Usually hotel companies like ours assume the management of hotels which have been run into the ground by the previous owners prior to foreclosure by the lender. With a typical lender's short outlook on their ownership of a property, immediate results are appreciated but usually not easily achievable. 

Recently we were fortunate to encounter an exception. The hotel in question is a full service 150-room hotel with a moderate average daily rate with a well known franchise in the capitol of a western state. The hotel's location is about ten blocks from the capitol complex in the opposite direction from the central business district in an area generally known to be on a comeback from its drug and crime problems. The hotel has been in the lender's REO portfolio for about two years and was managed by a moderate sized hotel company which had originally intended to buy it because of its proximity to major hospital complexes. 

The original management fee was eight percent of gross revenues but was reduced to five percent in January 1991. The hotel had received a default notice from the franchisor due to failed inspections, primarily in the cleanliness and maintenance areas. We had been in discussions with the lender since early in the year due to the lender's feeling that the approximately $200,000 dollars they had put into the hotel to cover operating losses was excessive and that the operating results were unacceptable. Our assuming management was delayed until August 1st because the lender didn't want to make a change of management when they anticipated selling the hotel in the very near future. The hotel was actually under contract numerous times and the lender's reluctance to change management was reasonable under the circumstances but their frustration increased as losses continued. A closing finally occurred on December 15th, 1991 and as a result we only managed the hotel for 135 days.

We knew about the anticipated sale when we walked on to the property but took the attitude that it might fall through and we would be there for an indefinite period of time. Upon assuming management, we immediately addressed three issues: passing the franchise inspection which was due in six days, cutting expenses and increasing revenues. We addressed these priorities in that order.

Passing the franchise inspection was relatively easy to plan but took a lot of work hours. The previous failures were primarily for guest room cleanliness, failure to paint guest room doors and maid carts, as well as some maintenance and operational issues. All of these items were prioritized based on their point value and corrected. Additional effort went into enhancing things that impact a guest's perception of the property when they enter as these also impact an inspector. Among the enhancements made was planting $350 worth of evergreen bushes in the unkept planters at the entrance of the hotel. For the inspection, twenty-five rooms were selected for their high maintenance level and deep-cleaned as well as possible. Painting was completed (we missed two maid's carts which the inspector found). The change in management companies sufficed on the operational issues. The inspection was passed based on the hard work of a few department heads and the line staff.

Cost reductions were the next point we addressed with the same degree of urgency. The first area of reduction was benefits. As a company that primarily manages for lenders on short term contracts it is impractical for us to offer health insurance, retirement benefits and complex vacation and sick pay accrual programs. As a result, when the employees were terminated by the former management company they lost all these benefits while the lender quit incurring their costs. This was a sizeable amount but no employees were lost in the process.

The preparation for the inspection gave us a tremendous opportunity to see who the competent team players were among the department heads. Based on this information the General Manager, Front Office Manager and Maintenance Supervisor were terminated. The first two positions were replaced with internal promotions of very fine staff members and at less expense. A new Engineer was recruited externally who was technically more able at a slightly higher salary. The Food and Beverage Manager was promoted to General Manager and was not replaced due to the low food volume. 

Extraordinary expenses were addressed next. Housekeeping was in the habit of maintaining a low staff and using contract labor during peak periods at the rate of over $10 per hour. Not only do these inexperienced contract laborers cost more to do unsatisfactory work (remember the franchise inspections), but they are not sensitive to the guests privacy and property. By working with the Executive Housekeeper and promoting one of the utility men to Assistant Housekeeper, productivity and staffing in this department improved and contract labor was eliminated. 

Other major expenses were eliminated. These included a computerized front office system which was on lease for $500 plus over $400 for maintenance monthly. A used electronic register was obtained for $2,500 and installed within six weeks. The previous company retained a management consultant at the rate of about $500 a month and this was discontinued. Local telephone lines previously on a metered rate were converted to flat rates for a savings of up to $800 per month. Long distance that was previously on AT&T's standard rates were converted to AT&T's SDN rates resulting in a net savings of about 25%. The armored courier service for deposits was discontinued at a savings of over $200. Front office overtime was reduced. All purchases are now reviewed by the new General Manager. Energy expense is now a priority with HVAC units and lights being monitored to insure that they are off when not in use.

As a final expense reduction the lounge was closed rather than investing the time and resources into trying to turn it around. Its location inside the hotel, without street access and signage, handicapped it. We decided the resources necessary to correct the lounge would be better utilized by adding them to the resources necessary to increase the potentially more profitable room revenues. Currently, the hotel's coffee shop is open for three meals a day seven days per week. A majority of the breakfasts served were free limited hot ones included in the room rate. We were analyzing the impact of not serving breakfast on weekdays and simply offering a complimentary continental break fast in the lobby. As an interim step we discontinued the free breakfast for most market segments.

Increasing revenues during the last quarter of the year is an important priority as the hotel's season usually ends in mid- September. We wanted to avoid asking the owner for funds if at all possible. While revenues have increased compared to previous periods this year the trend of the increase is not sufficient to carry the hotel through the winter. The Director of Sales had previously only done limited outside personal sales calls and had relied heavily on direct mail to tour operators.

A new street fighting mini-marketing plan was developed. The first thing we did was modify the name of the hotel by deleting part of the neighborhood reference and adding the word "Downtown". We felt this would distance us from some of the area's negative image without losing our identity while also moving us closer to the central business district. Outside sales calls of area office buildings, government agencies, hospitals and association offices were made a priority. Travel agency commission requests for the past six months found in the former Front Office Manager's office were paid. These agents along with those ordering brochures from the hotel's fulfillment service were added to our company's data base. These agencies known to have an interest in the destination and hotel will be solicited by direct mail.

A direct mail campaign offering an outstanding value was mailed to all high schools in the state and paid for itself within two weeks. Two advertisements were developed and placed in the newspapers of six area military bases offering packages with exceptional values. These are being paid for partly by trade-outs and were coded so we could analyze the results. The ads alternated for six weeks. One feature of the military packages is ten minutes of free long distance which costs us less than two dollars with our new AT&T rates.

The hotel's room rates were modified from a flat rate to a range of rates based on location, amenities and room condition. To appeal to commercial guests, local calls were free. We placed the hotel's middle room rate and the mention of free local calls on the hotel's reader board. This resulted in 15 to 30 additional walk-ins per night. The staff at the front desk offered upgrades to guests arriving with reservations. Nearly 25% of the time they are successful in getting at least another $2.00 from those guests for a nicer room. To attract more attention to the hotel, as sign visibility is poor, we placed small white outdoor lights on all the trees along the main avenue in front of the hotel.

While the full results of our efforts will never be known to us because the hotel has been sold, we did manage to generate nearly $60,000 profit during our brief tenure. In the hotel's three year prior history, it had only had two or three profitable months and, in fact, lost several hundreds of thousands of dollars in one year. Remember the title of this story, "Sometimes You Get Lucky"!