What is Asset management and how independent hotels can take advantage of this in 2022

Hotel Asset management services can help hotel owners and investors optimise property value and operations.

What is Asset management and how independent hotels can take advantage of this in 2022

What Exactly is Hotel Asset Management?

Professionals that provide hotel asset management services oversee funds and operations of property on behalf of individual hotels or a portfolio of hotel properties. The ultimate goal of the professional is to increase cash flow and value of the hotel/property. Asset managers achieve this goal by optimizing operational processes, utilization of spaces, review of revenue management, and driving the implementation of strategies and best management practices.

The Role of an Asset Manager in Hospitality

Hotel Asset Managers has two principal roles:

  • Increasing hotel value over time
  • Preparing a hotel for sale at the peak of a lifecycle

They make decisions based on expected ROI and value-add that a hotel brings, with a thorough review of the status quo and market conditions in mind. Exact role of Asset managers would depend on where the hotel is in its life cycle.

Before opening a hotel

Hotel asset managers help with entering the market. Volatility in the hospitality market tends to be high, meaning risk is also high. The investments into a hotel are very high and very limited re-use options in case returns are not optimal. The asset manager is responsible for mitigating this risk. Hotel Asset managers also help to find a right operator and negotiate the management fee with operators with right clauses in the interest of owners. Entering into a deal with an international hotel operator without the help of an experienced asset manager can be very risky.

Asset Managers also help to sensitize the proposed business segment, branding, value propositions offered and launch processes.

Once a hotel is open

Once the hotel starts operations, or if an asset manager is inducted when the hotel is already open, hospitality asset managers help with the following roles.

  • Cash flow Management - In the initial days hotels may burn cash, key is to optimize this while protecting long term interest and value of property
  • Flow-through - reviewing operations Profit & Loss and other departmental statistics to optimism the flow through of revenue into the bottom line. Hotel being high on fixed costs, tend to have high flow through (negative and positive)
  • Risk mitigation of further investments/business strategy - Review All renovation and Capex items to ensure that new investments are in line with increasing value proposition.
  • Budgeting & Forecasting - During volatile times, it can be the key process to give some guidance to hotel operation teams and keep their efforts in line with others.
  • Sales strategy & Marketing - In this role asset managers review market segmentation, implementation of sales strategies, effectiveness of marketing campaigns and promotions, advertisements etc.
  • Revenue Management - is the key to optimise not only room revenue management but total revenue per available room for the property.
  • Operational support (food and beverage, hotel management, purchasing optimization, and so forth)

Another Vital Role in all situations

Apart from the above detailed tasks, asset managers also have another vital role: that is to be a mediator between owners and operators who may have different objectives in mind.

An operator tends to be more focused on protecting their brand / image and on growing their footprint, whereas an owner may instead be interested in maximizing their profits or the value of the hotel.

Due to professional experience, operators often yield greater power than owners. An asset manager, through their experience and insight, provides an owner with a form of protection as well as greater power in the working relationship. Additionally, a specialized hospitality asset manager can make up for a lack of hotel expertise from either or both sides. It can be common for one or both parties to lack the requisite knowledge in hotel types, the local market, segmentation, pertinent brands, and hotel management best practices. In this type of situation, the asset manager has an important Information role to play. They provide key niche and high-expertise information where it is missing.

The goals for the hotel asset manager are to identify the right decisions to be made between owners and operators and to provide strong communication of information to keep everyone on the same page.

What are capabilities and the skill-set required to perform the role of asset managers

Since all capabilities required to perform all the functions may not be available in one person, often the asset management is performed by a team of professionals. The speciliation team brings to the table may range from data analysts and economists to asset managers and revenue managers,

Apart from domain expertise that team members need to bring, following qualities are of paramount importance:

  • Precise analysis

Assessing and discovering patterns and trends that support strategic business decisions

  • Stellar communication

The need to get the right understanding across, including through interpretation of complex data. This is not an easy task and typically requires expertise.

  • A first-class hospitality mindset

Without the right hospitality know-how and background it is difficult to make the right decisions. We often see a disconnect here at Xotels – where there is only an interest in the financial side without taking operations and guest experience into account on an equal footing, or the complete opposite.

  • Outstanding time management

Processes require extensive planning to be successfully executed. Strong time management is a prerequisite to achieving excellence.

Challenges to the Asset Managers in Hospitality industry

The hotel asset manager faces a number of crucial obstacles to overcome in order to achieve the overarching goal of operational efficiencies and value enhancement.

  1. No hotel is exactly the same, so an ability to be adaptable is necessary. For instance, there are so many aspects and variables in each hotel to consider. Moreover, an asset manager should understand competitor hotels inside and out too. Hotel Asset managers must understand the intricacies and complexities of the wider industry.
  2. Different Expectations and knowledge levels between owners and operators, this makes their job as difficult to make decisions and communicate projects.
  3. Fast Changing technology in the hospitality industry - Since the technological changes are very fast, usually there is a dilemma which technology to use in a hotel to maximise the value. Project management to finish things faster and on time is important.

How Independent hotel owners can benefit from having a hotel asset manager

Underneath the surface, many industry challenges actually represent opportunities for hotel investors to take advantage and have their lodging business move ahead of the competition and wider hospitality market. A hotel asset management team of hospitality professionals / company with a strong pedigree can unleash these opportunities within.

The three main benefits that a hotel asset manager brings include the following:

  1. Higher awareness and communication levels

Hotel asset managers keep a good eye on development in industry and such critical information is passed to owners digested into easy to understand points. Asset managers can provide better quality data and reporting to investors and operators.

Another value-generating improvement is the standardization of processes, which leads to improved consistency in quality and reduced operating costs. This occurs at all departmental levels, including human resources, operations, revenue management, marketing, and sales.

  1. Industry connections

Hotels benefit from more quickly established and stronger relationships with distributors, competitors, website makers, major suppliers. Asset managers also usually shorten the evaluation process of multiple service proposals as they might have experience in dealing with those bidders in the past and they know who performs best and worst.

International connections help to bring in foreign investment if required and a strong hotel asset manager typically understands how to funnel external investment.

  1. Qualitative growth

The right asset management firm focuses on growth of the portfolio in a qualitative manner. This means that they don’t have a buy/sell mentality. Importantly, this is different from banks and large venture capital firms. The impact of the latter is that it can lead to a decrease in service quality and products offered, because they are so focused on squeezing every last cent and cut costs wherever possible to make a profit.

Merging expertise from hotel management, revenue management, marketing and asset management greatly improves the growth opportunities without sacrificing on quality.

The Need for Hotel Asset Managers

There is a growing need for hotel owners to work with industry-specialized asset managers. There are a number of reasons that are fuelling this.

One, industry complexity is increasing all the time, and relationships can easily become tied up. When stakes are high, this is particularly risky.

Two, hotels can struggle to find investment while simultaneously maintaining quality standards across their business.

Three, hotel investors face challenges when deciding which projects to channel their capital into.

Four, there is so much untapped potential within hotels because of a lack of resources and a deficit in process understanding.

It is understandable that many hoteliers and other industry managers have not developed the required advanced knowledge and expertise in the field of asset management, whether it be due to their educational background or simply because there have not been enough opportunities to develop their skills outside on the job learning.

Conclusion and how to implement this asset management strategy

I hope you might gain an insight into what asset management service and why your hotel needs it. Let's see how you can implement most of this.

  1. Have a dedicated person to carry out asset management of your hotel. If you don't want to commit into a permanent headcount for this (asset managers are usually expensive), you can contract a asset management company such as eHotel Management School to try for a few months and make your decision after seeing the benefits. Usually third party asset management companies have an edge over individual asset managers being a team of professionals bringing multiple domain expertise.
  2. Set the right expectations with the timeline - Since Asset management covers a wide range of aspects, its better to discuss and agree on a timeline which is focused on a few topics. This approach will make it easier on the operations team as well.
  3. Clear Communication - communication between the operations team and owners team must be fast, fluid and as per knowledge level in hotel operations.
  4. Balance performance enhancement - Setup a balance scorecard to evaluate hotel performance. Focusing on narrow metrics may lead to decline in value such as focusing on profitability by neglecting guests or employees may result in short term gains but decline in long term value.
  5. Regular Evaluation of progress is key in implementing any successful strategy.

Hope you will like the article, you can share among your friends and comment if you feel anything is missing.

PS - at eHMS we take pride in being committed to help independent hotels with their operations and asset management strategy. Reach out to us for a discussion to find out how Asset management service can be beneficial to you.

Manish Gupta
A Hospitality Professional

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