Palacio Paz Hotel | Business Model

Business Model and global advisory for a boutique hotel in Ciudad de Buenos Aires

The Challenge

2020, Buenos Aires (Argentina)

Hotel 4*, 56 rooms

Palacio Paz Hotel is located in an historical building owned by the Military Circle of Buenos Aires, on Av. Santa Fe 760. In 2018, several developers were invited to offer their transformation and exploitation for a term of 29 years.

The contracting developer group hired THE INNOVA ROOM to define a comprehensive business model for its commercial exploitation.  The work was carried out in several phases over two years and with these specific objectives:

  • Obtaining a building license and commercial clearance in a building protected by Heritage Council.
  • Calibrate the investment for a building that will return to the owners after 29 years.
  • Maximize revenues by the best combination of room quantity and average price.

How We Did It

THE INNOVA ROOM has its own methodology for the design of a successful business model achieving the following aspects:

  • Positioning of the Hotel.
  • Product type and service offer.
  • Return rate.
  • Maximum permissible investment.
  • Cost structure.

A) Destination analysis

The historical series (10 years minimum) of the hotel occupancy rate on destination. The evolution of inventory, occupancy rate and average prices of 5*, 4* and 3* hotels, as well as the Boutique category, was measured.

From this first analysis it was concluded that Boutique category had increased its inventory, its occupancy rate and its average prices (5 points above the other categories). Therefore, the market had absorbed all the inventory that entered the destination, and the Boutique category was still under supplied.

B) Definition of the area of influence and identification of the competitive set

A perimeter was drawn. Within this perimeter all hotels were identified regardless of their size, category and type of operation. After that, considering their average prices, reputation (TripAdvisor) and product type, the competitive was defined.

C) Design of the value proposition

The existing building had 67 rooms. Schulz + Schulz Architects made a first room layout to maximize its capacity up to a total of 82 rooms. After analyzing the market, THE INNOVA ROOM proposed a scenario with a total of 56 keys, increasing the quality of them.

At this same stage, it was decided to externalize food and beverage services with a recognized brand in the local market. And it was also decided to dedicate 9th floor area, with spectacular views of St. Martin’s Square, to be used as a Master Suite with the possibility of holding VIP private events.

D) Parametric modelling of options

Within our parametric analysis model there was incorporated the following information:

  • Average prices and occupations for the destination and the competitive set.
  • Associated investment ranges for 82, 67 and 56 rooms respectively.
  • Cost structure for each scenario and outsourcing options.

With that information, developers were advised the most appropriate scenario to exploit that business.

E) Definition of the operational structure

Developers received from THE INNOVA ROOM an array of actors and roles, and they were recommended the incorporation of an industry-experienced external operator to complement them in marketing.

F) Definition of financial structure

The developers requested the incorporation of an investor to take up to 70% of the capital needed for the comprehensive renovation of the building and its implementation. The client was accompanied in the road show in front of 12 local economic groups with potential interest in the project development. One such group was incorporated as a majority shareholder in the structure of the original developers.

G) Specific modelling of the selected option

As a last stage, 100% of the specific information was incorporated into the business model, creating a dynamic tool that allowed the monitoring of investment during the work, as well as the evolution of the business during the next operational stage.

Results

The building was completely renovated following the product criteria and investment parameters defined by THE INNOVA ROOM and  Palacio Paz Hotel is scheduled to open in April 2020. Moby Dick Pub & Grill  will provide the food and beverages services.

Project teams:
Architecture. Studio Schulz + Schulz

Images source: Palacio Paz Hotel

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