Tips for transforming underperforming properties
 
Tips for transforming underperforming properties
07 MARCH 2017 9:02 AM

Renovating or rebranding a property can be an exhaustive process, but here are some things hoteliers should keep in mind during times of transition.

When a business is distressed, it’s difficult to ascertain the issues and address them properly.

Typically poor physical asset quality and overall failing commerciality are the biggest reasons for distress. That includes any number of topics from over leverage and overbuilt to simply a litany of cost ‘creeps’ over years of trading.

When we assume a property that is underperforming, we focus on these top 10 main areas:

  1. Physical property quality from actual building and all mechanical, electrical, plumbing, etc., through cleanliness and condition of furniture, fixtures and equipment/OSE etc.
  2. Brand–– is it the right one, and are there opportunities to change brand?
  3. Is there a change of ownership property improvement plan or if ownership remains—is there a pressing PIP that is required?
  4. Assess the market and competitive set and determine if it’s the right comp set.
  5. Do a deep dive review of all trading numbers from revenue to every line item within costs, expenses and labor.
  6. Assess the senior- and supervisor-level associates, followed by junior- and hourly-level associates.
  7. Review all business plans, sales and marketing strategy plans, and all social media platforms.
  8. Review all customer reviews and questionnaires.
  9. Review the current market segmentation: key accounts, rate plans and revenue management, including assessing brand contributions.
  10. Talk to the guests for feedback, and local city associations such as the convention and visitors bureau and chamber of commerce, etc., to assess opinions of the hotel and how it is perceived in the market.

Taking this list, we analyze and document major issues. We sit as a team and share what we observed and experienced, and review the results of our research. We compare notes of our stays––the guest journey from check-in, to room to food-and-beverage to fitness, etc.

Then the real work begins.

Begin with the immediate easy-to-fix issues, like cleaning up to make the physical building exterior and interior look cleaner and fresher. Clean back-of-houses areas that are dirty and full of randomly stored items redundant to needs. By tidying back-of-house areas, you let the staff know they are important and should be operating in a professional environment.

Talk to the brand in place and review the PIP that is inevitably in place to begin working on conceptual design and plans for what changes are required and their cost. This is a long process, so start early as the plan will change over the schematic design phase. Determine if the current brand is no longer relevant in the market, or is failing to deliver return on investment, and start talking to others to assess suitability. If they are the right brand, understand their perspective on the hotel failures and what will be required from the physical asset and your operating team for successful operations. Review the current ‘in place’ license agreement carefully and assess term, liquidated damages for switching brands and/or any defaults that are in place.

While this is going on, the finance team should work to clean up receivables and payables, payroll, vendor relations, review bank statements and create cash-flow analysis and update forecasts with the hotel sales team. This is closely followed by balance sheet cleanups and overall tightening of all commercial operating systems and procedures.

Then, we meet with all senior managers and supervisors individually. We ask what they perceive as the big-issue items within the hotel, and what they believe it will take to change. We listen and ask key targeted questions to determine their assumed role: where they see themselves in the team, how they interact with leaders and peers and the value they believe they bring. This process is long and exhaustive, but necessary to form a clear picture of what will be required, the professional development of team members who should stay, and the gaps needed to fill the inevitable (in most cases) departure of others.

Next, build a plan. A true and real business plan that clearly lays out the goals, objectives, targets and financial projections for the coming 12 months. If renovation, PIP, redevelopment or rebranding is a part of the process, never underestimate disruption and the impact to guests and subsequent bottom line. It’s always more than you anticipate!

Finally, set expectations. Get the entire senior team together and detail the roadmap to success. Lay out objectives, working values, operating philosophy, culture and mission, and commitment to your teams. We do this to ensure our teams work diligently with our clients to transform distress into success.

It won’t happen overnight, but turning a business around is possible and immensely gratifying. As the old saying goes, “How do you eat an elephant? One bite at a time.”

Euan McGlashan is co-founder and managing partner of Valor Hospitality Partners, a hotel development and management company based in Atlanta and London that owns and operates properties in the U.S., Europe, and Africa, with an additional 10 sites in various stages of negotiation, development, or construction. Additionally, a related company—PMR Hospitality Partners based in Cape Town—operates several hotels and resorts in Africa.

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