Bricks and brains

The term ‘hotel asset management’ is a relatively new one, so we need to start with a history lesson. Until the late 1990s, the traditional hotel industry ownership model was one under which (in many parts of the world at least) the majority of internationally-branded hotels were ‘owner operated’. That is to say that hotel companies such as Hilton and Sheraton owned both the building and the brand.

Two things happened around this time that led to a change; firstly, institutional investors, looking to diversify their portfolios, took an increasing interest in hotel assets, and they were joined by high net worth individuals spurred on by the glamour that new lifestyle hotels were bringing to the hospitality sector.

Secondly, and perhaps as a result of this first factor, many international hotel companies decided that their core business lay in operating hotels and maximising the value and distribution of their global brands, rather than in owning real estate; the ‘bricks and brains split’ as it was termed at the time.

Most of these new hotel owners did not have hospitality knowledge in-house and recognised the benefit of seeking external help rather than bringing experts into their teams (more on this point later), but before we look at what the hotel asset manager does, it’s important to understand that the role can vary greatly according to the nature of the agreement. If, for example, the owner’s return is based on a turnover lease then the role as the asset manager need not include any review of the expenses of the business, as opposed to a management agreement under the terms of which, typically, the owner’s return is strongly influenced by the costs.

Macro and micro

The role of the asset manager breaks down into two distinct parts, the ‘macro’ and the ‘micro’.

The macro element consists of strategic advice and covers such key issues as the hotel’s capex requirements, space optimisation, alternative use options and advice on the best time to exit. Under the terms of many agreements, an FF&E (furniture, fixtures and equipment) reserve is built up based on a percentage of turnover, to enable refurbishment programmes to take place. The use of these funds and the timing of such works is an area in which the asset manager can bring considerable expertise. Any refurbishment work is likely to result in business disruption and hence, achieving the correct phasing is critical.

The micro element consists of the agreement with the operator of annual budgets, the monitoring of trading results and forecasts on a monthly basis — typically by way of a review meeting with the general manager and his team — and verification that the hotel is sweeping funds into the owner’s bank accounts as efficiently as possible. A major component of this monthly review is the benchmarking of the hotel performance against its peers and not just at the RevPAR level. The good asset manager will have access to current P&L data for a wide range of hotels, enabling him to benchmark each line of the P&L and make it clear to the operator where the business is not being run as efficiently as its peers.

Comprehensive data such as this is unlikely to be available to the ‘in-house’ asset manager and its application can make a very positive impact on the owner’s return. Again, depending on the nature of the agreement, the responsibility for maintaining the fabric of the building and grounds, and for insurance, may sit with the operator, and part of the asset manager’s function is to ensure that these obligations are being complied with.

Early start

Ideally the asset manager should be in place to assist the owner in negotiating the management agreement as this can avoid problems arising later, and there are also important functions that he can fulfil during the pre-opening phase; agreeing a pre-opening budget and in ensuring that it is adhered to, liaising with the project manager to ensure that construction and the pre-opening are dovetailed and advising the owner on the appointment of the senior management team.

It is too simplistic to view the role of the asset manager as that of ‘beating up’ on the operator. The good asset manager therefore will be a frequent informal visitor to his hotel, and should build up a good working relationship with his general manager.

From time to time the GM will come up with ideas to improve the business, however, the structure of many large hotel companies means that these ideas can be lost in bureaucracy. In these circumstances the asset manager can use his, and the owner’s influence, to cut through the red tape, and enable change and drive cash flow.

Nigel Teasdale is regional director for Vision Hospitality Asset Management. Contact: This email address is being protected from spam bots, you need Javascript enabled to view it

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