Turning a struggling hotel into a profitable asset

INTERNATIONAL REPORT — When a hotel asset management company takes over a struggling venue, the majority of the time, the issues are rooted in the team.

Whether it’s excessive hierarchy, low morale or simply the wrong person in the wrong role, that all-important service that exceeds expectations and ultimately cements success is missing.

Regardless of the sum invested in bricks and mortar, with the wrong team in place, you will fail. This is why, when an investor calls, the turnaround needs to start with the staff before the P&L sheet.

Whether it’s fair wages, flexible working or holiday packages – it’s crucial to cover the basics, which sadly, are still far from a box-ticking industry standard. Equally important is establishing the right internal culture.

In a fast-paced, reactive environment of hospitality, staff need to be trusted to make the right call and be well-informed. Even in the most elegant surroundings, we’ve all experienced those scenarios where basic customer questions are met with blank faces and delays as staff disappear to get a response from higher up the chain. It’s not good enough.

An asset management company can draw from an extensive network of contacts to identify the right leaders for a business with the values that inspire the wider team through the ranks – in short, an antidote to the heavy-handed micromanagement all too common at failing venues, which only breeds disillusionment.

In some cases, the ‘fit’ and ‘will’ are more important than the skill level when looking for the right person. The ideal individual will have entrepreneurial skills and be keen to lead and grow the business as if it were their own investment, a commitment that can be incentivized further by offering an upside on profits.

Working with a management firm

Post-COVID, it has become more common to repurpose existing hotel assets than to develop a new venue from scratch. Obviously, it’s an easier starting point; however, establishing cultural change within an already failing business can still be a slow process, and there may be the matter of dealing with a troublesome reputation. Typically, it can take 12 to 18 months before an upturn in trade is achieved, and anyone who thinks it can be done quicker is sadly deluded.

Of course, if a hotel has traded well in the past, there is no reason why it can’t thrive again with a refreshed brand and new direction. However, no project can be entered into lightly, and asset managers must be comfortable with risk and playing the long game.

Naveed Khan

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Of course, if a hotel has traded well in the past, there is no reason why it can’t thrive again with a refreshed brand and new direction. However, no project can be entered into lightly, and asset managers must be comfortable with risk and playing the long game.

For example, a property on the books may not generate any income for the best part of a year. This is a scenario that calls for foresight and vision; the judgment to spot future potential and have confidence that, in years two and three, the venue will become profitable.

Crucially, asset managers have the network and bandwidth to sustain fallow periods, although it is still a substantial amount of time to cover the costs. In this instance, fees may reflect the level of risk through a profit-sharing model. It’s a vastly different approach to traditional asset management models, and not necessarily typical, but a reminder that both the asset manager and the investor/owner should always be flexible, entrepreneurial, and aligned to make a project come to fruition.     

In return, the investor can piggyback on the collective insight and wider resources that comes from those helming a large and diverse property portfolio and the wider resources. This could include utilizing a facilities team to discuss capital expenditure plans, leveraging an experienced sales team to understand the ideal customer mix for a particular location, and gaining insight from an operational lead on how food and beverage offerings can best support total revenue. 

Plus, expect some direction on perhaps one of the most important calls to make: whether to invest in an independent or branded property. For many, a brand means automatic exposure, a helpful identifier, particularly when operating out of a central city location, and generally speaking, an easier path to secure investor confidence. For the first-time investor, a pared-down branded option underpinned by a simple operational model with limited or no food and beverage options is a solid starting point.

However, an independent property comes with less of a rule book and, as such, an opportunity to be creative and stamp your own identity on a hotel, even creating your own brand in the process.

Those wanting to go down this route may question whether an asset management company skewed more towards branded properties will be best placed to manage a venue demanding a far greater level of customization.

In truth, the fundamentals of hospitality can be overcomplicated. Regardless of venue and price point, whether you’re managing a hostel or a Hilton, the approach is rooted in great service and meeting guest expectations, which, when stripped back to the basics, is a clean room and a great night’s sleep.

Contibuted by Naveed Khan, London Rock Partners, London

The views and opinions expressed in this content do not necessarily reflect the opinions of Hotel Investment Today by Northstar or Northstar Travel Group and its affiliated companies.