|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Say you’re a lender or special servicer who’s just been handed a portfolio of foreclosed lodging assets. While you may know the intricacies of finance, operating a full-service hotel, with all its varied and management-intensive parts, is not your forte - especially if the property has seen its revenue slashed by half in the past year.
Or perhaps you’re a developer who built a hotel, but whose expertise is not in lodging operations.
Who ya gonna call? A hotel asset manager.
“Hotel asset managers and advisors are seeing increased demand for their services, particularly among lenders and special servicers,” says Robert M. La Forgia, founder and principal of Apertor Hospitality in Henderson, NV. La Forgia, a long-time Hilton Hotels Corp. executive, launched the company late last year and is now working on a number of asset management opportunities.
Just this month, Warnick Co. was appointed asset manager for the Montelucia Resort in Paradise Valley, AZ. Opened in 2008 at a cost of $330 million, the 293-room luxury property is now in the hands of its lender, a syndicate of banks led by Eurohypo AG. The company is charged with repositioning the property and selling 10 unsold villas out of an original 34.
Richard Warnick, the company’s Phoenix-based president, says his firm has five turnaround assignments in its pipeline and expects that number to total between 15 and 20 for 2010.
In the past, an owner inexperienced in hotel operations called in an asset manager. But in today’s environment, it’s more likely a lender or special servicer (an entity that handles troubled CMBS loans) is the one reaching out for extra help when dealing with a hotel on the brink of foreclosure or which is already in foreclosure. Although all hotels in all segments are feeling the pinch of the recession, larger, high-end, more complex properties are most in need of the services of an asset manager.
To be sure, there are enough problematic properties to keep asset managers busy in the coming months. According to Real Capital Analytics, which tracks distressed properties nationwide in all property types, there are currently more than 1,300 distressed hotels worth an aggregate of $30.1 billion across the U.S. RCA defines troubled assets as those either in lender REO, or whose collateral loans are in default, bankruptcy or near foreclosure.
What should a lender or special servicer that oversees one or more of those properties look for in a hotel asset manager? Foremost, in-depth knowledge of operations is key. “There are many hotel consultants out there who have never worked in day-to-day operations,” La Forgia states.
Beyond operational expertise, knowledge of finance and real estate are essential, Warnick adds. The ability to problem-solve creatively, act aggressively and not apply universal methods to each hotel are additional pluses. “If I’m hiring an asset manager, I want somebody who can sit across the table from a general manager and know when he or she is blowing smoke or when he or she is doing a great job even if the results aren’t there.” Warnick says.
What an asset manager does after it is hired depends greatly on the individual asset and its specific marketplace. Of course, most asset managers are loath to give away their trade secrets and proprietary methods. However, they usually take a two-pronged approach that entails both cost containment and revenue enhancement.
All cost items at a hotel are reviewed; but since it accounts for 45 cents of every dollar spent in a full-service hotel, according to La Forgia, labor expenses are given extra scrutiny. Yet care must be taken not to cut staff too much so that it impacts the guest experience in a demonstrable way.
“It is a balancing act,” La Forgia admits. “You try to cut costs, certainly in the back-of-the-house areas, which the guests don’t see. Certainly, there is a minimal level of service that is to be expected. You don’t want to cut too much in the customer-facing services.”
When Trans Inns Management of Detroit was called in by Latitude Management Real Estate Investments to stabilize a portfolio of eight full-service hotels in five states, it kept nearly all of the 500 associates, says Trans Inn president and CEO Daniel Vosotas. For him, it’s more about creating efficient labor models. “We’ve cut hours for sure, but we didn’t go in and whack jobs everywhere,” Vosotas says.
At the same time, asset managers devise ways to boost the bottom line at a particular hotel by taking an exhaustive assessment of its revenue streams - or in today’s economy, revenue streams that aren’t producing much revenue. Some questions that need to be asked include: Is the hotel charging the proper rate relative to its competition in the marketplace? Is the property being marketing on all possible channels and to its correct customer segments? “If you spent a lot of time in the last year chasing financial companies for group business, you are probably not going to be that productive,” Warnick says.
An asset manager, especially one with top executives that once worked with the major franchise companies, can also help a lender or special servicer deal with the brands. Some flags are permitting these inadvertent owners to defer pricey property improvements until the economy turns. Some have reduced their system-wide fees. Others, however, are holding firm on both counts, La Forgia says, declining to name names.
In some instances, however, an asset manager can challenge a brand standard - such as 24-hour rooms service - that may be strangling the profits at a hotel. “A good asset manager will say, ‘We are losing money by keeping room service attendants and our chefs on 24/7. In this environment we can’t do this any more.’ You need to stand tough when going up against the brands,” La Forgia says.
One strategy that is unlikely to be deployed today is a quick sale of a troubled asset. As frustrating as it may be to brokers and private equity players chomping at the bit to grab solid hotels at bargain prices, lenders and special servicers are more inclined to hold on to an asset and wait for a rise in values before selling.
“There is no regulatory pressure at this moment in time for them to do otherwise,” Warnick finds. “It’s just a matter of making the determination of when they think the appropriate time is to exit the properties.”
|
 |
|
