likely to be set until the club opens next year.

While Jernigan said it is possible that some of the homes could serve as the primary residences for buyers, it's more likely the homes will end up being the second, third or fourth homes of a clientele she expects to be made up of sports figures, screen actors and CEOs.

What the heck is Hotel Revenue Management, anyway?

Revenue management has become a somewhat controversial buzzword in our industry. As with many common terms, revenue management seems to have various definitions depending upon whom one asks. Since its inception in the early 80's, thousands of hotels and just about every airline have used revenue management successfully.

As is my practice, I looked for a simple definition of revenue management; how it came about, and how it is being utilized. In straightforward terms, revenue management is a technique to optimize income revenue from a fixed, but perishable inventory. The challenge is to sell the right rooms to the right customer at the right time for the right price.

The Brief History of Revenue Management

The airline industry launched revenue management practices after government deregulation in the early 1980s. Although yield management techniques became a common practice among airlines during that time, revenue management may reasonably be assigned an inception date of January 17, 1985 when American Airlines launched its Ultimate Super Saver fares in an effort to compete with the low cost carrier PeopleExpress.

Revenue management was born out the need to fill at least a minimum number of seats without selling every seat at discount prices; the idea was to sell enough seats to cover fixed operating expenses. Once fixed expenses were covered, and there were now fewer remaining seats to sell, they could then sell the remaining seats at higher rates to maximize revenue and profits.

Revenue management uses the basic principles of supply and demand economics, in a tactical way, to generate incremental revenues. There are three essential conditions for revenue management to be applicable:

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There is a fixed amount of resources available for sale.
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The resources to sell are very perishable.
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Customers are willing to pay a different price for using the same resources.

The hotel industry fits these criteria extremely well. Obviously, hotels have a fixed inventory of rooms to sell; these rooms are also extremely perishable. You may not have thought about it, but hotel rooms perish every day; any room that is unsold tonight is gone forever. There is also no question that different segments of business are willing to pay different rates under various circumstances.

Revenue management is of especially high relevance in cases where fixed costs are high as compared to variable costs. The less variable costs there are, the more added revenue will contribute to overall profit. This makes revenue management perfect for the hotel industry.

Effective market segmentation is the key to successful revenue management for hotels. Market segmentation begins with seasonal demand. For years, hoteliers recognized that almost all hotels experience periods of high and lower demand. This is even more obvious in hotels, located in resort and attraction areas.

Hotels quickly recognized that consumers would also pay more for rooms with a superior view, such as ocean or mountain views and other unique features of their location; larger or unusual rooms; and rooms with unique features.

Hotel revenue management hit its stride when hoteliers examined airline RM and realized that the factors of supply and demand, beyond natural seasonal demand, present opportunities to generate higher revenue. As room demand increases and room supply decreases, hotel rate opportunities also increase.

The airlines have taught us that supply & demand opportunities appear all year long because of conventions, group bookings, room production through web site marketing, special events and local attractions; all create revenue management opportunities.

How Revenue Management is Applied

Most hotels start with market segmentation to begin the revenue management process; what types of business can your hotel serve and based upon market conditions, room supply vs. room demand. What rates are marketable for each segment of business?

I have seen many different market segmentation breakdowns; it largely depends on the location, type of hotel, franchise or independent, number of rooms, public space, and other factors. A sample might include corporate transient, leisure transient, Internet bookings, conference groups, association groups, etc. Each market segment has its own level of rate tolerance.

Remember to concentrate on occupancy first and average rate, second. As advance reservations increase, rates should also increase. The strange part is that many hoteliers think the opposite. How many times have you seen hotel rates suddenly decrease a week or so before the arrival dates? This is the direct opposite of good revenue management.

Too many hoteliers set rates blindly for the future and then, panic when reservations are disappointing just a week or two in advance. Most hotels should take a picture of reservations at least six months in advance; many hotels should lookout a year or more into the future. Advance reservations represent occupancy demand for each night in the future. Use special rates, packages, and group discounts to build future demand; then adjust rates upwards to match that demand.

When reviewing future reservations remember to check past history for those dates, movable holiday dates, current and past booking pace. There is little room for guesswork when planning your sales strategy. Revenue management can benefit almost every hotel. Get to know the business flow of your hotel and adjust rates and promotions based upon knowledge and not guesswork.