Real Estate

Funding by suppliers reduces costs

July 7, 2015 | 1 min read

What are the effects of a supplier entering into a direct contractual relationship with a hotel operator? Jeroen Verhoef studied this for his thesis for the TIAS Master of Real Estate.

Image: © Nationale Beeldbank

The construction and the real estate sectors are showing increased integrated collaboration. You cannot imagine the construction process today without chain cooperation, lean, and BIM. This creates a different mindset and a different revenue model in parties involved in the construction and the operation of real estate. Specialist (sub) contractors and suppliers get involved in projects at an increasingly earlier stage.

Nevertheless, we see that main contractors still purchase suppliers on price. Why would it not be possible for these suppliers to have a direct relationship with the client and in this way to participate in the construction and operation process as a partner? This should have both qualitative and financial benefits for the client. 

Jeroen Verhoef investigated this assumption in the case of hotel real estate. Compared to other real estate categories, hotel real estate is capital intensive due to the high completion, finishing, and furnishing costs. Jeroen Verhoef studied the effects when a supplier enters into a direct contractual relationship with a hotel operator. The supplier thus becomes responsible for the implementation and future replacement of, for example, sanitary fittings, systems, and upholstery. He supplies the materials, installs them, and replaces them during the operation. The operator pays in accordance with a payment plan for which an interest payment is charged.

Jeroen simulated the effects of this form of contract for the development and operation of hotel real estate in a calculation model. This simulation shows that you can save between 7 and 9 percent on the development costs. The savings in operating costs are even higher. He used the figures from three hotels in order to demonstrate the effects. In addition to these hard figures, Jeroen concludes that this change of roles in the chain also creates other benefits, such as the fact that the owner has greater control over the quality of the services provided.

Read more

Alternatieve financiering van hotelvastgoed door toeleveranciers, Jeroen Verhoef (2015, in Dutch)

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