How asset management evolved to balance owners, brands
How asset management evolved to balance owners, brands
24 APRIL 2017 8:50 AM

In the early days of asset management in the hotel industry, owners and brands were much more adversarial, sources said. But growth of the discipline has helped owners win a bigger seat at the table.

Editor’s note: This is the first entry in an series looking at various aspects of asset management in the hotel industry.

REPORT FROM THE U.S.—The early days of asset management in the hotel industry were drastically less sophisticated than today, sources said, and were marked by ongoing contentiousness between owners and brands/operators.

The growth of the discipline seems to go hand-in-hand with the growth of the Hospitality Asset Managers Association, which is celebrating its 25th anniversary this year.

Dave Johnstone, chief investment officer-hospitality for McWhinney who previously served as founding president for HAMA, said hospitality asset management has grown significantly since the field was first pioneered by Prudential Insurance Company in the 1980s.

He said he learned quickly during his tenure with Prudential by calling around to asset managers at other companies. At that time, he was one of a select group of real estate asset managers who had any familiarity with hotel operations.

“I called around the other insurance companies and asked who handles hotels, thinking we could all get together and talk,” he said. “It turned out none of them were hotel people. They were just traditional commercial real estate guys.”

Both Johnstone and Michelle Russo, founder and CEO of HotelAVE and another former HAMA president, said this lack of familiarity with operations left traditional asset managers without the tools to truly gauge how well things were going on property.

Russo said she realized this during her tenure at John Hancock in the 1990s, when she first got into the field.

“When a generic asset manager would visit a hotel, they’d have a full bar in the biggest penthouse; they’d get driven around the market and taken golfing,” she said. “And that was it. They didn’t have the expertise to challenge anything.”

Ken Wilson, managing director and co-chairman at CHMWarnick, said this was how the brands/operators liked it, because they retained almost complete control of what happened on property. He said that level of owner detachment was even memorialized in how money was exchanged between the two sides.

“Back in the day, when owners got distributions, it was called rent,” he said. “It’s pretty funny that you’d own a property, and the money that comes out of it was considered rent. Today, it’s a much different situation.”

Owner-brand relations
Russo noted that before the establishment of hotel asset management, brands liked to keep owners at arm’s length and would occasionally try to pit owners against each other to get what they wanted.

“One brand was particularly pompous,” she said. “They only had five to 10 hotels, and they would approach one owner and tell them they had to do something because all the others had already done it, then they’d turn around and do the same thing with the other owners. When the owners of those hotels met each other, they realized they were being lied to.”

Johnstone said brands would use this imbalance in control to push things on ownership, like FF&E, without giving any compelling reason behind the spend.

“They didn’t have to do any sort of ROI analysis,” he said. “Now, that has to be done.”

He said brand-ownership cooperation has grown as asset managers have pushed for more transparency and accountability from operators.

Russo said the creation of things like brands’ owner advisory groups can be attributed to ownership advocacy efforts that began with increasingly sophisticated asset management and the unified voice that HAMA represented.

“We had the attention of the brands,” she said. “There had never been a unified owner resource like that, and the lack of that resource was always in favor of the brands.”

Wilson said a spirit of cooperation is key, since owners and asset managers aren’t dealing with the day-to-day operations.

“If the property team closes the door and throws your suggestions in the garbage so they can keep doing their own thing, then you’re not going to see the improvements you want,” he said.

Sources all agreed that HAMA itself played an integral part in the increased communications and collaboration that helped move both hotel asset management and the overall industry forward.

Before HAMA existed, “we had management agreements with basically no owner rights,” Russo said. “Owners were basically just writing checks.”

Johnstone agreed with that assessment.

“I’m not going to say it’s all shifted (to owners), but because of HAMA, there’s a lot more transparency and analytics, along with a lot more transparency on the part of operators and brands,” he said.

Wilson said the association continues to wield important influence. “HAMA is a strong voice in the industry and to the brands,” he said. “When we collectively get together and meet with brands to share our concerns, it carries a lot of weight.”

Johnstone noted that in the early days asset managers were viewed by brands as a nuisance, but now the discipline is so key that it’s a given that any sizable ownership group, property, real estate investment trust or brand will have dedicated asset management teams.

Power of data
Russo said one of the biggest advancements in hotel asset management over the years has been the increased availability of data. She said having weekly performance data revolutionized asset management in the 1990s, and she believes the increased availability of predictive data and consumer psychographics will help push the industry forward.

“Today, we have resources that can tell you your current situation for the future so you can influence,” she said. “Back when I was at John Hancock, all we had was a monthly STAR report. I would’ve loved to have that forward-looking data.”

Wilson agreed that more and better data will help asset management continue to move forward. He said he’s particularly optimistic about data that looks at the costs of distribution.

“That’s one of the really big issues for all of us now,” he said. “The costs of booking our rooms has gone out of our hands and into the (online travel agencies), and as a result costs have gone up significantly.”

Talent pool
Sources said the talent pool for hotel asset managers has changed drastically since the early days when few asset managers had any operations experience or knowledge.

Both Russo and Johnstone noted that college hospitality programs are making asset management more of a focus, and while hotel asset management degrees are still not an option, many top hospitality programs include asset management courses.

The talent pool “is dramatically better, I would say,” Johnstone said. “Now young people come out of college thinking about (hotel) asset management as a profession. We didn’t have that before.”

But Wilson said recruitment efforts are stymied somewhat by the limited number of large-scale consulting companies operating in the hotel industry. He said those consultancies were feeders for the asset management profession in the past because they allowed people with operations experience to get more knowledge and expertise in relevant fields.

“I think the difference today is we don’t really have those incubator companies that really teach the individual how to consult in this industry,” he said. “We have to rely more and more on people with operational and financial experience in the industry and train them (to consult).”

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