Tuesday, April 28, 2015

Hotel Development in Oman

With its beaches, mountains, wadis and deserts, Oman is a popular tourism location. Given Oman’s charm and huge tourism potential, Oman is experiencing an uptick in the number of hotel developments.

Oman is perceived mainly as a high-end, luxury tourist destination. As a result, most hotel developments tend to be in the four star or five star categories.

Most hotel owners tend to be entrepreneurs, pension funds and government owned companies. Hotel developments tend to be structured with an LLC project company. The use of closed joint stock companies (“SAOC”) as the project company is also common in hotel developments. An SAOC project company may help a hotel development attract bank finance. An SAOC structure will also allow foreign investors to participate in a hotel development.

Most hotel owners will seek to contract with an international hotel operator for their hotel development. This has some obvious advantages including, a prestigious brand, access to industry best practice, a central reservation system and the operator’s clientele. The negotiation and signing of the hotel operation agreements is an important milestone in any hotel development.

International hotel operators tend to have their own standard hotel operation agreements. The key issues arising under the hotel operation agreements, include:

  1. Territorial restriction;
  2. Handover and longstop dates;
  3. Term;
  4. Hotel budgetary approval process;
  5. Permitted expenses;
  6. Reporting obligations;
  7. Indemnities;
  8. Insurance.

Hotel development requires a number of consultants. These include architects, interior designers, specialist consultants, project manager, quantity surveyor and lawyers. It is important for the success of a development that scopes of services are well defined to avoid gaps.

Another important milestone in a hotel project is the award of the construction contract. It is market practice that the construction contract will be tendered. Prior to construction contract finalization, it is a wise investment to have the consultants to review the design, scope and specifications. If possible, the value engineering exercise and the input of the hotel operator should take place prior to the signature of the final construction contract. The preparation of a clear and detailed construction contract should help to avoid additional costs and expense in the development phase.

Given that hotel development is capital intensive, most hotel development projects require bank finance. It is important to engage with the bank from an early stage in the development. This will enable the hotel project to proceed smoothly.

In conclusion, team work is an important ingredient to a successful hotel development. When legal, technical and other consultants work closely together as one team this can add value to the hotel development and reduce the time it takes for a hotel development to be realised.