Hotel Asset Management: From the lens of a Hotel Management graduate
The need to maximize your profit not only through your rooms and food & beverage outlets but also through different opportunities within your own property has become important. The reason being that we all are in such a competitive world that thinking out of the box has become essential as everyone has something different to offer, in hotels we have to keep evolving and offering new services or products or offers which help in the long- term running of the hotel, this is where we need to have an asset manager who can be dedicated to always thinking about a unique opportunity which benefits the hotel.
An asset manager also helps the owner choose correct projects which are feasible for the company in this fast pace environment, they also help the owners/investors to obtain any asset on behalf of them by looking at not only the feasibility aspect but also the market aspect which is to acquire it at the right price and with the right outcomes at the end resulting into proper asset management.
Despite of having staff working in their particular roles at a hotel, why do we need an asset manager? It is because all the people in the hotel are dedicated to their particular roles and might not be able to think of a new opportunity to earn revenue as it may lead to diverting them from their daily tasks and responsibility, a dedicated person who solely has to think of maximizing revenues and putting everything into place, in this process, also helping the owner/investor not only in acquiring new projects but also their existing projects profitable.
The reason why it is so essential to maintain your assets is because there is always a cost associated to anything we purchase, so even if we adhere a gross loss or gross profits, we are still bound to pay for the assets we own. Any asset other than land always depreciates itself as times goes so the value of it diminishes or we can say that it reduces with time. Thus, the acquiring of asset has to be done in a very systemic way by analyzing its feasibility which can really affect the operating profit of any company. Explaining with a case study of Frenchman’s reef & morning star Marriott beach resort which was a 470-room property when they observed that the property was doing well in the first 4 months of the opening but in annual basis, they saw a fall. It was the asset manager who then suggested to shrunk the hotel to almost one third of its size, also closed the laundry operations and reduced the operating hours of the F&B outlets which resulted in increased revenue through rate compression while minimizing operating costs significantly between August and October, with little to no impact to overall guest satisfaction and/or compromising brand standards. They also were able to lease the excess space in the property which helped them generate extra revenue. This is a perfect example of how the asset managers help us in maintaining our assets to avoid losses.
The asset management as a concept in the hotel industry also links the owner/ investor with the operator or the hotel management company and the team underground which is done by the asset manager, he keeps a thorough check on operator’s workings and makes sure to give an update to the owner/investor. This helps the owner/investor to be able to connect himself to the property and its functioning more and in every minute details.
The above portrays how an asset manager connects these three parties in an elaborated way and also it states all the key responsibilities they fulfil towards each party. It also shows how he/she not only benefits the owner/investor but also the ground staff which helps the organization as a whole be it professional goals or personal goals, which can be called as property management.
Asset manager not only manages the property but also keeps a check on the performance management which is done weekly, monthly and yearly, the reason to monitor the points stated below is to be able to keep a check on all aspects of the hotel and also which makes it easy for the asset manager to take a new investing decision keeping in mind, the performance.
Weekly which has all the forecast review based on the pickup and pace of the business. It is to make sure targets are realistic and achievable
Monthly is to review the operations, property tax and insurance in place, review meetings, CAPEX review (Capital expenditure), ROI checks, market benchmarking and also all the non- P&L items like PR, security, guest satisfaction and staff satisfaction and marketing.
Annually we look at budget review, challenge and agreement on final targets, revenue management and sales and marketing plans, audits, capital plans and investments costs and returns
Let us understand with a case study of the Hilton Vancouver Washington, a 227 keys property. Asset management team worked with the owner and the Hilton during pre-opening and also to provide an interface between both the parties which helped them implement additional cost containment measures including energy controls, lights-out programs, changing hours and days of operations in outlets, menu engineering and price modifications, outsourcing, and renegotiating virtually every vendor contract. This was possible because the asset manager made sure to have good coordination between all the three parties involved and also was able to review each and every department of the hotel for better functioning. The same was observed in Hyatt regency Denver which was an 1100-room property who had an asset manager for the same and he was able to increase ADR by $9, he also reinforced the concept of yield management which is an important aspect of asset management through revising the incentive plan to include goals for rooms, as well as and food and beverage contribution.
Now in these above case studies, we cannot conclude by saying this was the only solution to the problem the property was facing because every asset manager would have a different solution to every problem and might be all of them would have worked well, the main motive is for it to work in the benefit of the hotel, owner and the operator. An asset manager should always keep in mind that 80% of the good performance management is only dependent on good communication and mutual understanding, Therefore, he/she should always make sure to coordinate well between all the three parties and also individually having a good rapo with them so as to be able to get the best output for the welfare of the organization leading to good service levels and good quality of the hotel/service in the market.
Summarizing the role of an asset manager here is to determine which investment will be in the best interest of all the three parties. Asset Management is majorly done to be able to maintain a good NOI, improving ROIs, value increase, benchmarking against other brands, managing the working capital, increase the cash flow of the business, and maintain management contracts.
We all are well aware that an asset does not start giving returns on the first day itself, it requires a lot of hard work and patience, we need to understand these very important 5 steps of the asset cycle as it is necessary for every asset manager to explain the owner/ investor the importance of this cycle and how an asset acts in each of these steps.
In these 5 steps above, the first step is when the Introduction of the asset is done to the owner/investor in order to educate them with the following points below. This is to thoroughly understand the asset as well as an idea of proceeding furthermore.
● Forecast of future market trends
● Cost-profit ratio
● Product quality
● Pre-opening activities (Training, Market analysis, Social media)
● Market feedback
The Growth stage in estimated as the first 3 years of any property where you won’t really see any type of profits. Maturity is usually tagged after 3 years operations of a hotel which is the next step after growth where we see breakeven point (total cost=total revenue), profits for the hotels which can only be achieved with great turnovers and business by teamwork of all the three parties mentioned above i.e. investor/owner, operator and the hotel staff. The renovation step is usually performed keeping in mind the financial status of the hotel, the wear and tear of the asset and also the need of it, this step differs for each asset for example some asset managers feel the need of it as they see a lot of new hotel brands opening up with better facilities or is there actually a need to upgrade our rooms, etc. so it is necessary to evaluate all the factors before doing a renovation on the asset. The EXIT step which is shown like a separate step after maturity is when the owner/investor decides to sell of his/her asset at some market value, the asset manager comes into picture here where they help the owner to evaluate the exact amount of the asset and sell them in a right price to the next party to not hinder the activities of the hotel.
The exit strategy could be done in a better way being considerate of the following:
● Risks and opportunities
● Do an independent and realistic market study or feasibility
● Study the transaction trends
● Get yourself a knowledgeable broker
● Have all the documents that represent the hotel
● Most importantly do not become desperate, by consider alternative opportunities.
● Get good professional advices in legal, finance, restate
● Make sure to not spoilt the operations of the hotels in the process
The asset manager here is very important in each step to guide every party be it the owner, operator or the hotel staff, as any mistake in any of these steps would lead to direct influence on the ROI, guest satisfaction. It is equally necessary to maximize the cash flows with addition of smart investment and FF&E expenditure cash flow can be increased by decreasing cost, better marketing conditions, reduce risk and smarter CAPEX, all this to be kept in mind in motive to increase ROI and NOI without compromising customer experience and quality of service which is why an asset manager is important as he now only helps the owner but all the 3 parties so to be able bring out the best from each step of the asset cycle looking at a 360 degree angle.
Written and Illustrated by Varuna Thapar