Examining the types of expenses incurred during the development process helps explain the cash outlays involved in development. (Of course, these costs will vary according to the type of lodging facility planned) In addition to the actual cost of acquiring land and constructing the facility, money must be set aside for debt service (interest on loans) due diligence, legal fees, brokerage commissions, permitting, pre-design and architectural fees, code requirements procurement of long-lead-time items, and pre opening expenses. Pre opening expenses occur during the construction of the property, when key personal are employed to plan the hotel's operation and an advertising and/or public relations firm is enlisted. The pre opening team needs to plan for the parties and events that make up the opening ceremonies, and hire and train personal for each of the hotel's department. Those employees will also need office supplies and equipment, such as fax machines, photocopies and computers. These costs plus the costs of furnishing and decorating the hotel, landscaping the grounds, and stocking up on supplies like irons, ironing boards, coffee makers, TVs, microwaves, ice buckets, stationery, luggage carts, cleaning supplies, lines, uniforms and glassware, may add up to 50 to 75 percent of the actual construction costs. In addition to the expenses just listed, the working capital needed to pay salaries and operate the property before it begins to turn a profit makes developing a hotel a considerable investment from its inception. Hotels need a constant supply of working capital beyond the development phase.
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