April 05, 2019
Who's Watching Your Asset?
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Sound familiar in your business? Unlike Waldo, owners wear many hats - especially multi-property owners and those with supplemental real estate investments outside of hospitality. Managing a vast portfolio can't be done alone, so oftentimes these owners hire a management company to oversee day-to-day operations.
But who's watching the watchdog when the asset isn't performing and investment objectives aren't being met?
Enter the role of the asset manager. Selecting an asset manager from among a sea of look-alikes, however, is a risky business for owners and institutional investors. Neither party, not even those who own a lodging property on a temporary basis, wants to turn over a hotel's operation to someone who is a rank amateur at the task.
Understanding the role of an asset manager can be confusing. To many, there is a fine, almost invisible line between an asset management company and a hotel management company-especially when a hotel management company offers asset management services. The differences, however, are distinctive, as the asset manager provides more of a protective layer between owners and third-party management companies.
An impartial, third-party asset management company becomes the eyes and ears of owners, identifying quickly if the management company is overseeing the property skillfully and professionally, meeting operational efficiencies and charging appropriate fees. Likewise, an asset manager acts as a knowledgeable intermediary between the owner, the franchise company and management company to generate the best returns on their investments.
Asset management can simply be defined as "a group that watches a hotel management company on behalf of the owner to ensure the asset is protected in operating results and long-term appreciation."
The asset manager will work on behalf of the owner and/or investor to resolve issues, enhance revenues and generate the highest possible return-on-investment for owners. The bottom line: delivering heightened profits, which translate into increased asset value.
This is not to infer that the role of a third-party asset manager is to replace or duplicate the efforts of the third-party management company. The management company role is critical to operational success - from providing individual property owners with a hands-on operations, marketing and food-and-beverage activities to developing short- and long-term operating strategies. Likewise, the role an asset management company plays also is critical, yet distinctive.
An asset management company works primarily on behalf of owners and investors who have determined that core competencies are lacking among the management company to operate the property from a real-estate perspective. Therefore, an asset management company is brought in to assist with financial and operational performance monitoring and control; conduct property Inspections; initiate market positioning surveys; conduct accounting and financial management reporting procedures; implement a budget operating and capital development review; look at options for financing, refinancing and debt restructuring; suggest capital improvements and project management initiatives; initiate property acquisition/disposition services; provide an analysis of management performance; and, act as a liaison in the management company/franchise contract negotiation process.
The hiring of a company to do even temporary asset management is a decision that cannot be taken lightly. In fact, the right asset manager can be the key to obtaining the best terms possible when negotiating the sale of a hotel property. A strong asset manager can take an under-performing hotel and turn it into a winner; it can also take a profitable property and make it more profitable.
The very best asset managers will not be affected by the reality that many asset management contracts can be for very short periods. The top companies will take on every project as though they expect to be the hotel's operational team for many years to come. The good asset manager knows that there is no percentage in operating a hotel property cheaply or in any manner that drives away employees, or, more importantly, guests.
It is absolutely imperative that financial institutions and multi-property owners seek out asset managers who will treat their properties as though they actually possess an equity stake. The best asset managers do not only act as though they are the long-term management team, they also act as though they are the property's owners.
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