Fred Novella, managing director, Global Asset Solutions shares his insights on asset managers
The pandemic has bought many investors closer to their assets than they have previously been comfortable. Closer to operations, closer to the team, in some cases closer to the hotel itself as taps are kept running and insurance terms met.
This proximity has given them an appreciation of the complexities of hotel operations and the importance of an experienced asset manager, an appreciation that has spread to the lending community while the recovery continues its uneven journey.
We have started to see lenders insist on having an asset manager in place, much as they used to insist on a brand. This is true for hotels that are both under stress and running relatively normally.
In the case of the former, there is a wall of money looking to pick off distressed assets, but many owners are finding that an alternative to a fire sale is to invest in an asset manager.
With trading volatile, there is no previous precedent or historical data to refer to. Revenue management software systems do not have reliable data to process. Furthermore, most revenue managers positions probably did not exist during the last major business downturn, the 2008/9 financial crisis.
Advising hotels
In order to advise hotels, hotel asset managers work with robust revenue management experts and monitor the trends of several metrics. These metrics include analysing the general market prices beyond the comp set, Google analytics, macroeconomic indicators and more to assist in the room’s price mix strategies. The operator will most likely place an emphasis on the occupancy rate and adjust the prices to attract the available demand. However, owners are generally more focused on monitoring the profit and cash flow performance, and less concerned with the occupancy rates.
The role of the hotel asset manager includes making sure the funds are being spent where it makes the most impact by reviewing the operator’s proposal and negotiating what is fair and necessary for the hotel owner. Furthermore, hotel asset managers assist in funding decisions by analysing the risks, negotiating with lenders, maintaining monetary and reputational capital, and eventually optimising the capital structure.
Ensuring parties work together
For those hotels with strong domestic or leisure markets, asset managers are also increasingly being seen as a must-have.
There have never been more participants in the hotel stack than now. The owner/operator model is now the exception, not the norm, and the pandemic has meant that even more participants may have joined the stack as emergency funding was sought. The asset manager can help ensure that all parties work together and all parties have their interests served.
Lenders, particularly those new to the sector, such as we have seen moving over from office and retail during the pandemic, may need specialist advice which can only come from asset managers, from those people who are at the heart of the operation.
Having a track record across a number of different properties can help all hotels, not just those under immediate pressure, find a profitable way out towards a more normal environment.
To help all parties achieve their goals, we need to maximise total revenues, and minimise costs; overhead costs, F&B covers, meetings and conferences, retail and so forth must be considered. In addition to RevPAR, hotel asset managers also include other metrics such as GOPPAR and flow-through as key performance indicators. These additional metrics help monitor hotel operations and financial performance.
The hotel sector – and the wider world – is in the middle of a costs crisis, with energy and staffing accounting for more cash than ever before. Asset managers can help manage all these factors and help the property move towards profitability. They can advise on where hard-found capex should best be deployed to compete effectively and draw guests.
The hotel sector is coming out of the pandemic looking very different to how it went in. Amidst the pain, there have been great learnings that will be carried into the future. But only by working with experienced asset managers can you spot every critical nuance.
Fred Novella is managing director of Global Asset Solutions
