GLOBAL REPORT—The hotel industry is awash with distressed hotels as the fallout from lending deals struck during the bright days of 2007 continues to spread. As such, hoteliers are increasingly finding themselves in the position of managing these distressed assets back to stability.
Management company HHM is no stranger to distressed management. President and CEO Naveen Kakarla said the number of hotels it manages that are financially stressed has been climbing during the past several years.
“The reality is that many of the owners … are financially challenged, at least as far as servicing debt and meeting the expectations of (debt) of the 2006-2007 timeframe,” he said.
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Naveen Kakarla |
Kakarla said one of the key focuses for HHM, which has 89 hotels in its portfolio, is margin expansion. This can mean looking at the kind of margins a hotel should have, and then retooling how the hotel is staffed to meet that margin goal.
The adjustment of staffing levels, however, is but one step in managing a distressed property back to stability. Mary Beth Cutshall, VP of acquisitions and business development for Hospitality Ventures Management Group, which has 33 properties across the United States, said bringing a hotel back to stability doesn’t always mean cutting costs. Sometimes hoteliers need to beef up marketing or staffing levels to ensure guests are still being taken care of.
Hotel management experts shared with HotelNewsNow.com four other tips and tricks as it relates to distressed management.
1) Understand the situation: Graham Windle, a director at CB Richard Ellis in London, said before laying out a strategy, hoteliers have to understand how the hotel got to the point it did.
He said to ask questions, such as: “Has it not been marketed to the right segments? Is it inefficiently run?”
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Mary Beth Cutshall |
Management officials also should look over the property’s website, he suggested. And ensure the hotel is opened to the correct distribution channels.
2) Comp set analysis: Sources said it’s important to take a close look at the competitive set when mapping out a hotel’s return from the brink.
Barbara Purvis, president and director of Essex Hotel Management LLC, which has 10 hotels in its portfolio, including one in a distressed situation, said a management company has to ensure it has an optimal comp set. “We don’t want to compete in an unrealistic asset class,” she said.
Jonathan Langston, managing director at TRI Hospitality Consulting in London, agreed. “One of the first steps is to identify where the product sits in the market,” he said.
3) Expense management: Kakarla said HHM is more sensitive about fixed costs when taking on a distressed management opportunity.
And budgeting also plays into that equation, hotel management experts said.
“Where are you spending too much? Where are you not spending enough?” Cutshall said.
There are certainly a lot of things on a budget that a hotelier has to keep an eye on, Langston said. “The thing is with a hotel, it has more moving parts than a Swiss watch,” he said.
4) Communication: Sources agreed there is a stigma attached to a hotel that is in distress, so it’s crucial that management officials talk to the public and employees to allay any fears.
Staff, for instance, might fear the hotel is going under and could start slacking off on the job. “Talk to employees and lay out the plan,” said Chad Crandell, president and co-founder of Capital Hotel Management.
Similarly, it’s important to get your message out to the public as well, Cutshall said. Open and honest is the best way to go.
“Our focus is transparency,” she said. “We do not hide problems.”