What makes a great asset manager?
04 FEBRUARY 2016 12:46 PM
While the best asset managers have a mix of skills, the right combination of those skills can vary.
GLOBAL REPORT—Asset manager might be the most-complicated job in a hotel or hotel company. According to sources, the best asset managers combine practical hotel operations experience with solid financial and analytical skills as well as the ability to communicate and build consensus.
However, they mostly differ on the right combination of skills and experience that produces the best asset managers.
“Hands-on experience always helps, being able to understand the granularity of the business, plus the added credibility you have when sitting across the table from a general manager who knows you’ve been there and done that,” said Steven Angel, founder and principal of Fulcrum Hospitality, a New York City-based hotel operator and investor.
“At the same time, having the financial and analytical engine to really understand the nuance of hotels’ income statements and valuations is critically important, too. It’s difficult to be a great asset manager without the benefit of both sides,” Angel said.
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Timothy Dick, managing director and principal of Three Wall Capital, said it’s not always a question of which kind of experience makes a good asset manager.
“No matter their backgrounds, the best asset managers are adept, first of all, at determining what is most important from a business strategy to their clients or the ownership of the hotels,” he said. “From there, they’re able to zero in on those things that are going to help them achieve the stated business plan.
“That said, I still probably wouldn’t hire an asset manager who hasn’t had some operating experience.”
Several hotel owners and operators stressed the need for asset managers to have credibility with both owners and property operators.
“Particularly in dealing with general managers, (asset managers) have to prove themselves in terms of understanding what they are saying and by doing the right research to back up their ideas,” said Maxine Taylor, EVP of asset management for Chartres Lodging Group. “You can’t just tell a GM to raise rate by $5; you have to say, ‘I’m looking at the market and a place down the road charges this much more and they include breakfast, and here is where your market is and where you should be.’
“They need to be able to do the research and stand by their convictions,” she said.
A menu of skills
Other hotel investors and operators interviewed provided a range of other skills and talents required to be an effective asset manager.
Daniel Kurz, a partner in Integrated Capital, said the ability to multitask is one of the most important skills for an asset manager. Most hotels are diverse businesses that encompass sales and marketing, operations, rooms management, perhaps even food and beverage, he said.
“You’ve got to be extremely comfortable with the multitasking abilities associated with such a complex organization,” Kurz said. “A hotel is a real estate investment, but it is unlike any other real estate class in that we don’t have two- to five-year leases. We have two- to five-night leases.”
One intangible, Kurz said, is the need for a positive winning attitude and an ability to get stakeholders in the business to share in that attitude.
“The best asset managers want to be part of a winning team, along with the GM, the lender and the investors,” he said. “You have to want to go out there and win and have the strong positive attitude that’s associated with winning.”
An important component of developing a winning attitude is being able to communicate and build consensus.
“It’s hard to separate analysis and communications,” Dick said. “If you can’t communicate it does you no good to analyze something because you can’t share it with people. There is an art to breaking things down that are convoluted or not easy to understand into concepts that are easily understood.”
There are other dimensions to asset managers in other regions of the world. In Brazil, for example, most hotels are structured as condo-hotel properties with potentially scores of individual owners.
Diogo Canteras, founder of São Paulo-based HotelInvest, acts as an asset manager for 16 operating hotels and 10 others under development. He said via email that because about 80% of the properties are condo-hotels with multiple owners, asset management encompasses three dimensions, each requiring managers with different skills.
“In the operational dimension, the asset manager takes care of the day-to-day operation, identifying mistakes, maximizing revenue, cutting costs, properly allocating investments and more,” he said. “The political dimension is a little trickier. Hotel operators are big corporations with huge potential to generate value. To understand this potential and to negotiate with these operators for them to being their best to our property is the essence of the political dimension.”
He said the strategic dimension involves both identifying opportunities to sell, rebrand or reposition hotels as well as to recognize and respond to potential threats.
“For the strategic dimension, you need a professional with a very good understanding of the hotel market, its trends, its players and the art of structuring deals in the hotel business,” Canteras said.
In good times and bad
Sources differed on whether or how the role of asset management changes in a prosperous economy versus times of distress.
“The focus changes. In prosperous times, people are focused on exit, achieving stabilization, the next deal, comparables. There is always a focus on expanding revenues, but it is not as strong as when you’re distressed,” Dick said. “When you’re distressed, it’s all hands on deck, stop the bleeding, minimize the losses, how can we create more revenue.”
While Angel of Fulcrum Hospitality said the fundamentals of asset management are the same in good times and bad, the tasks are slightly different during periods of difficulty.
“The only significant difference is in times of distress there is more of a focus on the balance sheet and cash management and timing of when expenses are occurred. A more microscopic focus on debt covenants and yield tests and the like,” he said.
Kurz said that no matter the operating environment, the role of asset managers is to maximize the value of the asset, even though each environment presents different challenges and opportunities.
“The one difference for prosperous times is you also need to take the time to improve the asset so it is well-prepared and well-positioned for the inevitable downturn that will come in the industry,” Kurz said. “When times are good as they are now, it’s important to reinvest capital in the asset, to strengthen your customer relationships, to hire the best managers in the market and be best prepared to meet the challenges of the downturn when it comes.”