Members of the Hospitality Asset Managers Association discussed best practices surrounding brand relationships, OTA channel management and rising expenses.
ORLANDO, Florida—Over dinner at La Luce restaurant inside the Hilton Orlando Bonnet Creek last month, roughly a dozen top hotel asset managers convened to discuss the topics most important to them, including brand relationships, rising expenses, and online channel management.
The wide-ranging, 45-minute roundtable discussion, moderated by Hotel News Now, occurred on the eve of the Hospitality Asset Managers Association’s fall meeting. Following are the notes gleaned from the session.
Working with the brands
Threading its way through the discussion was the notion of how asset managers and owners can work with the brands to ensure each group’s interests are aligned.
“At the end of the day, ownership is concerned about valuation, market value, market (capitalization) rate,” said Barry Robinson, executive VP of hotel investments at Miller Global Properties LLC. “Brands tend to be much more top-line driven, more exposure-driven and where do the two meet?”
HAMA counts approximately 200 members and 1 million global hotel rooms. The size of the group makes it easier to approach the brands, Robinson said. “That’s why the brands listen.”
Michael Doyle, executive VP at Capital Hotel Management, stressed that HAMA’s goal is not to take an adversarial approach with the brands. The group wants to reach a win-win agreement on each issue that arises.
“We want you to have your profits; we want us to have ours because at the end of the day, we have got to finance the stuff,” he said. “People at this table have to sit in front of the lenders and tell that story.”
Ruby Huang, senior VP of asset management at Starwood Capital Group and HAMA president, said it’s crucial that asset managers such as HAMA’s representatives have a seat at the table when brand executives are thinking about how best to extend their reach.
“As brands become more asset-light and they focus on promoting their brand equity, we need to find more balance between building both the brands' and the owners' equity," she said. "We need to ensure that owners are an integral part of the decisions that impact any brand related costs that are passed on to the owners.”
Brand standards have to be able to generate a return on investment, the HAMA members agreed. The implementation of technology is one example, Doyle said.
“Technology that the world is able to come forth with today is much more advanced than it was 10 or 15 years ago,” he said. “This industry is catching up with where other people are in terms of not just day-to-day, but minute-to-minute yielding.”
But there’s a price to such innovation, Doyle said.
“Technology has operating costs as well as capital costs, so we’re trying to figure out when a hotel tells us they need a system in the hotel, well that system has to have a ROI,” he said. “No one wants to develop stuff more than us; we love it. But we have to be able to finance that.”
Several members of the group said their respective companies are dealing with higher operating costs.
Higher costs are being seen in areas such as fees, interactions with online travel agencies and labor, said Maxine Taylor, executive VP of asset management at Chartres Lodging Group.
“We’re seeing expenses growing faster than the (revenue per available room is growing) so it’s not slowing necessarily because you’re getting all these added fees on everything you do,” she said.
The group agreed labor is the single biggest expense contributor on a hotel’s profit-and-loss statement. Doyle said it’s important hoteliers identify opportunities where labor cost savings can be achieved.
For instance, he suggested hoteliers consider combining job functions within a hotel. That can help improve efficiency.
Revenue managers also should have a strategy when it comes to using OTAs, he said. There’s a price to the online channel and hoteliers have to know what it is. “It’s an intricate conversation.”
Living with the OTAs
The group also discussed best practices surrounding OTA partnerships.
Michelle Russo, the president and founder of Hotel Asset Value Enhancement, said OTAs aren’t bad, but hoteliers have to know how to use them effectively. In fact, she said, there are situations where taking an OTA rate can be more profitable than other rates.
“We have done analyses in low-rated markets where there is very low corporate-negotiated rates that if you take an OTA rate, the net RevPAR is higher than if you took a corporate negotiated rate booked through the (Global Distribution Systems) that is commissionable,” she said.
Still, Wayne Williams of Warnick + Company, said hoteliers who use the OTA channel should look at net RevPAR (RevPAR less the expense of booking the room) rather than traditional RevPAR.
“OTAs are a perfect example of how you may think you have a good RevPAR, but the profits are being eroded because that revenue is being seriously eroded,” he said. “We’re not taking RevPAR at face value any longer and just looking at the expenses behind that just to generate a reservation.”
Howard B. Isaacson, senior VP of asset management at RLJ Lodging Trust, said hoteliers have to understand the OTAs and how their business models work.
“Take more ownership … versus depending on others to have that relationship,” he said.