HVS Monday Musings: Why Professional Asset Management Adds Value to Hotel Investors?

Professional Asset Managers are likely to gain significance in the COVID era as Hotel Owners & Investors realize their true value in helping improve hotel performances and yields in these extremely disruptive times. Read on to know more.
Ajay Mehtani The role of a professional Asset Manager has traditionally been underplayed in India, even though the expertise brought in by a quality Asset Manager can yield great results for Investors. This is already a proven fact in several mature markets where Hotel Investors extensively use their services. The role of the Asset Manager has become even more crucial in the current times of uncharted waters.

How do professional Asset Managers add value to Hotel Investors? 

Asset Managers work with owners to maximize the asset value and potential by optimizing operational efficiencies to deliver better ROI.
 
  1. Insights and varied experience across hotel class, category, cities, type gives them a wide variety of exposure to be able to work on the best fit for every hotel.
  2. Quality Asset Managers think outside the box of traditional business and explore boundaries that are unexplored by the operating teams i.e. creating products which can add incremental revenues using the same infrastructure.
  3. They challenge the Status Quo with deep dive analytics in the busy operating environment which gets missed due to the day-to-day operational issues.
  4. Their focus is to ensure returns on revenue per square feet and optimization of cost per square feet like any other real estate asset class.
  5. The ability and exposure to work with teams and bring about change management which delivers exceptional results is critical else everything remains only on paper.
  6. On behalf of Hotel Investors, they work on a CIC (continuous improvement cycle) and closely monitor results delivered by agreed plans and activities.   
Most Hotel Owners and Investors still do not realize the true value add brought about by an asset manager in helping improve their hotel performance and feel that “What is the Guarantee? Why should we pay additional money?” But a thought worth pondering here is that do the Brands that manage hotels give any guarantees? Moreover, while it is easy to terminate the Asset Management agreement if it does not yield the desired results, is it the same for a management contract?
 

As a Hotel Investor the risk for the asset management engagement is very small as compared the Asset Value or the value of Brand Contracts. For instance, on an INR 200 cr hotel investment the yearly asset management agreement will be <0.2% of the value, while the rewards can be incremental EBIDTA yield ~ 10 to 15x on valuation upside for the hotel investors, making it a worthwhile ‘investment’. 

At HVS we provide One Time Asset Management and 360 Asset Management Services for all hotel Investors in South Asia. You can reach us at [email protected]

About Ajay Mehtani

Ajay has had extensive experience with over 25+ years in Hospitality, FMCG, Private Equity & Technology solution companies during which he has worked with several leading domestic and international companies. He has PGD in Hotel Administration and a PGD in Marketing Management and has certifications in Business Strategy, Digital Marketing & Fundamentals of Revenue Management.  In his previous roles, he has been Regional Director Sales & Marketing South West Asia IHG, Chief of Asset Management for Private Equity Investor Duet India Hotels and Regional Director South Asia for New Builds & Transitions with Starwood Hotels prior to its merger with Marriott International. Contact Ajay at [email protected]

About Dipti Mohan

Dipti Mohan, Senior Manager - Research with HVS South Asia, is a seasoned knowledge professional with extensive experience in research-based content creation. She has authored several ‘point of view’ documents such as thought leadership reports, expert opinion articles, white papers and research reports. Contact Dipti at [email protected]

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