I’ve been in the hospitality industry for 30 years and during this period, I have had countless meetings with Management Company executives as well as Owner representatives or as known Asset Managers. As an operator, I often feel stuck in between conflicting interest and priorities.
I also learnt with experience that Asset managers come in lots of shapes and sizes, however, a good asset manager can offer hotel owners needed perspective and influence with brands and operators, among other benefits.
I decided to compile a list of reasons from the experts to highlight why an owner and even a management company needs an asset manager. Here are the 9 compelling reasons and benefits having an Asset Manager in the first place.
1. Alignment and Compromise: Because of inherent and irreconcilable differences in goals and objectives, rarely is a hotel operator sufficiently aligned with an owner.
This lack of alignment is especially acute with branded operators where the growth and protection of the brand almost always trump the individual needs of a given hotel.
2. Vision and Perspective: Hotel operators are in general focused on the hotel business which means what they can get from the hotel in current circumstances.
A good Asset manager has a wider vision and focuses on both “Hotel Business” and “Business of Hotels”. The perspective of balancing operating standards with owner’s financial objectives will rarely occur without the active involvement of a knowledgeable owner or asset manager.
3. Short term gains vs Long-term benefits: Hotel operators have their annual budgets, therefore focus on YTD and BOY perspective to achieve their targets. This is how it set up and does not have a long-term vision for the property.
On the other hand Asset Managers simultaneously looking at the present and planning for the long-term asset value and investment returns.
4. Averages Game vs Optimal potential: We have all seen standard Financial Statements which compare last years and budget results with actuals. We also know that budget is a game based on prior year performances and nothing to do with optimal performance, therefore, it is not an effective proxy. So, how do we understand whether this is a good or bad score? It is far from identifying potential we can optimise in any specific areas.
The answer, in general, is to look at the performance of other comparable hotels, however, there are several variables that impact each specific hotel for their scores. It may give you an idea to compare and contrast at the same time it might be totally misleading or irrelevant to compare apples and oranges. The key here is you need to have the experience to identify the optimal potential of the property with its own circumstances rather than using experiential context.
Even many experienced operating companies do not properly understand—or properly execute on—best-practices evaluation tools in key operating areas that have a material impact on the bottom line. A good Asset Manager work together with Management company to identify optimal performance on key KPIs and help operators to achieve best possible results which benefited both operating company and the owners.
5. Finding Balance or Levelling the playing field: When there is an imbalance in the knowledge and experience between 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 sub-optimal performance, etc. And, as bad as it is to have an operator with unbalanced power/influence in the relationship, it can be just as bad for an unknowledgeable owner or underqualified asset manager to force their will onto the hotel’s operation, as it may actually compound a problem.
An experienced asset manager levels the playing field—especially when that experience covers multiple brands and property types. Not only does the asset manager have knowledge comparable to that of the operator—they have the added benefit of a broader perspective. That is, they see what other brands and operators are doing and can accumulate best practices without prejudice.
Effective asset managers do what owners would do if the owner was an expert in hotel operations, sales, marketing, revenue management, F&B, industry trends/best practices—and had a solid working knowledge of real estate finance, hotel development, accounting, risk management, brand physical and operating standards and contract law—and had access/influence with the brand and/or operator of their hotel.
6. Informed second opinions 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/or approval, including the all-important hiring of Executive Committee members.
On that basis owner’s need a knowledgeable advocate’s involvement to make such decisions which would be a good Asset Manager.
7. Challenge: It’s a known fact that we all (both individuals and organizations) perform better when we pushed to our limits and encouraged/pressured to improve and deliver better. Naturally, that challenge can come from anyone, regardless of expertise. We need bear in mind that 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 favourably 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.
8. 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 ensure that the brand/manager thinks and acts creatively versus simply taking pages from the operator’s playbook.
9. Influence: Some asset managers are more influential with brands/operators than others. This is due to one or more of the following factors: the number of the operator’s hotels they oversee; the fact that they represent many developers and owners in selecting brands/operators; relationships with senior level executives in that particular company; and their successful asset management history with the operator. Such influence manifests in numerous ways that are advantageous to an owner. For instance, getting the best management team members the operator has to offer, being first in line for new (worthwhile) brand initiatives, and flexibility on standards that don’t make economic sense for a particular hotel.
The bottom line is that effective asset managers do what owners would do if the owner was an expert in hotel operations, sales, marketing, revenue management, F&B, industry trends/best practices—and had a solid working knowledge of real estate finance, hotel development, accounting, risk management, brand physical and operating standards and contract law—and had access/influence with the brand and/or operator of their hotel.
P.S. Main body of this article taken from HNN column of Richard Warnick - Managing Director and Co-Chairman of CHMWarnick