The deal is done, the purchase of a new hotel has happened and the congratulatory message from the broker, financing company and hotel owner celebrating the accomplishment has been sent out—now what?
If the new owner was an institutional investor or one that owns multiple properties in Canada, it is likely that a hotel asset manager was involved in this project and will now be responsible for representing the owners’ interests. So, what does an asset manager do and who are they?
Role of asset manager
A hotel asset manager bridges the worlds of hotel operation/management with that of real estate management. They typically represent the interests of the owner and are responsible for the enhancement of the hotel’s value. The role of the asset manager came about in the 1980s and 90s with the separation of ownership, management functions and the increase in lodging franchises, and third-party and brand managers. In the 1980s institutional investors, insurance companies and banks frequently found themselves with troubled loans. The way out from the troubled loans was to have people with industry-specific expertise help them.
Compared to other real estate asset classes like commercial or office, hotels are complex operating businesses that manage a new tenant with every room rental rather than a monthly rent cheque for a tenant based five- or ten-year lease. With shifts in tourism demand, labour cost controls, complex hotel management contracts and ongoing capital expenditures, the ownership of hotels requires operational expertise to enhance the value of the hotel. This professional discipline has become known as hotel asset management. As a profession, industry representation and education began with the Hospitality Asset Managers Association (HAMA) in the 1990s.
Today, HAMA represents about 200 asset managers overseeing an estimated 3,200 hotels with 760,000 rooms. They are primarily a United States based membership with affiliates now in Europe, China, and Middle East & Africa. As a much smaller economic market, Canada does not have a local chapter of HAMA nor do we have an official list of asset managers. Within Canada, asset managers are often employed by large hotel ownership groups like InnVest Hotels, Barney River Investments and SilverBirch Hotels & Resorts or for large institutional investors like Oxford Properties.
At InnVest for example, James Wolfe, vice president of asset management, moved into an asset management role with InnVest after being a hotel general manager. With a comprehensive hotel background, Wolfe sees the key drivers in asset management as being the liaison with the owners and someone who can sort through many different priorities. However, the most intangible and valuable benefit for owners is the ability for the asset manager to work collaboratively using best practices and financial information to improve the overall hotel revenue, guest experience, hotel valuation and employee experience.
The time and responsibilities of the asset manager vary depending upon the hotel investment cycle and owner. This question of where asset managers spend their time has been answered by HAMA research. The association conducted a survey of their members in 2015 to understand the profile and functions of asset managers. The survey highlights that a primary function of the hotel asset manager is constant performance measurement.
Asset manager profile
As a professional discipline, hotel asset management has only been around for about 30 years. The role is so new that only seven per cent of HAMA members have more than 20 years’ experience. While there are many professional designations relevant to operating hotels such as Controllers (Certified Public Accountant), Professional Engineer (Building Management) or Gold Seal (Chef’s), there is not one that recognizes the unique knowledge and skills for hotel asset management. Some designations and education that are commonly found to be a part of an asset manager’s profile include:
• Hotel valuation firms: Many asset managers have a valuation background with firms like HVS, Cushman & Wakefield, CBRE, Colliers, JLL and others. In order to sign off on an appraisal they are required to be certified by the Appraisal Institute of Canada which is most commonly backed up with education from UBC’s Postgraduate Certificate in Real Property Valuation.
• Cornell University: Recognizing the unique nature of Hotel Asset Management, eCornell offers certificates in Hotel Real Estate Investments and Asset Management. This certificate is available online and offers a good overall background into understanding the motivations of the owners, operators and lenders.
• Undergraduate degree: The most common university education that is found amongst asset managers is a Bachelor of Commerce. Within a hospitality context in Canada many have a background from the University of Guelph or Toronto Metropolitan University (TMU) hospitality degree programs. Recognizing this niche industry, TMU started a Hospitality Asset Management course almost ten years ago. That course has now transformed into a Hotel Real Estate Management course for both Hospitality and Real Estate Management students.
From an overall background perspective, asset managers in Canada tend to come from two profiles; hotel operations and real estate advisory. For those from a hotel operations background they will have worked at the property level and “have a strong background in understanding of revenue management or financials for hotel properties. With investment skills being one of the most important for an asset manage, many have worked through the ranks of hotel valuation consulting before transitioning to an asset manager.
Hotel asset management future
The future need for asset managers in Canada will be strong. As more hotel investors adopt third-party management agreements, they will need the specialist advisory that comes with the hotel asset managers. For family-owned hotel operations who add new hotels to their portfolios, there will be a time that they will need the specialist knowledge and professional expertise that is beyond their organization’s original expertise. As a community, hotel owners in Canada need to think about this specialist role and either nurture the professional development of existing hotel managers or develop undergraduate students through cooperative education programs.
