WHY HOTEL ASSET MANAGEMENT?

Hotel owners might reasonably ask why they need an asset manager for oversight if they have a management company running their hotel. There are seven primary reasons.

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1. Alignment: Because of inherent and irreconcilable differences in goals and objectives, rarely is a hotel manager sufficiently aligned with an owner.  This lack of alignment is especially acute with branded operators where growth and protection of the brand trumps the individual needs of a given asset.

2. Perspective: Hotel operators are, for the most part, focused on the “hotel business.” A good asset manager is focused on the “business of hotels.” The perspective of balancing operating modalities with owner’s financial objectives will rarely occur without the active involvement of a knowledgeable owner or asset manager.

3. The Law Lie of Averages: or, how a man can drown in a lake with an average depth of one foot.  Financial statements out of experiential context can be very misleading and provide a false sense of comfort.  Let’s say an owner receives a financial statement showing, say, a 23 percent cost-of-goods-sold for food.  Is that good, just OK, or really bad.  What would one do to measure that performance?  Look at the performance of other comparable hotels?  Obtain an STR Host Reportor a Benchmarker Reportshowing average performance at a given set of comparables who happen to report to STR or PKF?  Because there are dozens of variables that impact the numbers, these are, at best, marginally relevant benchmarks and, at worst, totally misleading.  Even many of the brands and experienced operating companies do not properly understand (or properly execute on) best-practices evaluation tools in key operating areas.  In the food cost example above, there are a multitude of things that can be done to better understand results and many dozens of things that can be done to actually improve performance.  This happens also to be the case in payroll & benefits, which is the largest operating expense of any hotel.

4. Leveling the Playing Field: When there is an imbalance in the knowledge and experience of two parties, the party with less knowledge and experience is at a distinct disadvantage. In hotels, this manifests in suboptimal budgeting, misreading performance metrics, accepting poor excuses for failed performance, and many other ways. As bad as it is to have an operator with unbalanced power/influence in the relationship, it can be as bad for an unknowledgeable owner or under-qualified asset manager to force their will onto the hotel’s operation, as it may actually compound the problem.  An experienced asset manager like Hospitality Management Services levels the playing field; not only do we have comparable knowledge at the asset level, we have the benefit of a broader perspective.  That is, we see what other brands and operators are doing in both our asset management and our advisory business – and we can bring a “best practices” approach to bear in operator interactions.

5. Informed Second Opinion on Key Matters: By their nature, hotel operating agreements are living documents. Besides the major annual approvals of the business plan, there are multiple events throughout the year that require owners’ input and approval, including the all-important hiring of Executive Committee members. On what basis will the owner make such decisions if not through the involvement of a knowledgeable advocate? For instance, HMS can assess key personnel proffered by operators based on our actual hands on experience – and through our deep industry relationships, we can get honest references. Moreover, because we are in a position of influence in terms of the future growth of brands and operators, we find that our asset managed hotels are more likely to get “first string” players to begin with.

6. Challenge: Most individuals and organizations perform better when they have active oversight and are encouraged/pressured to improve.  Naturally, that challenge can come from anyone, regardless of expertise.  But as mentioned above, pressure for pressure’s sake is often detrimental. Where an owner has enforcement rights, an uninformed directive can have unintended consequences. Where an owner’s rights are limited (as is the case in most brand management contracts), a heavy-handed approach by owners can create intransigence or even vitriol in the owner/operator relationship.  We have found that operators almost always respond favorably to suggestions/demands from those who have been in their shoes, especially when they are factually substantiated, thoughtful, and intended to improve performance – not just criticize it.

7. Individualization Versus One-Size-Fits All: Brands and management companies (particularly the larger ones) value efficiency over creativity. While this may be easier and more profitable for the brand/manager, it is not necessarily the best thing for an individual hotel.  Even the best global systems and standards will not optimize the performance uniformly for all hotels. Every hotel is unique in some respects (especially from a market/marketing perspective) and a knowledgeable asset manager is the best way to insure that the brand/manager thinks and acts creatively versus simply taking pages from the operators play book.