To contribute value, asset managers must provide focused and
results-oriented asset oversight that translates into quantifiable
value to a hotel owner. In order to accomplish this, asset managers
must approach an engagement in three basic steps. First, an initial
evaluation of the present situation regarding a hotel’s operations and
performance should be conducted to gain knowledge of the operation and
its strengths and weaknesses. While some assets do require a wide-lens
approach, with the asset managers becoming heavily involved in all
operational areas, simultaneously, many assets have hot spots that can
be quickly converted into areas of opportunity. These areas of quick
results are identified during the evaluation period. A list of the
actions typically taken during the initial assessment is contained
later in this article. Second, armed with the knowledge gained during
the initial assessment, the asset manager should develop a recommended
strategic plan of action and scope of work that prioritize areas of
focus and include a recommended length of engagement. Third, after the
initiative has begun the asset manager should closely monitor progress
and report ongoing activities and success to hotel ownership through
written reports, verbal communications, and regularly scheduled
meetings.
Determination of Scope
The recommended scope and length of an asset management
engagement should be determined after the completion of the initial
operational evaluation, not before. Strengths and weaknesses within the
operation are identified during the initial assessment and the asset
manager should provide a hotel owner with a focused, cost-effective
plan and approach to improve results based on current conditions. No
different than a doctor performing a physical on a patient, this
exercise provides a thorough understanding of how the asset is
currently being managed––and how it is performing compared to its
competitive set, and to other assets of similar size and quality level.
Customization of Priorities and Actions
As noted, the information obtained during the initial
assessment is utilized to prioritize and focus ongoing asset management
efforts in specific operational areas to provide maximum impact to the
asset’s performance. What is found will also bear heavily on the scope
of work and length of engagement the asset manager may recommend to the
hotel’s owner. The more traditional, long-term asset management
agreements of the past are now, more frequently, being replaced by
shorter, results-driven contracts that provide the hotel owner with
specific, targeted initiatives to improve cash flow and value. As an
example, during the initial step of a recent engagement, our firm
determined that a hotel was excessively sacrificing rate to drive
occupancy. Using HVS’s proprietary fixed-variable model we determined
that the property’s profitability would be more greatly enhanced by
selectively reconfiguring the rate structure—raising rates and slightly
depressing occupancy, replacing current management’s philosophy of
decreasing rates to increase occupancy. As this example illustrates,
the scrutiny of yield management and other management practices can
quickly identify fundamental missteps that can be quickly changed to
improve results during the initial operational assessment period.
During the initial operational evaluation the following actions are
generally taken to assess the current situation.
- Evaluate and analyze annual and year-to-date financial
statements, Smith Travel STR Reports, the sales and marketing plan, the
budget, capital improvement schedules, franchise inspections (if
applicable), repeat-guest data and guest satisfaction information,
employee turnover and satisfaction data, and the property’s
organizational chart.
- Conduct an on-site inspection of the hotel, during which
the public areas, retail space, back-of-the-house space, a sampling of
all guestroom types, spa facilities, food and beverage and meeting
facilities, and other facilities and amenities that are contained
within and around the hotel are evaluated.
- Interview key management staff members to assess and
determine their range of responsibilities, experience levels, and the
procedures they employ to carry out their various functions at the
hotel.
- Review guest comments, guest satisfaction information, and
repeat-guest information.
- Assess employee turnover and satisfaction data.
- Analyze the financial performance of the operating
departments within the hotel to assess the expenses and profitability
level of each department and compare this information to the financial
results of similar operations of the same size and quality level.
- Assess the sales and marketing and public relations efforts
being put forth on behalf of the hotel.
- Evaluate pricing strategies and yield-management practices
to determine if the hotel is properly positioned and is maximizing its
top-line revenues.
- Inspect all hotels in the asset’s competitive set to
compare quality and amenity differences.
- Compare the overall financial performance to the financial
performance of hotels of similar size, configuration, and quality.
Continually Provide Value
Asset managers must demonstrate that they are not
another layer of expense, but that they contribute quantifiable value
to a hotel owner. Through the three steps described, asset managers can
demonstrate to a hotel owner that their activities contribute
quantifiable value to a hotel. In addition to traditional management
oversight, asset management firms provide strategic planning advice,
acquisition and disposition services, tax planning, and alternative-use
evaluations. No two assets are alike and the specific wants and needs
of hotel owners vary greatly. Through a well-thought-out approach
involving ownership, the asset manager, and the on-site management
team, a hotel’s optimum performance can be achieved.