MAXINE TAYLOR IS senior vice president at CHMWarnick, an international consulting and hotel asset management company. As an asset manager, Taylor’s responsibilities are myriad. She represents the hotel owner and oversees such management decisions as spending on operations and budget planning. She also is involved in hotel asset sales, renovations, contract negotiations and investment. Thirty years in the business, Taylor has honed her skill of turning around underperforming assets and strategically repositioning big-box hotels and resorts.
Most recently, Taylor has added another duty to her list. In January, she was appointed the 2018 president of the Hospitality Asset Managers Association.
Just as Taylor’s job duties reveal, asset management involves many facets of managing a hotel. The term asset management might mean different things to different hoteliers, but the fundamental practice of asset management is a vital part of hotel business success. Asian Hospitality asked Taylor to share her views of the importance of asset management, best practices, the role’s history in the lodging industry and what new challenges face asset managers today.
Define asset management.
The text-book definition of asset management ties back to a fiduciary responsibility of managing a lodging investment to meet the specific objectives of ownership.
Sounds simple, right? The practical reality is the role of today’s asset manager is one that is highly dynamic and centers around guiding the efforts and protecting the interests of hotel owners and investors throughout every stage of the investment cycle – from acquisition to disposition.
Asset managers enable hotel owners to successfully navigate issues, make informed decisions and develop and execute on strategies to achieve and hopefully exceed investment objectives. Asset managers also provide a collective voice for the ownership community in protecting and advocating for ownership rights to a broader audience of brands and operators and the industry as a whole, through organizations such as HAMA, as well as active participation on brand and operator ownership boards and councils.
How has the practice of asset management evolved over the past decade (since the Great Recession)?
Asset managers first emerged primarily as work-out specialists, offering services to banks in the late 1980s/early 1990s. With the discipline gaining traction, the Hospitality Asset Managers Association was formed in 1992, and by the early to mid-2000s, asset management had further evolved, gaining notoriety as more of a proactive and influential discipline. What was once viewed as “monitoring performance” had evolved into active “value creation” and on-going active ownership representation.
Today, asset managers are viewed as an integral component of the industry and core to hotel investment strategy, having now evolved into a much more comprehensive owner advisory role – from acquisition to disposition. Some ownership groups employ asset managers directly as part of their organizations, while others hire dedicated third-party asset management firms to gain benefit from broader benchmarking, depth of experience and long-standing relationships with brands and operators.
What is impacting asset management these days – for better and for worse?
One of the key issues for asset managers today is technology. It is difficult for any one person to keep up with the growth in technology, including how we revenue manage, market our hotels, sell promotions and establish relationships in a world where the hospitality industry has become so commoditized.
It is almost impossible to keep up with the number of OTAs that sell our hotels. For example, Expedia has more than 2,000 affiliate organizations all selling our assets. The consumers are confused, as these sites will often represent themselves as being the actual hotel.
HAMA works with American Hotel & Lodging Association on this front to stop these deceptive consumer practices, but it is like a game of “whack-a-mole” – as soon as one is addressed, five more pop up. There are sites now that try to undermine the RFP process, offer even more discounted, last-minute room rates, and buy and sell cancelled rooms at a discount to potential guests.
In addition, asset managers now have to stay ahead of international trends such as understanding where we fit in on sites like Alibaba, Ctrip, Agoda and comprehending what impacts each of the international traveling decisions, from the political environment to investment strategies, and changes in how people travel. For example, will wholesalers go by the wayside as younger travels get more comfortable booking their own travel?
In short, the distribution landscape is highly complex, and to develop meaningful strategies, asset managers need to understand it all.
On top of a complex distribution landscape are steadily increasing guest-acquisition costs that continue to rise, in most cases, faster than hotel room rates, forcing hotel operators and asset managers to get more creative in how they assess business opportunities.
Regardless of whether an asset is branded or independent, ownership is getting “hit”’ with increasing third-party fees in areas such as marketing, revenue management, cost containment and IT. These fees were historically included in base management fees and wages and benefits, not in addition to.
What is the role of revenue management within asset management?
Historically, when occupancy had reached peak levels, it was followed by strong growth in average daily rate and bottom line profits. However, in this cycle, that hasn’t been the case. Despite record occupancy, rate growth has been limited, and the cost of customer acquisition has increased significantly. Furthermore, the net profit by room and channel is not obvious and cannot be evaluated on rate alone.
This makes for a very challenging operating environment, and having the necessary revenue management skills on property is essential to establishing and executing on strategies that are profit-centric and not top-line driven. This often can be in direct opposition of what the operator may be focused on. We call this “owner equity” versus “brand or operator equity.”
Having an asset management team that understands the dynamics and can ask the right questions of the revenue manager and team is as important as the skill and experience of the team on property. Revenue management is a key driver to optimizing value in today’s market.
In terms of group business, it is important to understand not only the channels, but also the value/costs of the promotions offered and then ensure the right group is booked into the right time periods at the right rate. In an effort to drive the booking pace, we have seen lower-rated groups accidently booked over high-compression periods, negatively impacting potential ADR and profitability.
Share your view the impact increasing franchising fees have on asset management/value.
During the last several years, hotel expenses have been growing at an increasingly faster rate than revenue, making it extremely difficult to maintain profit margins that owners once enjoyed.
Labor and benefits, cost of guest acquisition and fixed cost increases, such as insurance and taxes, are major contributors to eroding profit margins in recent years. However, part of the challenge also can be attributed to management and franchise fee structures that are based predominantly on top line revenue, which does not serve to align management and ownership objectives as well as it could.
Further mass consolidation of brands coupled with product distribution/saturation has diluted the value of brands to owners, while at the same time fees have increased significantly. The cost/value has shifted, and the impact on value and owner returns has suffered in many instances.
What impact have loyalty programs (i.e. direct booking and other campaigns) had on asset management/value?
The major brands have focused marketing efforts over the past 18 months to re-educate the guest in terms of where they should look for the lowest price (brand.com), as well as attempting to shift booking behavior to compete more directly with the OTAs. Early results indicate that these initiatives have been effective in driving more direct bookings and Net RevPAR, even with the trade-off in rate. Kalibri Labs has done important analysis on the impact, but more data and longer-term analysis is needed to measure whether these initiatives will drive sustained positive results. It should be noted that not all hotels have benefitted; it’s more of a case-by-case situation.
What is the impact of OTAs on asset management/value?
OTAs have permanently changed the distribution landscape for hotels, influencing guest perception about where they should go to find the lowest price. OTAs have traded the value of an experience into a commodity, all the while charging hotels a premium to access their websites/marketplace.
Unfortunately, OTAs are part of the fabric of our industry now, and certainly it’s been a love/hate relationship at times, but more importantly, they gave rise to a “wave of disruptors” who followed, capitalizing on opportunities to leverage technology to better meet the needs of the guest.
For owners, OTAs provide a source of business, but at a cost much higher than the industry had previously experienced, as well as additional costs as brands retaliate and attempt to shift share with loyalty programs and special offers, the cost of which are all born by ownership.
If a hotel cannot afford an asset manager – either on staff or a third party – give three top tips the owner/operator should practice in asset management.
A good asset manager should deliver a multiple on their fee by delivering incremental revenue, asset value and expenses mitigation through their expertise and efforts. But, in the spirit of answering your question, best practices should include the following foundational elements:
A collaborative relationship and mutual respect between ownership and the management team. It is healthy for owners and managers to challenge each other, but establishing mutual goals and objectives and working together to achieve them will always yield the best results. Asset managers should be a resource for management, as much as they are representing ownership.
Be forward looking. Effective asset management is not passive monitoring of past operating results, but rather analysis and implementation of deliberate actions to positively influence future performance. Don’t get stuck in the past, learn from it and improve.
Advocate for your hotel(s) and be the squeaky wheel. If there are performance issues, personnel challenges or brand initiatives that don’t provide a reasonable return, speak up. While much of the business is based on “standards” and “protocol,” there are times when seeking flexibility and/or additional corporate brand/management attention and resources are warranted.