asset management report

What’s ahead for asset managers? Hotel Business spoke with Kirby Payne, president, HVS Asset Management – Newport; Christopher Mannino, president/CEO, CAM Hospitality Advisors & Management, LLC; and Richard Niedbala, SVP/asset management, Lodging Capital Partners, LLC, to discuss 2016 and expectations for next year. Trends in transaction activity and the impact of major recent events—like the U.S. election and resulting incoming administration, and the completion of Marriott International Inc.’s acquisition of Starwood Hotels & Resorts Worldwide, Inc.— were among major topics of discussion.

Has 2016 lived up to your expectations? What is your outlook for the upcoming year?
Payne: Our luxury and upper-upscale asset managed hotels in the U. S. and Canada had NOIs exceeding the previous year (2015). Our expectation for next year is for a lesser increase, if any, due to uncertainty as a result of the unexpected election results in the U. S. at both the state and national levels. Our upper-midscale hotels are primarily in areas affected by energy prices and their NOIs were off considerably. I believe those hotels may continue to suffer in 2017, as oil prices remain low.
Mannino: 2016 has been choppy, and in certain markets and submarkets, downright disappointing. The corporate segment is obviously soft and the RFP season, which is now upon us, has shifted to a buyers market.
Niedbala: While most of the markets we have assets in have performed as expected, such as those markets affected with significant supply additions, some markets did surprise us due to issues with demand generators. But overall, our expectations were pretty much consistent with market conditions.

For 2017, we are expecting a small recovery to occur. Markets still absorbing supply will be challenged, but our expectation is for modest RevPAR growth in most markets. We are looking forward to the impact of the Marriott acquisition of Starwood on those properties in our portfolio affected by the merging of the brands.   

On the acquisition side, we expected a deceleration in transaction activity. Surprising is what appears to be a bit of a rally at the end of the year with values seemingly holding well. Next year, we expect increased activity.

What should hoteliers be focused on? Are there any trends or potential challenges you’ve keyed in on as areas of focus?
Payne: Hoteliers should focus on profitable revenues, as opposed to revenues with low ADRs, gaining market share through offering value and continuing to seek operating efficiencies without sacrificing guest and employee loyalty. Retention of quality employees will be critical to the guest experience and maximizing operating efficiencies.

Among the major challenges is keeping up with the reporting requirements of the Affordable Care Act and the uncertainty for planning purposes of various labor/employer regulations such as minimum wages, common employer, overtime criteria, etc., as the composition of the NLRB changes.
Mannino: Hoteliers should be focused on cost mitigation and focus on transient reach. Electronic distribution will be key in 2017 as the group segment is soft and in many markets down.
Niedbala: We are ensuring our operators continue to keep a keen eye on expenses. Market events such as the combining of Marriott and Starwood cultures and operations will necessitate increased vigilance. Ownership/asset managers must ensure fee/brand expense creep does not occur and owners are not taken advantage of as brand family options dwindle. Furthermore, the continued evolution of brand segments can lead to differentiation through amenity creep. Critical evaluation of added expenses is critical to holding operators to attaining the desired profitability levels.

As RevPAR growth has moderated somewhat, we are still confident we can attain our profit objectives.  We are putting pressure on our management companies to become creative in their approaches to labor costs and capital expenditures as well as ensuring they are still using fundamental blocking and tackling efforts.

Have you seen an increase in the need for asset managers? What are the driving factors behind what you’re seeing?
Payne: We are seeing an increase in demand for asset management teams with experienced staff and infrastructure. Independent persons, even experienced ones, but with no senior support staff, will not be able to compete effectively but will nibble away at the opportunities of the bigger firms as will the larger multi-asset asset owners who develop their own asset management teams. Additional demand for asset management is coming from government-related entities that had not previously owned hotels but now see them as accretive to their missions. In many cases, asset management is required by the bond requirements.
Mannino: Yes, we believe asset management now plays a major role as owners have become more participant in the day-to-day operations. Asset managers have to be partners in solutions and not just news reporters.
Niedbala: I feel the need for asset managers continues to evolve as the professionalism of those in the role increases. The expanding complexity of hotel ownership demands the coordination and integration of many different skills. Additionally, a wide and varied experience in property types and locations is critical.  As an example, our team has combined real estate, hospitality, legal, financial, capital market and project management skills in projects ranging from small boutique resorts to historically significant hotels to major convention and meeting properties.   

What are you seeing with regard to asset values?
Payne: Asset values have been going up particularly for trophy properties and luxury and upper-upscale assets. These assets are a good place to park money that originates in areas that have more economic and political uncertainty than the U.S. or Western Europe do. I believe U.S. values will stabilize in the first half of 2017 as investors wait to see what the new U.S. government does in the dozens of areas that affect our industry’s economic activity.
Mannino: Most hotel sales have dried up as valuations are difficult to measure with retraction anticipated in many markets. Some offers are still being made, but well below asking.
Niedbala: Expectations of asset values continue to have the optimism of the peak of the market from 2015, though transaction activity has declined through much of the year. Looking forward, we are expecting transaction activity to begin to increase into next year, supporting the established value expectations.