Asset Managers Rise in Asia as Chains Hobble to Support Owners
- GAS
- Apr 24, 2022
- 7 min read
By Raini Hamdi, February 4, 2022
The pandemic is shining the light on the role of hotel asset managers to support Asian owners in their worst crisis ever. But this also puts the spotlight on hotel chains’ ability to perform when push comes to shove.
While asset management is an established fixture of the hotel industry in Europe and the US, it is relatively new to Asia. These firms represent owners to optimize operating performance and increase asset value. Typically they are run by former hoteliers, including those who aren’t from operations but are familiar with owner-operator relations, negotiations, asset valuation and factors affecting value.
Covid-19 may hasten the acceptance, and willingness, of Asian owners to turn to asset managers, the way a sick man goes to another doctor for a second opinion.
Fields of hotels in Asia are in cardiac arrest after nearly two years of international travel restrictions. Domestic travel helps in some markets, but a shift to 2019 performance level is widely accepted to require another two years.
Yet operators are continuing to open new hotels in Asia this year and sign more management contracts. For some owners, this could mean more competition in an already cut-throat market.
Accor alone is opening at least 30 hotels (5,500 keys) in South-east Asia, Japan and South Korea this year. In 2021, it signed 29 hotels (6,900 rooms) and four branded residences (1,800 rooms) in these destinations.
Asia-Pacific is the only region in the world that shows increased hotel construction activity at end-December 2021, over December 2020, reports STR. Nearly 942,000 rooms, an increase of 7 percent, are in construction, final planning or planning stage in Asia-Pacific. Of the total, 30 percent are in China, followed by Vietnam, where 31,000 rooms are being built or in the works.
Asset managers assert that chains are biting more than they can chew.
“There is still fast growth in Asia and global operators cannot support owners, particularly with their high overheads and too many hotels in their portfolios. Many are doing owners a disservice by reducing experienced senior management in their hotels and expecting to provide the same level of service,” said John Gardner, principal partner of Optimum Hospitality.
The company, launched in October last year, is possibly the first hotel asset management firm focused on Vietnam.Chains refute this. Accor’s chairman and CEO, Sebastien Bazin, in an interview last November, said Accor has been supportive of its Asian owners.
Citing a few examples how, Bazin said, “Anything that helps with liquidity has already been done. In the last 18 months, we accepted to be flexible with brand protection. If the property needs Capex and it’s agreed pre-pandemic, the renovation is postponed because the owners don’t have the means to do it.”
Robert Hecker, Horwath HTL managing director Pacific Asia, said some owners may have unrealistic expectations.
“There’s always some form of support that global operators can provide, be it generating rooms sold when external factors allow for it, reducing costs, or whatever. No doubt some owner expectations are unrealistic in current market circumstances,” said Hecker.
Increasingly Befuddled
Even before the pandemic, Asian owners are increasingly befuddled — they don’t know anymore which chain/brand they should go with, they aren’t sure if they have a good GM, they think their hotel is underperforming in its competitive set, they believe the chain is overcharging them, they don’t know what to do when chains present expensive IT and training pre-opening budgets, and so on.
But the overarching issue today is that supersized chains are a thing of the past, and this impacts the support operators can give owners, asset managers maintain. It leads to legal disputes, which can be prevented if there’s proper asset management, they say.
Douglas Louden, senior asset manager, Global Asset Solutions, and president of Hospitality Asset Managers Association Asia-Pacific, said,
“Global operators struggle with their own cashflow through the pandemic, and have had to reduce their corporate structure and infrastructure. As a result, they don’t have the resources, and the touch-points they had pre-Covid, to service owners’ needs. It’s creating stress throughout the hotel environment, as owners are seeking responses from the operators, but are not necessarily getting them as promptly as before.”
Existing owners may find that they are taking a backseat to operators’ development plans, said Louden.
Gardner of Optimum Hospitality said, “I’ve heard many stories during Covid of global operators cutting down drastically on their regional office personnel, which is understandable, then when owners contact them to discuss options and a roadmap for the future, there’s little response or support. Often the operators just leave it to their GM’s to deal with the owners with very little guidance on how to lead them out of the current situation.”
Owners are therefore left to orchestrate their own recovery strategies.
One problem is, many Asian hotel owners are individuals — one man has made his money and wants to build a hotel. In Europe there are more institutional investors owning multiple hotels.
Individual Asian owners aren’t necessarily savvy about running hotels, and are likely the worst-hit compared with other investors such as REITS, sovereign funds, legacy families and self-made tycoons who have built among the world’s most luxurious properties in Asia and are likely have in-house asset management teams.
But therein lies the biggest opportunity for asset managers.
“The pandemic and related stresses to operations have generated a demand for problem-solving that can bridge gaps between owner and operator perspectives,” said Horwath’s Hecker.
Talent Pool
Rising demand is not the only reason for what’s possibly the biggest asset management expansion in Asia to come, triggered by the pandemic. Many senior hoteliers are out of jobs due to chain restructurings or their own resignations. This creates a talent pool for asset management.
Larger owners may engage these individuals as in-house asset managers. Smaller owners may seek out the one-man shows offering asset managing services. Asset management firms suddenly have a wider net of skilled professionals. Patrick Bassett, who retired recently after 40 years with Accor, is now a senior partner at Nova Asset Management Thailand. Gardner, who was leaving Caravelle Hotel Saigon after 15 years, was approached by two hoteliers in Vietnam to set up Optimum Hospitality.
Vimol Kogar, a Bangkok-based real estate consultant, foresees the rise of more local-based asset managers, such as Optimum Hospitality. Thai, Malaysian or Indonesian owners have previously chosen Singapore-based asset managers, he said. One reason is liaison and negotiation with brands is easier as many chains have their regional offices in the city.
However, these owners now feel that fees paid to an asset manager in Singapore are unaffordable, because of low cashflow and currency depreciation over the last 30 months, Kogar said.
Affordability
The big question mark is, even though demand is rising, can owners afford asset managers at all, on top of hotel management fees, when they can’t even make ends meet?
Horwath’s Hecker said having an asset manager is more of an investment for minimizing loss, planning for recovery and maximizing value in the circumstances, but also relieving the owner of the many duties and stresses of asset management functions.
“But of course, not all [or perhaps most] owners are not yet able to ‘afford’ an asset manager. There’s also plenty of revenue-generating and operations related challenges faced by asset managers, just as it is for operators.”
Gardner said, “Well, may be it’s more of ‘can they afford not to have them’.”
Louden, the president of the 45-member Hospitality Asset Managers Association Asia-Pacific, illustrates how savings made through the expertise of asset managers are beyond fees paid to them.
“We sit with the experience of being able to tell owners: ‘this is not right, this is what your operator needs to be focused on, or this is where your operator is going wrong’. And we’re able to intervene on behalf of the owners to try and improve the asset’s performance.”
One of the 50 hotels worldwide that Global Asset Solutions advises is Rosewood Phnom Penh. The property opened in March 2018 and marked the Hong Kong-based operator’s entry into Southeast Asia.
“We’ve been involved with the Rosewood since it opened in early 2018 and in the early days, we did ask for management changes and changes to their sales and marketing focus. We were getting results right up until Covid. Then, through the pandemic, it’s about working with the management company to reduce salaries, layoff expatriates and manage the owners’ cashflow."
“I’m proud we never had to ask the owner to put money into the hotel; we’ve kept the cashflow positive. It’s not 100 percent to our credit as the Cambodian government assisted. December 2021 was the highest revenue month this hotel has ever had, even without major inbound travel. And that trend is continuing in January and February,” said Louden.
Banks have also been supportive in deferring principal payments, he said. A lot of owners he works with pay only interest.
The concern is once business returns to some sort of normality, the banks will want to be paid, said Louden. “And that’s when the distressed assets will really come. I see that as being the problem, and it’s maybe six to 12 months, 12 months down the road.”
Here to Stay
But when good times roll again, will asset managers be forgotten?
“Asset management is an inevitable part of this business,” said Minh Nguyen, deputy CEO of Linh Chi in Vietnam, the owning company of Dusit Princess Moonrise Phu Quoc, a franchise with Dusit International. Nguyen is also an external consultant to Optimum Hospitality.
“Operators must protect their shareholders’ interest. The same applies to owning companies. In the perfect world, the interests should align, but that’s rarely the case.”
As asset managers represent owner’s interest in collaboration with operators, the latter should work closely with them not only in operating the property well but in maximizing the asset’s potential, said Nguyen.
“Most asset managers have a hospitality background, so operators should be open and share their views on operation opportunities and challenges. They should also have some understanding and knowledge of what it means to manage an asset,” he said.
