Investing in a Resort in the Philippines: Co-Investment and Lease-Operate Strategies
Beyond property ownership: structuring hospitality investments around market demand, operational expertise, and financial performance.
The Philippines offers opportunities for investors interested in hospitality, particularly in destinations benefiting from domestic and international tourism.
For many investors, the traditional approach is to acquire land, construct villas, and operate a small resort. However, property ownership is only one component of a successful hospitality investment.
A resort is first and foremost an operating business. Its financial performance depends on customer demand, commercial positioning, management capabilities, and cost control.
Alternative investment structures, including co-investment and lease-operate arrangements, can provide different ways to enter the hospitality market while managing capital requirements and operational exposure.
- Direct ownership: combining real estate and hospitality operations
Under the traditional model, an investor develops or acquires a resort and assumes responsibility for its operations, either directly or through a professional management company.
This approach offers control over the property and business strategy but generally requires significant capital.
Investment considerations extend beyond land acquisition and construction costs. They include infrastructure, equipment, licensing, recruitment, marketing, working capital, and contingency reserves.
Financial projections should consider average daily rate (ADR), occupancy, revenue per available room (RevPAR), operating expenses, maintenance, taxation, and cash flow.
Seasonality and unexpected disruptions must also be considered.
An investment budget sufficient to complete construction is not necessarily sufficient to sustain operations.
- Co-investment: the importance of an experienced project leader
Co-investment allows several investors to participate in a hospitality development project, sharing capital requirements and certain investment risks.
However, successful co-investment requires more than financial contributions.
A credible project must be driven by an experienced project leader with strong knowledge of the destination, tourism market, and development process.
This individual should be capable of identifying commercial opportunities, defining the resort concept, preparing financial projections, structuring the investment, and attracting co-investors.
The project leader must also oversee development through to operational readiness, coordinating property selection, permits, construction, infrastructure, recruitment, and commercial preparation.
Specialist advisers and professional operators may perform individual functions, but overall project leadership and accountability must remain clearly established.
For investors, the quality of the project leader is therefore a central due diligence consideration.
Structuring the investment
A co-investment arrangement should clearly address:
Capital contributions and ownership interests.
Project leadership and management responsibilities.
Governance and decision-making authority.
Development budgets and cost overruns.
Financial reporting and performance monitoring.
Profit distribution and reinvestment policies.
Exit arrangements and dispute resolution.
The legal structure must also comply with Philippine requirements, including applicable restrictions on foreign ownership and landholding.
A well-designed investment structure should align the interests of the project leader, co-investors, and operating management.
- Lease-operate: developing a hospitality business without acquiring the property
An alternative is to lease an existing resort and operate the hospitality business under an agreed contractual arrangement.
Rather than purchasing land and buildings, the operator pays rent to the property owner and manages the resort’s commercial and operational activities.
This model may significantly reduce initial real estate capital requirements.
However, the operator still needs sufficient funding for deposits, potential renovations, equipment, staffing, marketing, and working capital.
The principal advantage is the opportunity to evaluate an existing business using historical operating data.
Before entering into an agreement, investors can request:
Daily sales and reservation records.
Historical occupancy rates and ADR.
Revenue by booking channel.
Profit and loss statements.
Payroll and operating expense details.
Maintenance records and capital expenditure requirements.
Guest reviews and commercial performance indicators.
These records should be independently assessed and reconciled with available supporting evidence.
Historical performance does not guarantee future results, but it provides a stronger foundation for financial modelling than relying exclusively on assumptions for a new development.
- Creating value through improved commercial performance
Consider an illustrative resort with six villas and an average daily rate of PHP 8,000.
Occupancy Annual accommodation revenue
35% PHP 6.13 million
50% PHP 8.76 million
65% PHP 11.39 million
Increasing occupancy from 35% to 50% generates approximately PHP 2.63 million in additional annual accommodation revenue, without adding new villas.
These figures represent gross accommodation revenue, not operating profit. Additional costs, distribution commissions, taxation, and actual market demand must be considered.
Nevertheless, the example demonstrates how commercial improvements may create value within existing infrastructure.
Potential initiatives include strengthening travel agency partnerships, improving online distribution, developing direct bookings, refining pricing strategies, and enhancing guest experience.
Hospitality investment returns can be driven by operational improvements rather than additional real estate development.
- Lease structuring and contractual protection
The commercial viability of a lease-operate arrangement depends heavily on its contractual terms.
The lease duration must allow sufficient time to develop the business and recover investments.
Particular attention should be given to rent adjustment mechanisms, maintenance responsibilities, capital improvements, insurance, termination provisions, renewal rights, and end-of-lease handover requirements.
Operators should also consider how to protect the value they create through improved commercial performance.
Where appropriate, the agreement may provide a pathway toward a future acquisition, subject to applicable law.
The legal arrangement must be structured specifically for the Philippines. A lease-operate model should not automatically be treated as equivalent to the French legal concept of location-gérance.
Foreign investment restrictions, business permits, land ownership, and operational licensing requirements must be reviewed before commitments are made.
- An opportunity for existing resort owners
Lease-operate arrangements can also provide a succession strategy for established resort owners.
An owner wishing to reduce involvement in daily operations may lease the business premises to an experienced entrepreneur while retaining ownership of the real estate.
This creates potential rental income and allows the owner to assess the operator’s ability to maintain and develop the business.
Over time, the relationship may evolve into a negotiated sale of the operating business or other assets.
Any acquisition mechanism should distinguish clearly between the operating business, equipment, buildings, and land.
- Choosing the appropriate investment strategy
Direct ownership, co-investment, and lease-operate structures involve different combinations of capital exposure, management responsibility, and commercial risk.
The appropriate model depends on the investor’s financial capacity, operating experience, investment horizon, and objectives.
Before committing capital, investors should undertake a structured assessment of the tourism market, customer demand, location, competitive environment, business concept, investment costs, projected revenue, operating expenses, and cash flow.
A commercially attractive concept is not automatically a financially viable investment.
The investment structure must support the business model, rather than the business model being developed to justify an investment already made.
How OPKO Finance can assist
OPKO Finance supports entrepreneurs and investors in evaluating and structuring business opportunities in the Philippines.
For hospitality projects, our advisory approach focuses on financial feasibility, investment structuring, financial modelling, business planning, and the assessment of commercial and operational risks.
Working alongside appropriate local legal and industry specialists where required, we help investors identify the financial and structural considerations that should be addressed before committing capital.
Whether considering a new resort development, a co-investment opportunity, or the lease and operation of an existing establishment, the objective remains the same:
Build an investment decision on credible market assumptions, transparent financial information, and a properly structured business model.
Contact OPKO Finance: info@opkofinance.com
This article provides general business and investment information. Legal, tax, licensing, and foreign ownership requirements should be assessed according to the specific project and applicable Philippine regulations.
