Asset Management Vital in South East Asia

The region lodging real estate is becoming more and more concentrated in hands of institutional owners, real estate investment trusts, and investment pools. These entities core business is development and acquisition, and they need for property-management expertise fostered the growth of hotel operating companies. Sometime hotel owners paid dearly for the expertise of the operating companies they helped create. The hotel management contract heavily favored the operator, often leaving the hotel investor with no return on investment. Operators will naturally have the tendency to overspend, to create ever more lavish hotels offering more services and amenities, thus ensuring the brand’s continuing acceptance in the consumer marketplace. This trend is quite tangible in the South East Asia and although it helps to develop spectacular properties, the return on investment for the owner was affected. This problem has been identified and the trend is changing. The past couple of year, most hotel ownership decided to require asset management to control the operator and realize their investment goals.

When the hotel ownership and operational responsibilities are separated, there is strong attention on investment returns on the part of the owner which in turn leaves a smaller margin for error for the operator. As the eyes and ears of the hotel owner, asset management offers an external perspective to the hotel and act as the bridge between asset owners and operators. The primarily objective of an asset management seeks to assist hotel owners or investors to realize the full value of their hotel assets through a continuous process of value creation and enhancement. It help the owner to strive to achieve this by optimizing operational, financial and capital efficiencies of the hotel with the ultimate goal of maximizing profits and investment returns for the owner and investor.

Asset managers provide a vast array of management oversight, analysis, and support services for hotel owners. The specific range of services provided varies; but most asset managers, to some degree, provide the following services:

Monitoring Operational Performance

The asset managers visit the hotel on an ongoing basis to ensure that the management team is effectively managing, marketing, and maintaining the hotel. Asset managers will meet the management team to discuss the progress to date on pre-established goals and objectives of the management staff. During these meetings, they analyze the hotel’s monthly financial results and review any significant variances from the budgeted figures and prior years with designated representative(s) of the management company to ensure an appropriate plan of action is developed, and to closely monitor the implementation of corrective actions. Asset managers also monitor the operating expenses to ensure that effective cost-containment practices are in place, that the expenses are in line with those of comparable properties and industry standards, and that property management is maximizing cash flow. For owners of more than one property, some asset management firm provide centralized accounting services to the owner, allowing comparison and an overall perspective of the hospitality investment.

Reviewing Annual Budget Proposals and Oversight of Capital Expenditure

At the end of the calendar year, the asset managers participate in the development and approval of the annual sales and marketing business plan, capital improvement plan, and operating budget as permitted by the terms of the management contract. The hotel owners or investors are advised on annual business plans presented by the operator, including recommendations for adjustments to the proposals. In addition, the asset managers review the capital expenditure budget presented by the operator. They also determine appropriate strategy to maintain the good physical condition of the hotel, ensure its legal compliance and most importantly create incremental value.

Align the Interest of Ownership and Operator

The asset managers act as an owner’s representative to ensure that the operator is in compliance with operating agreements, including full analysis of the operating agreement clauses, such as franchise and management fee payments, reporting requirements, and services provided. They will meet with senior executives of the management company to establish a working relationship with the corporate-level representatives responsible for the management and operation of the hotel. They will evaluate the strengths and weaknesses of key management staff on a continuing basis and inform ownership on the experience and effectiveness of the on-site management team.

The asset management services will advise the hotel owner of any management issues and will optimize investment strategies for their asset. They will review the industry trends that may affect the hotel and project future increments in market value from holding, renovating, expansion, or other strategic alternatives. Basically, this service will ensure that the hotel is acquired for a reasonable price; is then operated accurately during the ownership’s period; and eventually is disposed of at an appropriate time and price. Frequently asset management customaries services to better respond to the owner’s needs. The services may include support for renovations, takeover and acquisition supports, supervision of mixed-used development, and assistance for fractional ownership (e.g. sale of apartments or villas).

There exists no typical, industry-wide set of guidelines describing the services provided by asset managers; no exact standard, or consistent compensation formula, to provide for such services; and no standards specifying the length of asset management contracts. There are three general types or categories of asset managers: asset manager within ownership entity, or affiliate; independent firms unrelated to asset ownership; and individuals that may or may not be related to the ownership entity. There is not industry standard and there is no best solution as long as your asset manager remains independent and achieves the investment goals of each owner and investor. Today the asset management function is an important component of the industry and can provide ownership with valuable oversight, analysis, and strategic planning guidance. Ownership and asset management representatives should work closely to define the precise scope of work anticipated, and to determine an equitable compensation for these services to assure a win-win situation for both parties that results in profit and asset value maximization. Asset management is necessary to capitalize on financial performance and therefore asset value, and it is well in excess of the cost for this type of services.

Alex Sogno is the Managing Director of Global Asset Solution. The company provides expert oversight and owner representation in the hospitality industry (asset management, brokerage, consulting). For more information please contact [email protected] or visit .