Follow these strategies to put Hospitality Asset Managers Association’s members’ survey data to work in mid-year business plan updates.
PROVIDENCE, Rhode Island – Hotel owners and investors got a lot of good news in the Hospitality Asset Managers Association (HAMA) Spring 2023 Outlook Survey, released at the group’s annual 2023 spring meeting held in San Francisco, California. The semi-annual report compiled responses from 82 asset managers, approximately one-third of the membership, to map the key trends likely to impact asset performance.
As reported previously by Hotel Investment Today, the bulls had it in terms of projections. Data showed 51% to 75% of respondents predicted their hotels are currently forecasted to exceed 2023 budgeted RevPAR; nearly 70% expect 2023 full-year RevPAR for their portfolios will increase versus 2019; and nearly 50% expect at least half their overall portfolio to exceed 2023 budgeted GOP. Despite rising interest rates and two-thirds of respondents saying the United States is either already in a recession or will be this year, fears of forced sales were nearly nonexistent.
Less than 10% expect to hand the keys back to the lender or face a forced sale. For those that do come to market, most asset managers expect to realize an increase in value over 2019 levels overall but note that urban hotels may face more headwinds.
That said, asset managers have their fair share of concerns for 2023, beyond recession. Topping that list? Demand, wage increases and labor supply. But, in areas such as branding, more than half plan no changes in flags.
Data-driven action steps
HotelAVE’s COO Chris Hague offered this roadmap to transform trends into strategy.
1. In addition to the issues cited in the survey, flow through (decelerating growth of top line revenue and inflation impacted expenses and above inflation increases in taxes and insurance) is top of mind. To combat that, Hague advised, “Continue to leverage technology to mitigate inflationary pressures on labor. Be nimble when it comes to the products that hit your loading docks, particularly F&B items that can fluctuate significantly. Quickly shifting to alternative products and performing regular menu engineering and pricing evaluations will be key to avoiding margin erosion in 2023/2024. Engage experienced tax counsel and insurance experts to mitigate fixed cost growth.”
2. Owners need to brace for increased emphasis on brand standards and additional capital investments to comply. “While most brands continue to be somewhat forgiving in this area, we see significant brand standard compliance issues that are unlikely to be waived beyond 2023 [e.g. tub to shower conversions, which should have been done during/prior to the pandemic as well as F&B re-openings]. These requirements will place an enormous amount of capital and operational pressure on owner’s balance sheets, with little to no FF&E reserves to support the investment,” Hague said. “Work closely with the brands to negotiate extensions, value-engineering options and creative ways to secure the necessary capital—a trend that will become more commonplace over the next 12-18 months.”
3. Smart use of technology as a cost containment tactic is multilayered. “Staffing can be mitigated with QR codes, kiosks, mobile payment applications, and even robotic cleaning equipment,” Hague said. Labor management systems and other proprietary LMS need to be optimized and used with accountability, he added. Improvements to business intelligence platforms, which Hague predicted will come to market over summer 2023, will strengthen the asset manager’s toolbox. ”We anticipate owner-targeted platforms will enable higher levels of collaboration and best practice/benchmarking over the next year,” he said.
4. For full-service hotels, savings are on the menu. “If you run a sizeable F&B operation, you likely have sizable opportunity,” Hague said. “By leveraging technologies and BI tools, we are finding tremendous opportunities within labor scheduling, overall hours of operations, and dynamic pricing strategies. Deeper-dive time and movement studies are also a highly effective way of identifying opportunities within larger operations."
If considering a rebrand, the key point is where bookings come from. More business from direct channels boosts revenue and lowers exit cap rates.
5. There is no way to avoid passing on some cost increases. “From a guest standpoint, the fees are going to continue moving up to cover the significantly greater cost of delivering services. Cost of living fees, urban amenity fees, parking fees, etc.,” Hague said.
6. It’s more than inertia keeping 59% of HAMA members from contemplating a management or brand change. “There has to be a real reason to change brand or manager. Almost all management companies share the same challenge of sourcing human talent for management and operations,” Hague added. “In our experience, management changes are always made when accounting/books and records are inaccurate or not available in a timely manner to make important business decisions."
7. Reflagging isn’t a quick fix – or a cheap one. “Changing branding is not the way to get better terms from the brands,” Hague said. “Often an older franchise agreement has more favorable franchise fees versus the then-current terms, as brands have been slowly increasing their franchise fees over the past 10 years. Likewise, a brand change typically requires a significant renovation, some of which doesn’t always come with an ROI. If considering a rebrand, the key point is where bookings come from. More business from direct channels boosts revenue and lowers exit cap rates." And, said Hague, new brands are worth looking at, depending on the market and brand positioning for the asset in question.