by Amish Naik
The hospitality industry has evolved considerably over the past 30 years, a period coinciding with AAHOA Members becoming the dominant force in hotel ownership and development. New brands have proliferated, while still-emerging technologies and generational change have disrupted the traditional systems that most hotel franchise companies once used.
Almost all AAHOA Members started in the industry running the small, independent motels they also called home. Now, an increasing number are leading billion-dollar enterprises focused more on hotel development and investment than daily operations.
While traditional owner-operators are still very common in our industry, a growing number of savvy hotel investors – led by a second generation that was literally raised behind the front desk – are realizing that hiring a professional management company can substantially increase their hotels’ value, all while freeing them to focus on their passions, such as developing new hotels, travel, civic/community organizations and, of course, family, to help raise and nurture the third generation.
For an industry that has been around for generations, the business of operating hotels has experienced tremendous change in recent years. Every savvy owner understands that in today’s market, you need more than a good brand and location. You need the right management team to maximize investment returns and asset appreciation over the long term.
The tight labor market and rising minimum-wage regulations in many regions have put tremendous pressure on operators to finds creative ways to recruit and retain people to clean the rooms and staff the ever-cooler food and beverage outlets in our hotels. Rising labor costs, coupled with material increases in expenses such as FF&E for renovations, brand fees, and property taxes and insurance, is putting tremendous pressure on profit margins. Even more critically, these expense pressures are coming in many markets with the ominous backdrop of lower and increasingly negative RevPAR growth.
In addition to bringing best practices and standard operating procedures to handle every conceivable issue related to hotel operations, hiring a professional management company can provide an owner something much more valuable: time. How many times does it take being woken up in the middle of the night due to a guest issue or to cover the desk because the night auditor did not show up before you realize that there is a better way?
USING MANAGEMENT COMPANIES TO DELEGATE
The stress of operating hotels is real and not likely to go away anytime soon. Hiring a professional management company to take those calls and, more importantly, provide the training and resources for on-property staff to professionally handle emergencies, can provide incredible peace of mind. And the upshot is that it also provides owners more time to pursue the other things they enjoy.
Professional hotel-management companies continually focus on improvement in the most mundane areas of the business, like procuring breakfast supplies or setting daily rates, because they know every cent adds up, and their existence depends on being able to maintain revenue premiums even when the market goes down.
Unlike management companies that are committed to driving maximum owner objectives, owner-operators cannot devote the time or money to staying on top of the latest operating trends. There is simply not enough time in the day for an owner-operator to effectively commit to industry-leading procurement or revenue-management practices while also dealing with lenders and franchise companies for potential new development projects.
HOW MANAGEMENT COMPANIES WORK FOR YOU
AAHOA Members are now undeniably the largest segment of hotel developers for all major franchise companies. You are adding more than half of the new lodging in this country. However, well-conceived hotel development projects too often fail for the initial developer and investors because they could not focus on the pre-opening process while they were completing construction.
There is only one of you and only 24 hours in a day. Strong brand relationships and deep experience building and opening new hotels enable top hotel-management companies to provide significant value to developers during the design and construction process, which will ultimately lead to shorter ramp-up to stabilization.
What to consider before hiring a third-party management company
- Relevant market/segment expertise
- Brand recommendations
- Development experience (if you also are planning new hotels)
- Subject-area expertise: Meet their experts in sales and marketing, revenue management, openings, food and beverage, and human capital
- References: Speak with a minimum of two existing owners
Technology is another area in which leading third-party hotel-management firms are investing more than most owners can themselves, both in talent and systems. Management companies have scale to build customized benchmarking and reporting tools to quickly identify variances to budget, enabling faster contingency planning under various revenue scenarios.
Ultimately, leveraging the innumerable data points we as an industry track and analyze leads to better decision-making. Management companies invest in these technologies to deliver more accurate cash-flow forecasting for ownership. Moreover, management companies have dedicated their focus on other areas to enhance operations, like labor productivity, benefits, and other associate retention programs, as well as sustainability initiatives.
In summary, a good management company should bring best-in-class operating solutions and business practices that more than offset their management fees. If the management company is successful, the owner will have made more money and increased long-term asset value, all while working less!
KEEPING FEAR AT BAY
Of course, many owner-operators are rightly concerned about hiring a management company. They fear giving up control and, in some cases, the management fees they themselves charge to their investors. They are also unsure where to find the right management company and are afraid of making a long-term commitment. These are all legitimate worries.
Many of the same concerns were initially expressed about franchise companies. The facts are clear on how that concern has turned out – just check out the activity around the trade-show booths of major brand companies at the AAHOA Convention. The evolution from independent to franchised hotels has worked out well for AAHOA Members. Perhaps in 10 years, the relationship between owners and third-party managers will be as common and as successful as their partnership with the franchisors.
The question for many AAHOA Members, especially those families transitioning day-to-day business responsibilities to the second and third generations of hoteliers, is whether they have the long-term passion for operating hotels to invest in many of the areas that top hotel managers must to compete in today’s dynamic industry.
Many AAHOA Members have done just that with incredible success, but it’s not for everyone. If you have a passion for building hotels more so than running them, it may be time to consider a third-party operator to give you more time doing what you love, not what you must.
Amish Naik is vice president, Development & Owner Relations for PM Hotel Group, a privately held, owner-focused management company that operates a diverse portfolio of market-leading hotels across the U.S. In this role, Amish leads the company’s growth strategy, which is focused on both acquisitions and new development projects. With more than 20 years of experience in the industry, Amish has vast expertise in operations, acquisitions/investment analysis, development, franchising, and owner relations.
Prior to joining PM Hotel Group, Amish spent two decades working directly with hotel owners and developers in a variety of roles for the leading hospitality companies, including Marriott, Choice, and Holiday Inn Worldwide/IHG. A native of New Jersey with degrees from both Rutgers College and New York University’s Tisch Center for Hospitality, Amish and his family now reside in Maryland. He is an avid traveler and golfer.