Hotel Vertu Analyzing the opportunity in the Boutique Hotel Industry Harvard Case Solution & Analysis

Hotel Vertu Analyzing the opportunity in the Boutique Hotel Industry Case Study Solution

Source of Financing

The two friends have very interesting opportunity to invest in the boutique hotel industry, but the source of financing remains the main concern for both the friends. On the other hand, Mr. D’Arcy Elisabeth’s father has also offered to make arrangements for the capital, if they want to go with the deal.

He is also willing to get funding for the investment dollar to dollar. This indicates that if the two friends have the need of over $13 million, then Mr. D’Arcy would provide $6.5 million from the outside investors.

However, they found a site an old hotel at Savannah, Georgia, with a market cost of the $20 million. On the other hand, they would also need funds for the construction, and renovation of hotel, which is estimated at the cost of the construction/renovation $7.77 million. iSmilarly, other cost would also include $10.087 million. In total, they need amount of $37.86 million to start with the project.

The Scenario or Dilemma

Now, it is the most important question to ask that how should they get their business financed either through bank financing or equity. However, they have concern that if the whole project is financed through Mr. D’Arcy, then they he would have undue influence on the project.

On the other hand, it was also a concern for them to get their business through some portion of equity, but the concern also remains a side that investors have always some degree of power.

However, it is also important to maintain a proper level of the financing that does not interfere with the operations of the management, thus both friends should go with balanced situation. Nonetheless, they should go towards more bank financing, and include less portion of the equity, which would reduce the concerns of both friends.

Qualitative & Quantitative analysis

The investment is attractive, whereas the total cash flows for the year 2015 would be $330000 with an annual growth rate of 5.9% from 2015-2020. However, the Boutique industry is at its infant years, thus there would be most opportunities to play in.

However, the main concern for both friends would be to work properly on the construction of the hotel, and renovate the hotel at best look that does attract the adults in the industry. On the other hand, the industrial average occupancy rate would be 73.9%, and with the average daily rate of $140.73. See the exhibit 1

Apart from that, the small industry is growing well, and generates higher profit margins, because these hotels are typically priced at premium, however in order to successfully avoid price competition, it is important to differentiating in the market through the design and services.

Strategic Options

The scenario of both the friends is very complicated, since they have concerns that they should get their business financed through bank finance or equity. On the other hand, they also have concern that if they finance through Mr. D’Arcy, then he would have undue influence over the project. Similarly, the project needs to be financed through the balanced portion of the equity, and debt. However, the bank financing would be preferable option for the project to be accepted. This is because the bank would not interfere with the operations, and that they would not ask for the detailed auditing as well............

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Hotel Vertu Analyzing the opportunity in the Boutique Hotel Industry

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