An increasingly “evolved” hospitality industry is extracting profit more efficiently, according to experts in the sector. But gains are contingent on investors accepting the added complexity of successful operations, according to Neil Kirk, COO, L+R Hotels.
“Everyone wants their assets to work harder,” Kirk says. “So, owners of hotels have become more sophisticated, they've become more used to owning hotels and they have more knowledge to bring to the table in terms of the operational side of things. They have multiple assets and multiple jurisdictions, and can bring best practice from other areas,” he adds.
However, when working with the operator, those owners need to navigate having “different views on risk, on brand standards, on short-term profitability versus long-term profitability”. He summarises: “There needs to be effective communication around what they want in terms of strategy and best practice that they've seen in other hotels, other jurisdictions, other asset classes even.”
Understanding operator performance
Adds Martina Maly-Gaertner, COO, member of the board, at UBM Development: “At the end of the day, as landlord, you need to look after the asset. That means capex, maintenance, and maximising how the operator is working with the owner.” She adds: “As the owner, I need to ensure that the operator is functioning well because otherwise I have an operator change and that costs money.”
Notes Babette Marzheuser-Wood, Partner and Global Head of Franchise Group, Dentons: “With a franchise agreement you can get better alignment because you allow the owner - as the local guy - to do what they know best, manage their property, manage their staff, and use their knowledge of aspects like the environment, which vary country by country. That means that a franchise creates a better split of responsibility, that does enable better alignment in my opinion.”
Ruslan Husry, owner & CEO, HRG Hotels, points out that the operator position also implies a financial commitment, to varying degrees. “There is also operator money going into the asset on the one hand, which can increase the value of the investor’s asset while helping the operation itself.”
The owner-operator adds: “Our main focus is the property itself and maximising the performance of the property as a full-service company. That means we manage all the functions - 360 degrees - of all the hospitality in-house, while benefitting from our brand partner’s distribution channel. We can increase the performance of the hotel from the top line by also keeping the standards of the hotel to the requirements of our franchise partner, which brings the distribution channel.” He adds that “top line” improvements includes attention to tools including “revenue management… centralisation or synergies.”
Realistic about profits
Maly-Gaertner warns that owners sometimes need to be more realistic about what profits operators can realistically achieve, especially at the development stage. She explains: “Sometimes it’s good to challenge those early projections and say that you don't believe the ADR or the occupancy for this market will be that high. If you can bring it down to a realistic level, that is going to take a lot of tension out of each project.”
Kirk concludes: “We're seeing an evolution from hotels being owned by hotel brands some 10, 15, 20 years ago, through to third party owners, to sophisticated owners of hotels as a specialty today. So, it's just going to continually evolve as people get more into the detail.”
He suggests that all parties need to accept the changed horizons. “There are lots of different facets now to the operation of hotels, and your operator won't necessarily know all of them, or have been involved in all of them. So, as everyone gets more familiar with hotels, people will have a greater wealth of ideas to implement, some of which may not always be at the forefront of the operator's mind.”