As our industry is a few months into what many economists are predicting will be the worst hotel RevPAR performance period in decades, many hoteliers have begun to look inside. Yes, I do mean into their hearts, minds and souls, but also into their internal operations. People have a variety of issues from finance-related topics such as high-leverage debt or loans coming due, as well as declining cash flows with no return to better profits on the horizon for quite a while.

This is when the hotel asset manager needs to enter the phone booth, put on his or her red cape and come out to work.

I should probably step back and first enlighten readers to what an effective asset manager does. For many years, I didn’t know what the role of the asset manager was. Why do we need an asset manager when there already is a hotel manager, management company, hotel brand and many other players to keep hotel owners up at night knowing they are paying fees to a whole bunch of people? Well, in a nutshell, a good hotel asset manager looks at all facets of a hotel investment and guides the owner to maximize hotel asset value in all manners that can be controlled.

A hotel asset manager needs to understand the owner's objectives: Is this a long-term investment? Is current cash-yield most important or total return? What risk-return profile is the owner willing to take? What is the cash position of the owner to withstand the fluctuations in capital markets?

With this profile information, the asset manager can guide an owner to the optimal financing for their situation, can determine when is the appropriate time to sell a hotel given all market and internal variables, and can also guide capital-improvement decisions. For example, just getting the lowest cost of financing is NOT the measure of good financing. The true measure is that the financing has the duration, flexibility, recourse requirements AND pricing that matches an owner's objectives. Financing could be arranged in the previous two years with floating rates at a cost of Libor plus 150 to 175 basis points. These loans are now at effective rates below 2.5 percent in today's current market conditions. So even with economic times depressing revenues, interest payments are in some cases less than 35 percent of what they were a year ago.

This is also a challenging year for owners who have seen 20-percent declines in revenue lead to almost a 20-percent decline in net income levels. What happened to income flow-through percentage? What operators are seeing is the final 20 percent in revenues—that was great 0the last few years—flowed directly to profits with little increase in operational expenses. The opposite is now occurring with revenue declines leading to almost linear declines in net income. Owners need to determine if they want to sell their asset now and take a hit on sales price or put additional capital into hotels to counter negative cash flows.

Expense reduction is also where asset managers must earn their salt. In a year like this, no fixed cost should be considered a fixed cost. Hoteliers must look line by line into their profit and loss and determine what fundamental changes can be made to preserve profitability. Since revenue increases will be challenging this year, turn your attention to impact expense items. Owners might need to consider radical things like outsourcing housekeeping operations, cross-training staff and re-defining manager roles to renegotiating every single service contract and product pricing at the hotel. With creativity can come cash flow.

These are only a few examples of where the asset manager should be involved and accretive to an owner's returns. At all times, an asset manager's role and objective is to increase hotel value, in its most simplistic definition that means increasing net operating income or increasing hotel sales price.

If you have a hotel asset manager that is only sending a pretty report each quarter re-stating your P&L statements in pretty graphs and verbose language, then perhaps it is time to get a new asset manager. If you do not have an asset manager and are facing some of the issues stated above, it is probably time to find one.

At the end of the day, remaining profitable and successful will require hoteliers to re-focus their attention on the specifics of operations, structure and strategy to maximizing their investments in the hotel industry. The best asset managers give hoteliers another discerning eye and larger tool belt to work with and affect real change. A good hotel asset manager, simply put, will increase the return on your hotel investment.

Sanjeev Misra is a senior managing director at Paramount Lodging Advisors based in the corporate office in Chicago. You may contact him at smisra@paramountlodging.com or call him at 312-642-2300, ext. 202. Paramount Lodging Advisors specializes in full service hotel brokerage and advisory, debt and equity sourcing, international hospitality executive search and asset management advisory.