Operations/Management

Management companies share lessons learned

22 Mar, 2012 By: Stephanie Ricca Hotel and Motel Management

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Pyramid Hotel Group asset-manages the 795-room Crowne Plaza Times Square in New York City. The company has found that having the options of property management, asset management and some ownership give it the best opportunities for high returns.

If the recession taught management companies one thing, it was how to survive. Now operators are drawing on those skills to manage their current challenges— increasing sales efforts while slowly raising rates, dealing with capital expenditures and controlling costs.

While hotel owners and developers remain optimistic, management company executives err on the side of caution as they identify trends in management in 2012 and beyond.

“2011 was a choppy, challenging year from an operating perspective,” said Michael George, president and CEO of Crescent Hotels & Resorts. “We don’t see a drastic change now in the operating environment. It’s great to see metrics improving, and you would think that works to your advantage, but we know it is still very price-sensitive out there, very competitive and still very much a buyer’s market.”

LESSONS LEARNED
What helps management companies focus, they said, is identifying specific goals when it comes to saving and making money.

“Preservation of capital is our watchword,” said Warren Fields, principal and chief investment officer of Pyramid Hotel Group. He said Pyramid’s NOI portfolio was up about 40 percent year over year and he’s “pretty bullish” about 2012, but keeping a close eye on the purse strings is paramount. “If I’m going to do a renovation, I’ll do it as fast as possible,” he said. “We’re spending capital where it’s appropriate, but the owners we have are a lot smarter than they used to be and are demanding a lot more.”

For James Carroll, president and CEO of Crestline Hotels & Resorts, focusing on sales was a big lesson learned during the recession. “It was one of our defensive strategies,” he said. “Regardless of whether the business is going up or down, there’s always business out there.”
Efficiency is the new normal, and timing is key when budgeting for operational cost fluctuations.

“At the hotels, personnel costs are the highest,” Carroll said. “So we had to make sure our personnel decisions were timely and accurate.”
David Carey, president and CEO of Outrigger Enterprises Group, warned management companies against thinking they had already made all possible cost-saving measures. “Energy costs continue to go up and healthcare costs continue to rise,” he said. “These all put pressure on the traditional business model. More than any other year, we questioned whether we needed all the same services in all the same scope.”

SEGMENTS AND REGIONS FOR GROWTH
Despite the constant eye these executives keep on costs, they are optimistic that 2012 will bring controlled growth in areas they have identified as having high profit margins.

Carroll and Fields both identified urban select-service properties as profit vehicles.

“Urban select-service properties offer a chance for high rates and high margins,” Carroll said. For Crestline, those don’t have to be primary cities, either. “We think upper-upscale and upscale will have the best growth opportunities, but we look at specific submarkets. We look at microeconomic conditions,” he said.

Fields agreed on both counts and said Pyramid’s 2012 growth strategy is based on the idea that “we don’t have enough urban select-service hotels. We just can’t get enough of them.”

Again, he said location isn’t as critical as it may be for developers of new product. “It doesn’t matter if it’s a second-tier city or a top-ten market,” he said. “If there’s an opportunity with our model we think we can win, we put that in front of our owners and try to convince them to make the buy.”

For George, U.S. border markets make the most sense for Crescent, which operates a portfolio of mostly upper-upscale and luxury hotels that cater to corporate group business.

“As corporate group rolls, so rolls the overall financial success of our assets,” he said. “Room rate may be up but we have a long way to go when it comes to total spend.”

He said Canada is a good example of a region not feeling that pinch. The company has a wholly owned subsidiary up north, Crescent Hotels & Resorts Canada. “We’re not seeing nearly as much pain there when it comes to corporate group,” he said. “We’re more bullish about Canadian performance—there is lots of opportunity for growth in Canada.”

The Caribbean, however, has a slightly different story when it comes to the corporate group business industry. George called it “a fight.”
“Discretionary spending there is still in a major pullback, and we don’t have the airlift there yet,” he said.

CAPITAL INVESTMENT
While many management companies are pure third-party players, a growing number are seeing the value of investing equity into deals, and those who do say now’s the time to do it.

“We will raise our hand any time an owner wants us to put some money into a situation,” Fields said. “We want to put skin in the game because, quite frankly, that’s where the real money is made in this business.”

Having flexibility to invest or step back makes a management company more nimble, George said. “We created our investment platform to have equity to deploy for when clients want us to have skin in the game,” he said. “But many of our institutional clients don’t want our money; they have enough of their own. They just want a high-quality, results-oriented management company.”

WORKING WITH BRANDS
Coming out of the recession, the relationship between brands and management companies has become more interlinked. Management companies have a unique perspective when it comes to brand standards.

Mark Sharkey, president of Remington Hospitality Services, which works with 17 different hotel brands, said it’s clear the brands are taking standards back into their own hands.

“We’re getting to a point in the cycle where a simple refresh or softgoods renovation will not be enough anymore,” he said. “We’re looking at some very strategic, aggressive requirements and standards that will reshape our guestrooms and public areas. Brands now want you to change casegoods after 10 years. It’s a real trend.”

In addition to casegoods, he identified in-room electronics as a product segment that will come under scrutiny in the near term.

“We all put in electronic locks 15-20 years ago, and we’re going to be buying a lot of locks over the next couple years,” he said. “We’re still chasing high-speed [Internet access] and we’ll be chasing it until we won’t have to buy more and more bandwidth.”
To minimize risk associated with brands, George said his company sticks with only a handful.

“My perspective as an operator is that there are the premier brands, then there’s everybody else. The brand must bring a strong ROI,” he said. “Aligning with a premier brand is not inexpensive.”

On the plus side, he said tapping into brand innovation is a big plus. “There are a lot of smart people within the brands who can identify trends,” he said. “We’re constantly pushing for that type of information. The numbers jump out at you, but if you’re going to align with a brand, do everything you can to align with a premier brand,” he advised.

Fields agreed, saying he has seen specific examples of brand standards that pay off for owners and operators. “Look at Marriott’s Great Room,” he said. “People pooh-poohed it in the beginning, but it works. Look at the Sheraton Link. It works too—people use it.”
 

Topic : Management
External Source : Hotel Management