Many lending institutions find themselves in the hotel business today. The reason is a hospitality industry roughed up by the worst downturn since the Great Depression. This situation is forcing hotel assets into lenders’ hands. Hotel management is new territory for many banks; however, managing these properties intelligently is essential in a market where every decision impacts profitability. Here are five things bankers must ask their hotel-management companies to ensure their assets maintain value:
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William Edmundson
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1. Is the property in good standing with its brand franchisor from both a financial and a quality assurance standpoint? Your first step is to check if your property is in jeopardy of losing its brand flag. Ask your management company if there is an active product improvement plan and if its plan is realistic as it relates to timing, cost and your capital expenditures plan. If needed, does your management company have the negotiations with the brand in place? Ask how they are monitoring the situation and request they provide you with accurate reporting. Depending on the property’s situation, this is as important as other measures like revenue per available room, occupancy and average daily rate because the loss of a property’s franchise may seriously devalue your asset and trigger liquidated damages per the franchise agreement.
2. What is the property’s condition, and how might it impact future profitability? Guests who see a hotel’s quality decline are likely to try a competitor. In today’s market, guests are being targeted by competitors with newer properties, lower rates or promotions, and sometimes in higher segments of the industry.
3. Are service levels acceptable? The competitive environment is unforgiving. Monitor your property’s guest satisfaction scores provided by the brand. Key measures include overall service, overall product and intent to return. Your management company should be prepared to provide you with scores on every guest service/experience category. If the brand uses Medallia for reporting, ask for the Rival Tracker report to compare scores with your property’s competitive set.
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4. Is there an annual business plan in place? Review the plan for historical performance, forecasts, budgets, capital expenditures, competitive analysis and all top-line revenue-producing areas such as sales and staffing. Your sales effort should be viewed as an investment, not an expense. All property sales leads and account information have considerable value and should be held in an easily accessible, secure database. Be sure all your management company’s sales efforts are specific, measurable and tracked in your sales system’s database. Your sales data is extremely important and should be treated as such. Ask your management company how it tracks sales efforts, how this information is maintained and how secure the data is. Many sales programs are web-based and access to data and key reporting can be provided via the Internet to authorized users. If your property manager does not use this type of sales system, request it implements one.
5. Are there asset-tracking procedures in place at the property? Many operators do not know what they have paid for repairs or replacement of high-ticket items such as heating, ventilation and cooling units or even small items like light bulbs because they do not track them. Often, financially strapped operators will defer regular maintenance to save cost. Closing the swimming pool to save on chemicals or not changing the air filters in HVAC units is not only bad for the equipment, it can drive guest satisfaction down or even cause them to defect to your competition. Proper tracking of warranties and serial numbers can save maintenance and repair costs, but only if the team at the property does it. Consider an industry-standard product such as Hotel ServicePro, Hot SOS or Guestware, which facilitates tracking assets as well as ongoing and preventive maintenance. Tools like this are also effective in tracking the brands and models of products, allowing for sound future purchasing and maintenance decisions.
Asking these five questions of hotel management companies will help bankers intelligently maintain the value of their assets. Margins are as tight as we have seen in our lifetime and every decision impacts profitability.
William Edmundson is a hospitality executive with more than 20 years experience in brand building, culture creation, innovative marketing and sales, operations, and franchise relations. He has worked on industry leading brands for Holiday, Promus, Hilton and Choice. William is currently consulting, speaking and writing for the hospitality/travel industry and can be reached at williamledmundson@yahoo.com or 301-653-0506.
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