KEY POINTS
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Optimizing Performance
Managing commercial real estate assets in a single or multi-unit portfolio, particularly in hospitality, is a specialized discipline. It can be daunting, time-consuming, and fraught with high risk if Asset Management is not tightly incorporated into an overall investment portfolio strategy.
In summary, professional Asset Managers work closely with Investment Portfolio Managers or with Owners directly, on the one hand, and with the hotel Operators on the other hand, becoming a conduit and a constructive resource to both. Ultimately the job requires developing and executing STRATEGIES that meet the Portfolio Manager and the Investor or Owner's goals, as well as supporting and monitoring the Operator as they implement TACTICAL action plans.
Knowledge and Practical Experience
A hospitality Asset Manager must be an expert in hotel operations at all levels and areas, as well as in commercial real estate investments, and ideally, licensed in real estate. They should understand commercial financing, how to structure a capital stack, and be particularly strong in all operational metrics, as continuous monitoring of asset performance, results, and forecasts requires a thorough understanding of each line item of financial statements and balance sheets.
Additionally, a competent Asset Manager is adept at leveraging all available systems, tools, and resources to monitor market trends and market share to make actionable recommendations for improvement to Ownership and the Operator, thus optimizing the value of the asset and return on investment. Being intimately familiar with all aspects and details of the asset and having a 360-view enables them to make sound buy-hold-sell recommendations to ownership that maximize Return on Investment aligned with the particular investment goals or strategies.
Human Assets of Hospitality
It is important to also consider the human asset component of a hospitality investment. A skilled Asset Manager should possess proven leadership ability to mentor and develop talent and to make recommendations that maximize and leverage the enormous pool of talent usually present in a hospitality setting, ensuring that staff mirrors and understands the clientele. After all, the sales and operations teams are the ones who ultimately produce the desired results. The Asset Manager must also be capable of assessing the deployment of staff according to their talents and skills, supporting the Operator in their efforts to help enrich the professional lives of the team as they are also stakeholders who contribute directly to the success of the enterprise.
A Balancing Act
A high-performing hospitality asset is like a three-legged stool that has to continuously consider its three key constituencies to stay balanced for optimal performance:
1. Customers
2. Employees
3. Investors
Hotels are a people business, as noted above. Most important, in reality, is the hotel's ability to attract, delight, build and retain customers. There are several metrics today that measure customer satisfaction, service response, intent to return, reviews, rankings against other competitors, etc. A good Asset Manager must understand these, but more importantly, know how to affect change and improvement from the information gathered to work with the Operators setting goals and plans of action to be better than the competition, gain market share, and improve revenues with efficient flow-through.
Leveraging Resources
Another significant and vital role is the relationship of the Asset Manager with the brand affiliation or "flag" as well as with the Management Company or Operator, and how they support one another. Leveraging all the available resources from the brand and the Operator in marketing, training, service standards, systems, and controls, among others, is essential. A key competency of the Asset Manager is also to constructively resolve conflict with the Operator or the Brand when it arises, ensuring a productive, mutually beneficial relationship with all parties.
CAPEX
Effective Asset Managers also understand all mechanical and latest technology systems, components, and the basics of building construction and structures to preserve their useful lives. The Asset Manager prepares prudent short and long-term CAPEX plans. She/He works with the Operator to prepare methodical Preventive Maintenance (PM) programs that monitor and prolong the building's and systems' lives, reducing or eliminating expensive, sudden, and disruptive repairs.
KEY POINTS
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It's a Partnership
It is highly advisable, if not essential, that the Asset Manager be an integral part of the investment from the very beginning, if possible, to better understand it and be in a better position to deliver results.
A good Asset Manager will look for and find various investment options, balancing risk and return, and calculating fundamental comparable metrics that reflect the investor, or the Portfolio Manager's goals. Such metrics should include, among others, basic valuations using appropriate CAP RATE factors, revenue multipliers, ADR multipliers, renovation requirements, commercial real estate value trends, etc., preparing proformas and calculating the time/value of money using Discounted Cash Flows (DCF), Net Present Value (NPV), Internal Rate of Return (IRR), to compare one investment against another, and accordingly present recommendations to Owners or Portfolio Managers.
Also, the Asset Manager can work with lenders by assisting in negotiations of Terms, Loan-to-value (LTV), and Debt Service Coverage Ratios (DSCR) requirements, and by helping to structure the Capital Stack for each acquisition.
As noted, the Asset Manager will then work with the Operator to keep the hotel's performance on track after acquisition.
The Plan
Detailed annual or semi-annual reviews of the Asset Management Plan will also reveal dynamic market changes in supply or demand (including latent and induced demand), reconciling the Asset cycle and the Market cycle expectations. This will yield measurable factors that will help the Asset Manager and/or Portfolio Manager determine an optimal sell or hold strategy. The Asset Manager may consider various scenarios by calculating the Marginal Rate of Return (MRR) if holding or selling the asset longer "as-is", or by deploying capital to renovate. Ultimately, measurable metrics comparing one scenario against another need to be calculated to optimize return on capital, taking into consideration the condition of the asset and the condition of the market.
Exit Strategy
When a decision is made for the disposition of the asset, the Asset Manager can also help manage the process, from finding the right broker, or tapping into their network to sell the asset either publicly or "off-market". The Asset Manager can help coordinate the entire process.
Below is an abbreviated highlight of a sample Asset Management Plan. This is adapted to each asset, portfolio, and investor requirements.
KEY POINTS
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ASSET MANAGEMENT PLAN OUTLINE A-G
A. Determine ownership investment objectives.
B. Structure of Capital Stack.
C. Take steps to acquire and absorb the asset into the portfolio.
D. Determine and/or establish "flag" affiliation.
E. Review if existing, or secure new Hotel Management Agreement (HMA).
F. Monitor and influence performance.
G. Exit or conclude the investment.
Required Data Bank Plan Build-Up:
Overall Trends and Projections, Revenue, Expense Controls, Guest Service Metrics, Associate Surveys, STR Index, GOP Variances, and Brand Inspections.
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IN SUMMARY
Asset Management is a specialized discipline and a critical component of all successful hospitality investments, requiring expertise and engagement on a micro and a macro level during the life-cycle of the investment, becoming an invaluable resource to all parties. Having competent, experienced and knowledgeable Asset Management is as important (if not more), as having competent and capable operations management.
ORION HOTELS, INC. believes in providing our clients with honest advice and guidance every step of the way. Whether you're buying, selling, building wealth short-term, or investing long-term for capital preservation in the hospitality sector, we are here to support you with experience, integrity, and proficiency.
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