Many lending institutions find themselves in the lodging business today. The reason is a hospitality industry roughed up by the worst downturn since the Great Depression, which is forcing hotel assets into lenders' hands. Hotel management is new territory for many banks; however, managing these properties intelligently is essential in a market where every decision impacts profitability.
Here are five things bankers must ask their hotel management companies to ensure their assets maintain value.
- Is the property in good standing with its brand franchisor from a financial and quality-assurance standpoint? Your first step is to check if your property is in jeopardy of losing its brand flag. Ask your management company if there is an active product-improvement plan and, if so, whether it is realistic as it relates to timing, cost and capital expenditures. If needed, does your management company have the negotiations with the brand in place? Ask how they are monitoring the situation and request they provide you with accurate reporting. Depending on the property's situation, this is as important as other measures like revenue per available room, occupancy and average daily rate because the loss of a property's franchise may seriously devalue your asset and trigger liquidated damages per the franchise agreement.
- What is the property's condition and how might it impact future profitability? Guests who see a hotel's quality decline are likely to try a competitor. In today's market, guests are being targeted by competitors with newer properties, lower rates or promotions, and sometimes in higher segments of the industry.
- Are service levels acceptable? The competitive environment is unforgiving. Monitor your property's guest-satisfaction scores provided by the brand. Key measures include overall service, overall product and intent to return. Your management company should be prepared to provide you with scores on every guest service/experience category.
Is there an annual business plan in place? Review the plan for historical performance, forecasts, budgets, capital expenditures, competitive analysis and all top-line revenue-producing areas such as sales and staffing.Your sales effort should be viewed as an investment, not an expense.
All property sales leads and account information have considerable value and should be held in an easily accessible secure database. Be sure all your management company's sales efforts are specific, measurable and tracked in your sales system's database. Your sales data is vital and should be treated as such.
Ask your management company how they track sales efforts, how this information is maintained and how secure it is. Many sales programs are Web-based, and access to data and crucial reporting can be provided via the Internet to authorized users.
- Are there asset-tracking procedures in place at the property? Many operators do not know what they have paid for repairs or replacement of high-ticket items like HVAC units, or even small items like light bulbs, since they do not track them. Financially strapped operators often defer regular maintenance to save cost. Closing the swimming pool to save on chemicals or not changing air filters in HVAC units is not only bad for the equipment, it can drive away customers.
Asking these questions of hotel management companies will help bankers intelligently maintain the value of their assets.