A sensible strategy is key in the current environment

NATIONAL REPORT—With analysts predicting that hotels will be working on tighter margins, asset managers will need to work harder for every dollar earned.

“The current environment requires skilled asset managers, and will differentiate the savvy asset managers from the reporters,” said Kim Gauthier, SVP of asset management at Hotel Asset Value Enhancement (hotelAVE), and current president of the Hospitality Asset Managers Association (HAMA). “Today’s asset manager must focus at a zero-based/micro-level to change processes and past practices to preserve GOP margin.”

In order for hotels to remain profitable, asset managers must work to drive value for the owner through accountability. “Our role as asset managers is to hold the managers themselves accountable and, unfortunately, when the brand is the manager as well, sometimes those lines can be blurred in terms of their responsibility to the brand and their responsibility to driving value for the owner,” she said. “Our job is to help make sure they are focused—and we are focused—on driving the value for the owners since they are the ones who really do own the business. It is holding them accountable.”

Gauthier has a list of best practices her firm uses to help properties maximize profitability. “Without divulging trade secrets, we share best practices from other places, [since we]have the opportunity to work with different owners, different markets, different brands, different size hotels, different locations,” she said. “The asset manager has a lens that is different and has the ability to take things that they view as best practices and help implement and apply them across various hotels for overall improvement.”

Work with brands to flex standards that don’t affect guest experience.This is especially important as labor remains a major issue for the hospitality industry. “Any place where we can make minor adjustments to save on labor is good,” said Gauthier. “Maybe it is a service that is done overnight that doesn’t affect guest experience—not having the laundry being open 24 hours a day, but having the laundry only operating for two shifts a day. That would be something that is a clear example that doesn’t impact the guest and is very, very much behind the scenes.”

Compare staffing and operating costs of peak periods vs non-peak periods. “This is an example of where the skilled asset manager goes into very detailed analytics and really looks under the hood of things: stabilizing and holding the managers accountable for their productivity when times are busy, which is when there is better operating efficiency, and trying to have them implement and hold to those same productivity metrics when times are not as good,” she said. “It comes back to the labor concept of being able to save on costs across the board and having more consistency in the operation from a productivity standpoint.”

Ensure there is an acceptable ROI of all marketing initiatives. “Marketing and sales dollars are intended to drive revenue so every dollar that is spent should have a conscious, targeted area in terms of what the benefits should be,” said Gauthier. “When I hear ROI, the go-to is always 10 times. I have heard slightly less than that for some of the digital platforms and I have heard people quote more than that, but the point is, if you are going to spend money to drive revenue, it should have some sort of a benefit; otherwise, you are not spending the dollars in the right places.”

Analyze revenue by hour of operation in F&B and other ancillary departments. Take a look at the scheduling of nonessential operations to see when it makes sense to keep them open.

“You have to look at food and beverage by meal period,” Gauthier said. “With brands, obviously, there are various standards to adhere to. There are times in the business when it is not busy. Really analyze the information by period, by hour of day and look to see when the operations and the revenue is not there.”

She continued, “It goes back to the labor conversation: You have labor fixed to run things and to have it operating, but there are time periods when you are running upside down and losing money because your labor is going to exceed your revenue for certain time periods. You need to do the analysis first and then try to work with the brands and the managers to make adjustments to hours of operation so that you are open and have people there when people want you to be there.”

Reduce/stretch operating inventories. It is important to maximize the usable life of items that are discarded over time. “Be more careful with how you are handling linen,” said Gauthier. “Be more careful how you are handling china, glass and silver. As a woman, I love traveling to the hotels that have those little makeup packets. They are 10 cents each, if not a penny, where you can cleanse your face. It saves on the linen because it reduces the amount of linen that is damaged from makeup. That minor adjustment can make it so you don’t have to destroy as much and if you don’t destroy as much, you don’t have to buy as much. If you can keep the stains from happening, you can reduce what you have to buy.”

Revisit maintenance/service contracts—both frequency and scope.Keeping track of outside contracts can lead to savings. “We found that when hotels take time to rebid the contracts in their local markets, they can find [benefits], whether it is an improvement in scope or reduction in price,” she said. “They can also sometimes tailor and customize the services to what their specific hotel needs are. It makes it more efficient for the individual hotel and, hopefully, saves money.”

Evaluate the span of control of each manager. Maximizing the talent of all managers can help with labor shortages. “All of us as managers continue to be held to a higher level, so if you have managers who are talented and are willing to take on more than they currently have, let them,” she said. “They are at the front desk and they can oversee the valet as well. They can take on a retail outlet. Leverage the people who are your strong supporters and your hard workers.”

Implement green programs so guests can opt out of housekeeping. In addition to being something guests look for, sustainable practices can help with labor issues. “A lot of the brands now are implementing the concept for the guests to be allowed to forgo housekeeping for points, which is a great thing for us operationally because it goes back to saving on the labor component. When the managers manage it well, they can save on their housekeeping labor and improve on their productivity as well,” said Gauthier.

Implement an urban amenity fee or a resort fee. While somewhat controversial, these fees can mean profits for hotels that incorporate them. “I am aware of the litigation, but [it]seems to stem more from the transparency that the fee is there as opposed to the need to actually sell it,” she said. “There is a fixed cost to operating hotels and this is a means of covering the cost of some of those additional services. It is something we certainly support because it does curb some of the costs that you can’t mitigate, like WiFi. Operating a large resort with lots of grounds and pools is costly. These fees help mitigate some of that. The litigation will decide, but the litigation is about transparency. I think it is something that the industry is very likely to adopt more consistently.”

Spend CapEx to reduce operating costs. Spending money on utility efficiency can save money in the long run. “A lot of companies look at electricity, and lighting in particular, as a great example, where the changing out from the old incandescent bulbs to LED bulbs [can provide benefits],” said Gauthier. “There is not only savings in electricity, but if you make that investment on a broader basis, you have the ability to save on labor in terms of engineers changing light bulbs because you are going from light bulbs that have less than a one-year life to a seven- to 10-year life.”

In some cases local jurisdictions provide incentives for making these types of changes.

Review real estate tax assessment.This is important as making sure that tax assessments are accurate can save a great deal of money.

“I have seen times where the assessment continues to go up, but the net operating income of the hotel is going backward,” she said. “Understanding what the real estate tax assessment is and having the right consultant on board so you can reduce your taxes overall is very helpful.”

Quote insurance through the owner platform; don’t rely only on the manager. Specifically, hotels should look at all options when researching insurance plans. “A lot of what we see is that a lot the managers and brands have their own platforms for insurance,” said Gauthier. “Insurance costs is one of those areas that is going up outside of our control. As asset managers, just like anything else, you need to rebid it on a regular basis and look to see if you can find savings elsewhere. If you have an owner who has other types of real estate versus just hotels, they may be able to do better on things like property insurance because the hotel is minor compared to the other types of real estate holdings.” HB