Asset Management For Tough Times

No one has a better handle on the challenges facing the hotel industry in the coming months than asset managers. These hospitality professionals act as owners' representatives and work closely with property management to maximize revenues, profits and asset values. The Hospitality Asset Managers Association is the preeminent organization dedicated to the craft of asset management. A roundtable session among HAMA officers at the group's recent fall meeting in Austin produced a lively and diverse discussion of the challenges facing the lodging industry and how owners and operators can survive — and even thrive — in tough times.

All eight of the asset managers participating in the roundtable agreed that business has been difficult and may even get worse. But the degree of difficult largely depends on market, segment and type of business.

“It all depends on where your properties are located,” said Rick Swig, HAMA president and head of RSBA & Associates. “In San Francisco, business has been great, but it's the worst of times if you go just 20 miles into the suburbs.”

Depending on the market, both transient and group meeting business is hurting to some degree, said the panelists. Another thorn: Those offshore markets that have seen reduced airlift, e.g., Hawaii and the Caribbean, are also hurting.

“Things were solid in the first half of the year, but since then there has been an acceleration of attrition among groups, and short-term group demand is drying up considerably,” noted Tom Brennan of DiamondRock Hospitality. “The transient traveler is still out there, but everyone is chasing him so we've lost a lot of yielding power.”

Thayer Lodging Group's Carroll Warfield sees other differences in the kinds of markets individual hotels serve. “It's very spotty,” he noted. “Some industries haven't been affected by the drop in the economy, while other have been hurt significantly.”

HOLD RATES, HOPEFULLY

The uncertainty in the economy and lodging market makes it difficult for owners, operators and asset managers to forecast the performance of their hotels in 2009. A key goal, agreed the HAMA panelists, is to hold rates.

“Some of the hotels in our competitive sets appear to be going into rate panic,” said Wayne Williams of Warnick & Co. “We've been doing our best to hold ADR, and our projections call for not significant gains in rate but at least holding at one or two percent of where we've been.”

Howard Isaacson of RLJ Development believes it's encouraging that most of the major chains are attempting to hold rate through these difficult times. “Maybe they won't be able to hold rates as much as we'd like them to, but everyone has a better understanding of the long-term impact of cutting rates, as evidenced by what happened during the last downturn,” he said. “There's some rate erosion, but I believe there's an overall sense that we're doing it much more reluctantly than we did in the past.”

Another issue, according to Brennan of DiamondRock, is supply, which he said is “creeping back into some markets. Downtown Chicago is a perfect example on both the select-service and luxury sides, where the new Trump property and the new Spring Hill Suites/Residence Inn combination are competing for the same three- and four-star business. Trump is going downstream, the others are going upstream, and this creates rate pressures.”

And for some properties, the pressures on rate are coming at a particularly inopportune time. “Owners of those hotels that were renovated during better economic times are now looking for returns on their investments,” said Isaacson. “They have a better product, yet they can't drive the rate to get the return. That's a hard story to sell when you're negotiating next year's rates with a customer.”

WHAT TO DO

Hotel operators turn to their asset managers for strategic and tactical advice on how to more efficiently market and operate their properties. The need for this additional guidance is even more critical in the face of economic headwinds.

“Operators can get so myopic by focusing on the day-to-day operations — the leak in room 407 or the incoming VIP — they don't have a chance to take off the blinders and look at the macro world,” said Swig. “Owners can't rely on the necessary vision coming from their operators. We as asset managers must provide that vision.”

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