In a recent conversation I had with an asset manager who was underwriting a hotel in the metro Atlanta area, it was determined that for each incremental 50k of profit achieved, the hotel asset value went up approximately 600k. Imagine if your revenue team fully understood this.
NB: This is an article from Revenue Generation
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Hotel asset management and revenue optimization are two critical components of a successful hotel operation, each playing a unique role yet deeply intertwined in maximizing profitability and ensuring the long-term viability of the property. This symbiotic relationship can be likened to a delicate balancing act, where strategic decisions in one area can significantly impact the other.
A good portion of my work involves helping revenue teams build topline revenue strategies and utilize tools to better analyze overall strategy from a total hotel perspective. One thing that continues to surprise me is the fact that revenue teams do not always understand their owners’ investment objectives and what their short or long-term objectives are.
Conversely, when collaborating with asset managers, I notice a tendency for them to step into revenue meetings without fully grasping their market context and then influence strategy decisions that may hinder the overall success of their asset performance.
That being said, as the cost of operating and financing a hotel asset continues its unprecedented growth, there is more and more emphasis on ensuring that revenue performance is at its peak. Additionally, it’s no longer good enough to say this hotel is performing well from a topline standpoint. Profit has to be on the minds of the entire executive team across all revenue centers.
As we view this unique relationship between owner representatives and revenue leaders, let’s explore why there are still silos today, discover ways to overcome the communication gaps, and better understand how the two groups can take advantage of the strengths each brings to the table to fully optimize the asset value.
What asset management/owners wish revenue optimization teams knew about unlocking a hotel’s value.
Ensuring your revenue teams understand the investment objectives is really important and allows your team to better gain perspective on what they are trying to collectively achieve with the owners.
Having worked at the property level for many years and even when I worked for management companies at the above property level, I often found myself in the dark regarding the owner’s objective for their assets. It was sometimes the best-kept secret, and we were left guessing. When I moved over to the hotel asset management side, I found myself working with revenue teams to help them gain perspective on why we acquired the asset, to begin with and what we were trying to achieve.
Asset managers will tell you a lot goes into underwriting a new asset. Besides evaluating the overall asset value, owners need to demonstrate to bankers, insurance companies, and investors that the loan risk is not too great and whether the overall deal is a wise investment. This involves looking at parking, retail space, under-utilized space, optimal mix of business, optimal mix of rooms, the appropriate number of keys, rooms to meeting space ratios, expected capex required, determination of brand affiliation or operating as an independent, management companies, management teams, and more. The key objective behind all of this, of course, is to determine if there is enough unlocked value to ensure a successful acquisition and provide sustained ROI.
