LOS ANGELES—Contrary to what industry soothsayers predicted at the onset of the recession, banks largely have maintained the values of hotel assets that are finding their way back on lenders’ balance sheets, a panel of asset managers said Tuesday
Owners, on the other hand, haven’t been as successful, the asset managers said during a panel titled “Asset Management Strategies” during the Americas Lodging Investment Summit.
The willingness of banks to step up during the past 24 months is one of the biggest surprises of the recession, said Robert Chitty, senior VP of capital investment and transaction for the Americas at InterContinental Hotels Group. As the rocky 2009 unfolded, he thought lenders would allow many distressed assets to fall into disrepair. But banks recognize the importance of a well-maintained property, one with a strong brand behind it, he said.
Or as Anthony Dimond, principal with Horwath HTL, put succinctly: “Banks get it. They know the brand absolutely has to be there.”
Many lenders also know they lack the expertise to successfully manage a property, a realization that has allowed management companies such as Driftwood Hospitality Management to step into the fray.
The North Palm Beach, Florida-based company is managing a handful of assets for various lenders, said Brian Quinn, Driftwood’s executive VP.
Owners a different story
Many owners, on the other hand, haven’t been as diligent, the panelists agreed.
The reason is obvious: When choosing between paying debt service or refreshing guestrooms or lobbies, most owners opted for paying debt service, Quinn said.
The management team at RSBA & Associates resisted dipping into its capital expenditure reserves, into which it contributes 4% of revenue on average.
“We fund everything internally. We are always ahead of the game,” said Rick Swig, the company’s president. “… 0ne of the reasons we are successful is that we continue to put money back into the properties.”
While many cash-strapped owners might view renovations as a defensive move to keep pace in their street-corner warfare, Swig advised attendees to think of them as an offensive strategy because they generate revenue-per-available-room growth.
But even an offensive-minded owner might not have the necessary funds to contribute.
“It’s only coming from cash flow or it’s not happening at all,” Dimond said.
Chitty took a different opinion, saying some banks are making recourse CapEx loans that have strict underwriting.
“Six month ago we couldn’t find anybody doing CapEx loans,” he said.
Brand amenities and PIPs
As if the current operating environment wasn’t challenging enough, brands also are getting more aggressive on delayed brand amenity rollouts and property-improvement plans.
“It’s a never ending game of chicken,” said Richard Moreau, COO and executive VP of asset management for Strategic Hotels & Resorts. “The brands have to maintain the integrity of their product. That’s how they maintain their reputation (and how they drive demand to the franchisee).”
During IHG’s much publicized Holiday Inn refresh, for example, the company took a hard line stance against all owners—including those who had been in the system for 30-plus years, Chitty said.
“For the Holiday Inn relaunch, we were anal,” he said. “There was yes and no; you were either in or you were out. It was black and white … and it was successful.” IHG kicked hundreds of owners out of its system during a seven-year period, he added.
That said, the timing of those requirements is a bit “fudgeable,” Quinn said.
“Sometimes you have to say, ‘We’re not going to be able to get here,’ and you have to look at a different brand option,” he said. “… Some brands are more flexible than others, but that’s part of the adventure.”
Costs and revenue
When asked whether costs are exceeding revenues, the panelists agreed that has not been the case.
However, some costs are growing exponentially—namely marketing.
“They have gotten completely out of control,” Swig said, adding RSBA spends nearly US$80 per luxury or upper-upscale room on marketing.
Social media also is major contributor to those costs, the panelists agreed. Strategic , for example, spent US$500,000 to oversee its social network last year, Moreau said.
