Because hotels are so operations-heavy, asset management in the industry has challenges not seen in other forms of real estate investment, sources said.
REPORT FROM THE U.S.—Asset management clearly doesn’t exist only within the hotel industry, but the discipline has a unique set of challenges with hotels compared to other kinds of real estate.
In a series of interviews with hotel asset-management experts, sources unanimously told Hotel News Now the operational complexity and the day-to-day variability in performance makes hotels considerably different than office, multifamily or other forms of real estate.
“Hotels are really an operating business as well as being a piece of real estate,” said Rob Kline, CEO and co-founder of the Chartres Lodging Group. “And when you think about the operating business, the income generated and value created or lost is somewhat fragile, much more fragile than with an office building with longer-term leases. In a hotel, a lease is a single night.”
And it’s not just the length of the “lease” that complicates things, it’s the relative volume.
“You’re leasing your building 300 times a day versus once every five to 10 years,” said Jonathan Martin, managing director and COO at AEW Capital Management. “So things can change rapidly.”
Laura Benner, SVP of hotel asset management at Colony NorthStar, said the capital expenditures needed for hotel assets can be harder to stay ahead of than in other real estate classes, which further complicates the job.
With office buildings, “you’re not dealing with renovations inside the space, that’s what tenants are doing,” she said. “But with hotels, you’re renovating guestrooms, ballrooms, restaurants, pools. On top of that, you have hotel brand standards layered on top. You can do whatever you want with an office space, but the owners of Marriott or Hilton hotels have to abide packages of guestroom renovations or color schemes.”
Benner pointed out that hotels are also more likely to encounter the unexpected.
“I don’t know how many times I’ve heard about a room being flooded and it leaking to multiple rooms because a guest hung their coat on the sprinkler valve,” she said.
For these reason, Ameya Shinde, VP of asset management at Xenia Hotels & Resorts, said it’s misguided to lump hotels into other real estate classes.
“We have an operating business,” he said. “For me, (comparing hotels to office, multifamily or other forms of real estate) is similar to looking at Walmart or Target as a real estate asset class just because they’re in a big building.”
Tricks of the trade
Because of the heavy operational focus, hotel asset managers need to be in closer contact with property-level teams to succeed. Sources said these conversations can’t happen every day, and they shouldn’t be construed as trying to take over the responsibilities of the operations teams, but there should at least be weekly check-ins.
“We’re not trying to dictate things, but we have to understand operations and help the team succeed,” Shinde said. “It’s really important to know the revenue side of things, and understand things like the pace for future months in group and transient demand or anything going on with special transient or corporate accounts.”
Shinde said he checks in with the revenue-management team weekly to “understand the strategy for the next 60 to 90 days and make changes.”
Kline noted that relationship management, not just with property-level teams but with brands and guests, is key to success for hotel asset managers.
“There’s a whole cast of characters in the industry you have to get to know,” he said. “Managing the hotel at the property level is a specialized activity. Branding is another important level of strategy, so you have to find the right operating (method) and understand if your brand is the best for the market and physical property. The people you have to know and the relationships you have to handle to effectuate those two things alone are difficult to achieve. It takes years to build up the know-how.”
Walking the line
Sources said it can be a difficult task to find hotel asset managers because they need to have both a solid understanding of the operating business and the real estate fundamentals.
“It’s absolutely harder (to find hotel asset managers), and hotel asset managers can’t oversee as many properties as asset managers of other (real estate) classes because there’s only so much time in the day,” Kline said.
Martin agreed it takes “a special kind of individual” to thrive as a hotel asset manager. He said it’s key for them to have some operational background and know-how.
“To me, it’s important to balance operational expertise with book smarts,” he said.
But he also noted there is strength carried by asset management “generalists,” who might be more keyed in to the macroeconomics or consumer trends.
“That big-picture stuff is helpful as well,” Martin said.
Shinde noted that regardless of whether an asset-management candidate came up with a financial background as a traditional asset manager or on the hotel operations side, possibly as a general manager, he or she needs to be trained to understand the other side of the coin.
“It’s difficult to find the right mix in both worlds, and that’s an ongoing thing,” he said. “It’s an ongoing learning experience.”
Benner said she’s had multiple general managers approach her at different points about what it would take to get into asset management, and she counsels them to brush up on how real estate functions.
“My first response is to take some real estate courses, and to talk to people who do asset management to see what they look at,” she said.
She said there’s a different perspective between operations people and asset managers, and interested GMs need to train themselves to walk around a property and not just look for ways to improve operations but chances for unrealized revenue.
“I like to do property tours and see things like in a hotel that has a corner location that is prime space but maybe they’re using it for storage,” Benner said. “You then ask, ‘Why is this not some sort of lease or revenue-generating opportunity?’ People in operations may not see things that way. Their goal is making sure the guest is happy and they’re meeting budget.”