Artful management drives positive alpha and value for investors.
It starts with identifying each asset’s unique needs, then selecting an asset manager with the experience and expertise to meet those needs and positioning it for long-term success.
Criteria for Selecting an Asset Manager
Looking at each asset by its needs is critical. “When we underwrite acquisitions, underwrite asset purchases, we know exactly what will unlock the value,” said Ash Kapur, managing director and head of U.S. hotel asset management for Starwood Capital Group, noting, for example, it could be an opportunistic buy in need of renovation or a development play. “As asset owners, we try to mirror the asset’s needs to the competencies the management company has.”
Kapur noted that during the underwriting process when an asset’s P&L is found to be “screaming extremely low margins and high payroll costs,” Starwood seeks a management company that specializes in “running a lean ship.” Or if the hotel is constantly “under indexed on ADR, but over indexed in occupancies, Starwood looks for a management that does well on topline revenues and a development company that can help renovate, reposition, and rebrand it.
“So it’s the needs of the asset that should decide which management company you pick, as every asset has its own requirements,” he added, noting that if it’s a food and drink repositioning, hire a management company that has a good food & beverage division. “The acquisition process should clearly spell out the strategy that this asset will go through.”
Three major factors guide the selection of third-party asset managers, said Cartarwa Jones (CJ), senior vice president of Investment & Portfolio Analysis at RLJ Lodging Trust, a hospitality REIT.
They are: breadth of operational experience, broad market experience and hands-on experience. “Asset managers employed by RLJ Lodging Trust have worked in a ton of U.S. markets where our hotels are located in.”
She also noted that standardized revenue reporting helps to better understand trend lines. “We constantly evaluate management companies and their performance. Having an in-house asset management team helps to drive operational performance.” Jones said, but noted that her company also uses third party consultants for things like energy performance to secure contractual cost savings across hotel portfolios.
“The way contracts are written today, management companies shave off the top, Kapur added, noting that incentivizing management companies on the bottom line can increase profits. “They can take a higher fee,” he said. “We're fine with that, because it pays for itself, eventually.”
How Data and Technology Improves Performance
“What CJ and Ash touched on is reflected in the data sets that indicate performance over the years,” noted Joshiah Mackenzie, vice president of marketing at Actabl, which offers hotel labor-management software. “There's incentive structures that Ash alluded to, and there's also data sets and reporting on ways of working together with different partners in the ecosystem that play a really vital role in this,” he added.
When looking at high performance, Mackenzie said that there are a lot of structures with similarities around using data to ensure that everyone is looking at the same metrics and having productive conversations that drive up performance and use data in a proactive way.
He emphasized that data reporting needs to be as close to real-time as possible, because the environment changes daily. If every industry participant is looking at the same scorecards, they’re able to act on it and be more proactive in areas, such as areas of efficiency and guest satisfaction.
Kapur stressed the importance of data integrity, noting that while AI is a major focus for hotel owners and operators to evaluate and improve performance going forward, the data fed to AI must be accurate. He said that currently AI is used as a vertical. “If I want to look at certain KPIs (key performance indicators), I'm looking at AI within that vertical. Or if I'm doing a deep research, it provides negative reviews over the last 12 months.
“What I think will be very beneficial is when those vertical AI buckets are a horizontal layer on top of all of those verticals,” Kapur continued. “That allows us to play across these verticals and tells us what's working, what's not,” Kapur continued. “Then that data becomes compelling, actionable.”
When navigating economic uncertainties, Kapur believes that the first step in approaching headwinds from a profit and loss standpoint is to look for opportunities that exist at top of the line, at revenue streams, rather than cutting costs.
He noted that during the COVID-19 pandemic, for example, he ran a Starwood company where hotel rooms that had averaged 85-90 percent occupancy when other surrounding hotels were shutting down. These were not extended-stay.
“We looked at the opportunities that existed and focused heavily on revenues. We were very strategic and surgical on the kind of business we took,” Kapur said. “So don't go up the quintessential ‘I'm going to cut costs,’” he recommended. “Focus on revenues.”
Read the rest of the story on Hotel Management's sister site Hospitality Investor.