What’s top of mind for global asset managers
 
What’s top of mind for global asset managers
15 JANUARY 2016 7:32 AM
Global asset managers discussed goals, brands and opportunities, among other topics, in this virtual roundtable hosted by Hotel News Now.
GLOBAL REPORT—Asset management in hotels is commonplace in the United States. However, the practice in other regions isn’t always top of mind, and in some cases it’s still emerging.
 
Hotel News Now hosted a virtual roundtable with global asset managers from the Hospitality Asset Managers Association to get their takes on the practice in their respective regions of the world. The organization comprises 210 members and represents 3,500 hotels with 775,000 rooms.




 
 
   
 
   
 
   
 
   
 
   




1. What are the top three goals of an asset manager where you practice?












 
René Bernard Beil, Managing director, Beaufort Global Partners
 “This can vary accordingly for the reasons that sovereign wealth, royal families, family offices, high net-worth individuals, as well as private and institutional investors all have different investment strategies, and each respective mandate from ownership is distinctive and unique.
 
“However, the most common denominator is for the asset manager to maximize and drive true value for respective hospitality asset. This is achieved in the various forms best suited as per the investment strategy. Nonetheless, driving revenue per available room and constant improvement on current and future revenue sources remain high on the asset manager’s list of priorities. (I.e. in the region the correct food-and-beverage offering is most essential and at times vital as one of the key drivers for success). Tax implications are less relevant in this region of the Middle East, and disposition strategies are also rather limited.”
   









 
Tasos Kousloglou, EVP of asset management, Asia, JLL Hotels & Hospitality
 “Hotel asset management equips the owner with strong hotel operational, investment and property expertise to ensure that the operator is focused on maximizing value and the owner’s returns.
 
“The top three goals of an asset manager are:
a) to maximize hotel profitability and asset value in a sustainable way;
b) work with the operator to ensure that ownership interests are proactively protected; and
c) ensure an appropriate exit strategy (is) in place according to the investment strategy of the ownership.
 
“Instilling best practices; selecting the most suitable brand; monitoring compliance of the (hotel management agreement); benchmarking the performance of the key operating departments and channels against the competition; and managing proactively the capital expenditures, key contracts, operational and ownership expenses are some of the tools the asset manager uses to achieve those objectives.”
   
Tao Zhou, CEO, Luneng Group Hotel Management Company
 “During the planning period, to choose a right grade and the most suitable brand for the pipeline hotel. During the construction period, to control construction cost. ... During the operating period, from (an) asset management point of view, make sure that the hotels are operated in the most efficient way by using key performance indicators such as revenue, gross operating profit and total labor cost per staff.”
   
Anna Abe, Partner, Hotelvalue Advisors
 “Maximizing owners’ return as principal; increasing average daily rate since occupancy is hitting the ceiling especially in major cities like Tokyo and Osaka; and controlling construction cost due to the high demand of new development projects.”




2. What is the thought behind the myriad new brands rolled out over the past several years?












 
René Bernard Beil, Managing director, Beaufort Global Partners
The ME region historically has a lot of comfort with branded operators and full-service product offerings. Considering the high-profile expectations of ownership in the region of the Middle East, there remains a reservation to partner with independent brands for the reasons such as lack of exposure, bandwidth, regional and cultural understanding by the independent brand, which translates into a shortage of comfort from ownership.
 
“However, in recent years we are seeing an entry of newer brands which has been spurred on by the regions renewed development in hotel real estate in particular cities, such as: Dubai (Expo 2020); Doha, Qatar (FIFA 2022); Abu Dhabi, United Arab Emirates; and Riyadh, Jeddah and Makkah in Saudi Arabia, just to name a few. Due to the increased demand for operators, new brands have now a platform to enter the region and gain awareness and market share.”
   












 
Tasos Kousloglou, EVP of asset management, Asia, JLL Hotels & Hospitality
“Judging by the number of branded hotels and the development pipeline, hotel owners show strong preference to international operators and brands, as strong brands can add value to a hotel and deliver measurable results that often outperform the competition. This is due to their strong and lower cost distribution engines against third parties, ability to attract talent and leverage economies of scale.
 
“Hotel development in Asia is becoming more mature and currently most international operators are well represented in key gateway cities such as Singapore; Hong Kong; Tokyo; Sydney; Bangkok; Jakarta, Indonesia; and Kuala Lumpur, Malaysia, among others. Owners are more open to consider economy, midscale and upscale hotels for their development that help them to achieve the best investment returns for their real estate. However, we see also a number of mixed-used developments where the hotel is the jewel on the crown. In many of those cases, the hotel aims to maximize the value of the entire development.
 
“We have also seen a good number of new brands entering the market over the last five years. Part of the reason was to circumvent certain territorial restrictions in key cities and also allow the international operators to target more effectively new market segments.”
   
Tao Zhou, CEO, Luneng Group Hotel Management Company
“In China, the hotel market is so crowded. In some major cities such as Beijing, Shanghai, Chengdu and Sanya, almost all international brands are there. Brands must roll out new ones so that they can enter the market. Lifestyle, boutique hotels are increasing. As the Chinese hotel market (slows) down, developers and owners start thinking about building more 4-star or even 3-star hotels.”
   
Anna Abe, Partner, Hotelvalue Advisors
“Limited-service brands, especially midscale, are increasing in Japan. Most of those new brands are domestic, which are developed by the existing hotel owner. Hostel and capsule hotels are also popular categories aiming for inbound travelers. Investors who have not invested in hotel assets are favoring those types of hospitality assets since they require lower initial investments.”

 


3. How do owners and asset managers work with the individual brands? What are the relationships like? Have these roles changed at all over the past several years?












 
René Bernard Beil, Managing director, Beaufort Global Partners
“New entries into the Middle East region by individual brands require a very different approach from the established and seasoned brand operators who have been successfully operating for past years in the Middle East and have a solid understanding of culture and market with established, time-honored, long relationships.
 
“With new individual brands, a lot more attention is required toward educating them on the sensitivities, delicacies and intricacies of this complex region with the many different cultures, customs and also landscape climate. There is a lengthy period of ‘hand-holding’ in order to ensure that the brand rolls out effectively and successfully, and this is a particularly critical area where owners benefit from solid asset management expertise with in-depth local and regional understanding of respective markets.
 
“One of the challenges is that the new individual brands (that) enter the market as newcomers are not culturally sensitive enough toward the complexities of the Middle East region and apply or depend too heavily on a business model which has been successful for them in their own respective western or eastern markets. However, what might be a modus operandi for success in other markets could have the adverse effect in the Middle East. To ensure quality, sustainability and success, all three stakeholders of ownership, asset manager and individual brand have to work very closely and hand in hand until the property has reached a maturity level.”
   

 
Tasos Kousloglou, EVP of asset management, Asia, JLL Hotels & Hospitality
“Asset Management is still in its infancy in Asia. Increasingly, most active owners of third-party-managed or owned-managed hotels in Asia/Pacific today view asset management as integral to their efforts to maximize return and enhance the asset value of their hotel portfolio. The relationships are not always a smooth sailing. An important role of the asset manager is to proactively manage this relationship in a manner that benefits the hotel.”
   
Tao Zhou, CEO, Luneng Group Hotel Management Company
“In China, owners work with individual brands through (the) owner’s (representative) and deputy finance controller. In some cases, these two positions are also part of operator’s team members, so they report to both GM and owning company.”
   
Anna Abe, Partner, Hotelvalue Advisors
 “Most of the individual brands are owner-operator in Japan.”




4. Geographically, where do you see are the opportunities for asset management contracts?











 
René Bernard Beil, Managing director, Beaufort Global Partners
“In the Middle East, Dubai is the most mature market for hospitality asset management, followed by Abu Dhabi and Doha. Historically, the region has comfort with some role of owners’ representation; however, this position is generally filled by a person of trust and close personal relationship to ownership instead of an individual with professional skill sets in finance and asset management. Although the trend is slowly moving toward increased interest and awareness for professional hospitality asset management, greater exposure as well as education of the market is required in order to see any significant growth for opportunities for asset management contracts. The region for now remains heavily operator-driven, which is due to the brand operators having long-standing, time-honored, close and established relationships with strong brand recognition throughout the Middle East and Africa.”
   

 
Tasos Kousloglou, EVP of asset management, Asia, JLL Hotels & Hospitality
“Asia has enjoyed robust tourism demand in the past few years. However, the strong pipeline of new hotels in the region, changes in the distribution landscape and operational challenges in the local markets have also put pressure on hotel profitability in several key markets. As a result, there is an increasing demand for asset management teams that possess a well-equipped toolbox of varied skills.”
   
Tao Zhou, CEO, Luneng Group Hotel Management Company
“In China, asset management contract opportunities may be found in the cases that owning companies are banks or relatively small hotel owners/developers located in tar-tier cities or inner part of China.”
   
Anna Abe, Partner, Hotelvalue Advisors
“The third-party asset management contract is not yet recognized in the Japanese market compared with other areas of the world.”

 


5. How much should be set aside for capital-expenditure spend? When is the best time to invest in CapEx and why?









 
René Bernard Beil, Managing director, Beaufort Global Partners
“This depends on brand, classification, size, the macroeconomic cycle and other factors. A budget hotel will require limited CapEx set aside. A luxury resort will require significantly more. Industry standards are up to 5%, scaled to the fourth year of operation for luxury hotels, while budget hotels will not likely require more than 3% by the fourth year.
 
“It is prudent for an owner to set aside the equivalent in equity in order to ensure sufficient funds by the time a renovation is necessary. Depending on occupancy levels, major investment will likely be required by the sixth and seventh years.”
   

 
Tasos Kousloglou, EVP of asset management, Asia, JLL Hotels & Hospitality
“The amount will depend on the age of the property, its needs and the competitive market. In light of the competitive market environment and changing needs of the guests, hotel owners and operators should be working closely together to ensure that a long-term CapEx strategy is in place. This strategy should aim to improve the competitiveness of the hotel through proactive asset enhancements and not only on addressing the changing brand standards that often do not improve profitability of the hotel. The timing of a refurbishment or a renovation should always take into consideration the asset and market lifecycle and the hotel’s competitive positioning and changing needs of the guests.”
   
Tao Zhou, CEO, Luneng Group Hotel Management Company
“CapEx spend should be based on the schedule based on (an) engineering report, which is not common yet in China. It should be on top of furniture, fixtures and equipment, and the amount should be equal to it. The best time to invest CapEx is before equipment is broken. It should be based on (a) preventative way of thinking. Asset managers should push owners to learn the importance of the engineering report.”
   
Anna Abe, Partner, Hotelvalue Advisors
 “In general, investors are recommended to reserve 3% of revenue; however, it varies property to property.”





 

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