Editor’s note: This is the second installment in a three-part series on hotel turnaround strategies. Read part 1, PIP financing remains tough to come by.
REPORT FROM THE U.S.—When looking to return a distressed property to its former glory, a long, hard look at expenses is often one of the first steps.
Keeping expenses under control is integral to the asset’s future success—but where to start? Hoteliers offer these four tips.
Be diligent. New Castle Hotels & Resorts, which is the owner/operator of 28 hotels totaling 4,000 guestrooms, keeps a constant eye on expenditures, said Gerry Chase, the company’s COO.
“We want to be careful now that we are seeing a little bit of a lift that we don’t fall into the danger zone of, ‘OK, let’s go out and spend all the money now that we see revenue coming in,’” he said.
He added, “We think it’s going to be a slow recovery, and we have to be careful we’re not spending money we don’t have.”
Aggressively contest property appraisals. One source of significant savings for Allen Management Hotel Group has been contesting real estate tax assessments, said Michael Allen, president of Allen Management.
The company has seen savings of between 20 percent and 35 percent on the company’s 14 hotels and 1,000 rooms. “That has been a real moneymaker for me,” Allen said.
The practice is especially appropriate in a time, such as now, of declining revenue, said Dan Vosotas, president of Trans Inns Management.
“Hotels are more an operating play than real estate anyway, so we do contest assessments,” he said. “I don’t want to say we do it every year, but we look at it every year.”
Don’t become overly frustrated if city officials, who have budget shortfalls of their own to fill, don’t fall all over themselves to reassess your property, hoteliers said.
“It’s an arcane art,” Allen said of the negotiation process. “I think there’s a science to it, but it’s an art. You get no’s a whole lot more before you get a yes.”
Encourage vendor competition. Renegotiating contracts as often as possible is another way to curb expenses, Vosotas said.
“We really spur competition,” he said. “We like to do that once a year per contract period and put it out to bid, which does help.”
New Castle has been consolidating purchases and getting the best prices by becoming volume buyers, Chase said, adding the company routinely asks for multiple bids.
One example can be found with the company’s liability insurance, which is put out to bid every year. “The insurance industry, I wouldn’t say they’re hurting, but the cost of insurance is more flexible,” he said.
Audit your staffing. And finally, payroll might be the most obvious place to look when considering cost reductions. Despite the potential savings, hotels should be wary of layoffs because the effect on the guest can be negative, Chase said.
“During the most recent recession, we did not do damage to the customer experience,” Chase said. “We retained our best people.” The company employs 3,200, he added.
Trans Inns Management
In fact, talking with associates might be one of the best ways to achieve savings, Vosotas said.
“With them being on the day-to-day line, they’re in a better position to streamline any operations out there,” he said.
But at the end of the day, reality has to come into play: It can sometimes just be cost prohibitive to try to turnaround aging properties so they are able to compete with newer hotels, Vosotas said.
“There comes a time when you gotta know when to fold them and know when to hold them,” he said.