Hotel Asset Management 101 for Hotel Investors
By Alex Sogno , CEO of Global Asset Solution and Inès Blal, Professor at Ecole Hotelière de Lausanne
Who needs HAM services?
If you are considering a hotel asset manager (HAM) it means that you own (or plan to own) a hotel and consider hiring a company to manage it. In this case, a HAM is a company that will make sure that your interests as an owner will be protected and you have a specialist partner that makes you understand the specific features of the hotel industry, and most importantly optimize the value of the asset.
Why hire a HAM?
In a hotel management agreement, the owner hires a hotel operator to manage the daily operations of the hotel business. But like in any contractual relationship, interests do not always align. Hotel operators are focused on protecting their brand standards and growing their network and scale. Hotel owners, on the other hand, are concerned with their particular properties(s) and increasing its value through enhanced profitability.
While, these interests often meet in a hotel management agreement, the balance is not always optimal for the owner. The divergence of interests starts at the negotiation of the hotel management agreement. It can be difficult and costly for non-hospitality professionals to identify the right operator, best terms and foresee future problems.
Then, during operations, there are several steps where a special set of skills combining hotel operations and financial management are required. The regular detailed review and analysis of the financials (P&L, balance sheet, budgets, cash flow and plans) is one example. The approval of the Capital Expenditure is another instance where specialist knowledge is required. Similarly, during daily operations, there are elements, such as accounts receivable, which can be neglected by operators and which can improve the cash flow of the owner. There also are significant costs associated with the operator which need to be monitored, controlled and rationalized.
Most importantly, a HAM ensures that operators use the latest techniques and international best practices in terms of hotel sales & marketing, revenue management, social media, and food & beverage, whilst controlling and maximizing the best flow through to profit.
What to expect from a HAM?
The services of a HAM encompasses three core functions: the review of financials, the control and enhancement of operating performance and legal / investment advice. The focus on one area over another varies with the type of property, the market, and the owner's needs.
The review of financials includes the evaluation and analysis of the budget submitted by the operator which has to be approved by the owner. This subsequently moves into a regular cycle of reviewing the on-going operations from a financial and operational perspective.
The control and enhancement of the operating performance is the central service of HAM. It includes benchmarking, evaluating the alignment of the sales and marketing efforts, evaluating the hotel organizational structure, and representing the owner's interest in any critical negotiation.
Whilst it is difficult to measure the impact of these services across the board, based on our experience, we estimate that a HAM can enhance departmental profits by 3 to 5% and Gross Operating Profit margins by 5 to 15%.
The legal and investment services include advising on capital expenditure assessment, real estate conditions, investment timing, forms of ownership, capital and debt structure.
What are your options?
As mentioned above, HAM services are quite recent addition to hospitality services, as they emerged approximately twenty years ago. Therefore, it is a profession which is still expanding in todays' rapidly changing hotel business climate (especially with the consolidation of operators). But to keep it simple, there are three types of players.
Firstly, large consultancy and real estate firms which are present at international level. They offer harmonizing services such as brokerage, feasibility studies, debt and structured finance, and valuation services. The HAM drives value and benefits from large integrated platforms, centralized resources and synergies from other business units.
Secondly, there are smaller independent HAM companies, such as Global Asset Solution. These HAMs concentrate in key areas or geographic markets and focus on specific HAM services. They attracted to owners who look for a more personalized service and want to have an independent HAM. Investors seeking the synergies of integrated consultancy services may be best served by large international firms. Whereas, hotel owners wishing to protect their interests and separate their HAM needs from other consulting services (e.g. valuation or brokerage of a competitor hotel) may be best supported by independent HAM companies.
Finally, other owners may hire an in-house asset manager on their team. The shortcomings of this option are that after a few years, the systems of control in place becomes a routine and prevents the identification of new ideas to enhance the profitability of the business. Also, it is less flexible than hiring the services of an external HAM, and it may lack the ability to benchmark best practices from other experiences and markets. Nevertheless, this option remains interesting for multi-property owners.
Tips on selecting a HAM:
In summary, what to look for when selecting a HAM:
- The alignment between your culture and values and those of the HAM
- The HAM's experience in the type of property you invested in
- The HAM's international experience and exposure to different brands
- The HAM's expertise and how it complements other consulting services without interfering with them
- The HAM's track record and years of experience
- Ensuring the HAM is part of the Hospitality Asset Managers Association for learning best industry practices and keep abreast in market knowledge.
- The profile of existing HAM client and recommendations from existing owners
- Certifications like the Certified Hospitality Asset Manager (CHAM) sponsored by the Hospitality Asset Managers Association (HAMA)
Global Asset Solution