Strategies for value creation should consider whether a hotel’s investment objectives are driving operations and utilizing all available resources.
Historically, value creation for hotel owners has been focused on operations, growing the bottom line, investing capital for a return on investment, and strategizing on the exit.
While these strategies will always be at the core of what we do as asset managers, the phrase “value creation” has become another buzzword. It is important to periodically take a step back and reflect on how the hotel fits into an owner’s individual investment goals and recalibrate strategies to capitalize on opportunities for future value creation.
There are several key questions owners should revisit when developing value creation strategies for hotels.
As a hotel owner, what are your goals and objectives? Why did you invest in this asset? Has your strategy changed over time? Should it have changed considering shifting market dynamics? Investment objectives, which are often adjusted during the lifecycle of the asset, should drive operational strategy at the hotel level, but do they?
If you plan on a short-term hold period, you may be more focused on driving revenue, controlling costs and optimizing NOI for a higher return. There may be some capital investment integrated into the plan, but likely aimed at projects with a shorter payback, or strategic improvements to remove a potential obstacle to a sale, that you may need help with managing and executing.
If your objectives are longer term, you may be less sensitive to market cycles so long as the hotel is growing or maintaining RevPAR share within the market, and your cash needs are being met. This allows you to take a longer-term view on business strategies and consider capital investment or ROI projects with a longer-term payback (e.g. re-positioning, re-branding, converting underutilized spaces, seeking entitlements for expanding or integrating mixed-use, etc.).
Investment objectives are only useful if all resources are aligned towards achieving them. Have you effectively articulated your expectations to the management team, brand and/or franchise? Do they understand what you are looking to accomplish with the investment and how their plans and actions impact that outcome? Ensure all your resources are steering hotel performance in the direction of your goals.
Too often the people responsible for executing the plan are not aware of the goal. Operations means exactly that to the people on the ground – to operate the hotel, to keep it running on a day-to-day basis, using the budget as a guidepost. They are likely to be less focused on the long-term strategy.
Be as transparent as possible with the property team on what the investment objectives are, and how each year’s performance contributes to the longer-term investment. This is not to say that all employees need to be in the know about the specific timeline for executing on an exit, as this could result in fear of the future and attrition. But you could share specific goals for areas that might make for an easier sale (and a higher value), such as improved NOI or brand standard audit scores.
I look back at my time spent as a manager within the front office and housekeeping departments and think about what I might have done differently day to day if I had a better understanding of ownership’s goals. I would have looked beyond the check-in process or the routine cleanliness inspections and focused more on optimal scheduling or looked for new and better ways to reduce my departmental expenses.
In the land of automation, do not overlook the human touch. When it comes to service delivery, sales prospecting and price positioning, machines do not always know it all or have the answers. Only people can know and understand the nuances of guest preferences, which prospective clients are more likely to return a call, or how certain events impact market demand. Make sure you have the right people in the right places, and at the right times.
Evaluate your financial and performance metrics. Do they relate back to your overall objectives? If they are not aligned, is there an action plan to get there?
Benchmark often—against yourself, against competitors, against like hotels. There is always room for improvement. Data is all around us and more readily available than ever before. Benchmarking can go beyond revenue and expense KPIs. Focus could be placed on guest scores, online reviews, employee satisfaction, turnover rates, accident rates, forecast accuracy, sellout efficiency and more.
Encourage your management teams to leverage data to develop “best in class” metrics for each property type and hold teams accountable for establishing goals to achieve them. Information should be treated as a tool, not a weapon. And make it fun! I’ve never known an ops team that didn’t love a competitive challenge.
Keep a close eye on productivity metrics. It is easy to see if payroll dollars are up or down to the goal, but dig in. Ensure managers are tracking hours per occupied room (POR) for rooms positions or hours per cover for F&B positions. Teams should review labor statistics daily and weekly to find savings opportunities based on business volume.
Have you given thought to what value creation looks like for your investment in the future? Historically, value creation was based on economies of scale, standardization and streamlining of processes. When we look out at the horizon, we see more value being created through creativity, mass customization (think Amazon recommendations), and new products or services that solve annoying problems. Are there ways your asset can create a point of differentiation using one of the above, separate from the pack and shift away from the commoditization of the hotel room?
Use your hotel team to help innovate. As the people on the ground, they experience first-hand what resonates most with travelers and what guests are most likely to complain about. They will have creative ideas, if only given the opportunity to share. Get the team to think differently about how they view and do their jobs.
There are many approaches you can take to execute your value creation strategies to meet your investment objectives. One is to surround yourself with expertise, in-house, or with a third-party asset manager who has the knowledge, resources and capability to execute. While the examples shared may seem basic, lots of detail is required to mine true value from a hotel.
Emily Wilson is a vice president of asset management at CHMWarnick, a member of the Castell Project 2019 Cohort, the International Society of Hospitality Consultants (ISHC) and the Hospitality Association of Asset Managers. CHMWarnick is the leading provider of hotel asset management and owner advisory services.The company asset manages more than 70 hotels comprising approximately 29,000 rooms valued at roughly $15 billion and is advising on development projects valued at over $2 billion. CHMWarnick’s hotel owner advisory services include asset management, hotel planning and development, acquisition due diligence, owner-entity accounting, management/operator selection and negotiation, capital planning and disposition strategy. CHMWarnick has nine offices nationwide, including locations in Boston, Phoenix, Chicago, Fort Lauderdale, Honolulu, Los Angeles, New York, San Francisco and Washington, D.C. For more information, contact 978.522.7000 or visit www.CHMWarnick.com. For the latest company news, follow CHMWarnick on Twitter @CHMWarnick and LinkedIn.
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