Jack of all trades: Asset managers explain what they do
Jack of all trades: Asset managers explain what they do
18 DECEMBER 2017 9:25 AM

Hotel asset managers have to know about every aspect of running a hotel to ensure they are protecting their client’s investment in the property while maintaining strong relationships with the operator and brand.

Editor’s note: This is the fifth entry in a series looking at various aspects of asset management in the hotel industry. Part one looked at the history of asset management. Part two explored the future of the discipline. Part three shared the issues asset managers found most-pressing. Part four explained the differences in asset managing a hotel versus other real estate classes.

REPORT FROM THE U.S.—An asset manager’s job is to act as the hotel owner’s proxy, protecting the owner’s investment in the property by working with the management company and franchising brand.

That’s a good general overview, but what exactly does that all mean?

There’s a broad expectation in terms of the responsibilities of an asset manager, said Kim Gauthier, SVP at HotelAVE, “because you never know where there’s opportunity to add value.”

This means being a jack of all trades, she said, and requires a general understanding of economic conditions, market conditions, legal implications, construction and contracts. One never knows what is going to come up, from slip-and-falls to hurricanes and fires, and asset managers have to be prepared to react to those situations. They also have to know their own strengths and weaknesses to call on resources as necessary.

Part of the job is project management, which requires an understanding of construction, the bid process, knowing the players in the market and understanding how the execution of a capital plan can hinder the operation of a hotel and how that will be reflected in the financial reports.

“We’re not lawyers, but we review a lot of contracts,” Gauthier said, referring to basic operating contracts and hotel management agreements. “That comes with experience in terms of understanding the language and translating it to the real-life, day-to-day operation.”

The big picture
The primary role of an asset manager is to align the interests of ownership and the operator, said Romy Bhojwani, EVP of asset management at HotelAVE, and that often includes a brand as well. All three stakeholders have an investment in the property, but they each have different objectives for who they are and the corporate platforms they are.

“It’s key for the asset manager to come in and create a plan that aligns the interest of the brand and operator with that of ownership,” he said.

The asset manager needs to be available for the day-to-day and week-to-week decisions an operator needs from the owner, said Richard Niedbala, SVP of asset management at Lodging Capital Partners. The asset manager will give direction, review the performance of the property and the operator and help set the strategy to improve performance in way consistent with the objectives of ownership, he said.

That direction can vary depending on the type of owner. Long-time holders will value cash flow, Niedbala said, while a private equity group with a talent for turning properties around will want to create value in a short amount of time.

“These decisions will be colored by ultimately the objective of the owner,” he said.

The nitty gritty
On a day-to-day basis, the job means staying close to the operation and ensuring things are being managed according to the plan, Bhojwani said. That requires having weekly calls with the hotel and spending between an hour and 90 minutes a week going through everything.

“We’re checking on how things are progressing, are we meeting timelines, meeting deadlines and heading in the right direction across a variety of areas,” he said.

The calls also focus on revenue strategy and seeing how the property performed the prior week, Bhojwani said, and how the team is managing the top line to align with business plans each month and each quarter.

Niedbala said his approach, like many others, is to speak with the GM of a property a couple times a week and review performance, looking at the monthly STAR reports and talking revenue management, among other topics.

“I’m asking questions,” he said. “‘Why are you setting rates at that level? How come our index declined? What did we do right that drove our index, and can we do it again?’”

Other times, there are emergency capital projects, such as a broken pipe or when an air handling unit goes down, Niedbala said, and the operator needs approval to move forward with repairs and replacements. The asset manager’s job is to make sure operators are taking the most prudent approach to these situations by seeking competitive bids and vetting companies for bigger projects.

The asset manager also keeps an eye on planned capital projects, making sure the decisions are in line with what ownership wants, from selecting the right color and pattern of carpeting to making sure things are installed correctly to having all work completed according to the timeline, he said.

“The asset manager is kind of the first checkpoint between operations and ownership for the operator’s questions and issues for capital repairs and capital improvements,” Niedbala said, adding that applies for revenue management and sales issues as well. “You need to have a working knowledge of all these disciplines. You’re also the first layer of contact for legal issues or real estate issues.”

What asset management is not … anymore
In the early days of asset management, GMs didn’t quite understand what the asset manager’s job was, said A.J. Singh, professor of international lodging, finance and real estate finance in The School of Hospitality Business at Michigan State University. The position acted in two roles, he said, that of a consultant as well as a liaison with the brands.

The consultant role developed after the savings and loans crisis in the 1990s when banks started taking ownership of hotels, he said, and the banks needed asset managers to help them reposition and sell the assets.

Helping owners deal with brands is the genesis of why the Hospitality Asset Managers Association was formed, Singh said, as owners felt brands were not listening to them and asset managers helped give them their voice.

“The early stages were a contentious relationship,” he said. “That has, over time, really changed, because the ownership profile has changed. There’s more institutional ownership. Asset managers have learned how to communicate better with management. Overall, it has changed.”

The role has evolved as hotel investments have gotten more sophisticated and more proactive, Bhojwani said.

“Prior to that, asset management was a four-letter word,” he said. “When one came to the table, he was the bad guy in the room, all about driving performance, knocking fists and butting heads with the operator. That’s not the modern-day approach to asset management.”

The job is data-driven, he said, and it should be a collaborative effort that points to realistic opportunities to improve the hotel’s performance. Asset managers are people who have knowledge across multiple markets, multiple brands and investment types and can bring that expertise to the conversation with the operator, he said.

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