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Outlook 2015 – Rachel Roginsky, ISHC

July 11, 2014 6:39 pm

Presentation given by Rachel J. Roginsky, ISHC

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Evolution in the Role of a Hotel Management Company

July 1, 2014 6:10 pm

We, at Pinnacle Advisory Group, are often asked by our clients to provide recommendations for a hotel management company. Frequently these are clients that are new to the industry or are in some way operating outside of their normal comfort zone (i.e. a new geography, chain scale, etc.). These requests have increased in the last couple of years as the industry experiences an uptick in the number of new projects in the development pipeline and as transaction volume increases. We want to always be in a position to provide our clients with the appropriate recommendations for their project so we reached out to a number of independent hotel management companies to gain a better understanding of how their landscape is changing.

A number of years ago, the role of a hotel management company was pretty clearly defined. Management companies functioned as third]party operators providing day]do]day management services as well as support in accounting, HR, marketing, etc. Today, that is not necessarily the case. In the current environment, there is a lot more flexibility in the role that a management company can fill for a hotel owner, ranging from a straight third]party operator to some form of equity partner. Taking some equity interest in a portion of their managed portfolio is a trend amongst the companies that we interviewed. Most of the companies that we spoke with have a mixture of deal structures in their portfolio: some properties are under a traditional third]party management agreement, while for other properties, the management company has taken an equity interest, in addition to management. Typically, the equity interest ranges from sliver up to 25% to 30%. Some management companies have also started their own investment funds and are taking the lead in the acquisition role.

This shift in the management companyfs role has, in part, come out of necessity. The need or desire for these companies to grow has required creating or identifying new opportunities. The increase in hotel transaction volume over the last few years has created opportunities for management companies, with many deals trading unencumbered by management. Savvy management companies are evaluating the deals and bringing them to their existing owners or one of a handful of equity sources with whom they partner. A growing number of equity sources prefer that management companies bring some equity to the deal, feeling that this helps to better align the goals and objectives of both parties. Of course, it depends upon the equity source (REITs, insurance companies, private equity, and high net worth individuals), as not all of them prefer this structure, feeling that it can blue the line between the ownership and management functions.

All of the companies we spoke with expend a substantial amount of effort in pursuing new opportunities. For every one deal that is successful, there often are ten or more that arenft; the competition is intense for the good opportunities. To minimize resources spent on deal sourcing, savvy management companies have taken the time to develop a well defined positioning statement that highlights their area(s) of expertise and strengths which allow them to deliver tangible results to their owners. Then, they target properties that allow them to showcase their strengths and deliver upon their promised results using some well]defined metrics to effectively and expeditiously evaluate the merits of a deal.

As in any business, knowing what you are good at is critical. The same is true for hotel management companies. Some have particular expertise in operating resorts, others focus on limited or select service properties, and others still have particular skill in operating hotels for colleges and universities. The successful management companies clearly understand their own strengths and are wise to openly articulate their objectives. This allows industry partners to better filter and funnel potential deals. Savvy management companies recognize that their industry partners are an incredibly valuable resource in terms of creating and managing deal flow so ensuring that they fully understand the direction of the firm can improve the quality of referrals and help minimize or eliminate referrals that donft quite fit the bill.

Overall, as with the rest of the hotel industry, the landscape for management companies is evolving. The role filled by a management company can vary from owner to owner and the services they offer can vary from deal to deal. Management companies can serve as a third]party operator or an equity partner; they can provide due diligence and underwriting support or they can provide expertise in marketing, food and beverage or HR services. The key to identifying the appropriate management company for any particular deal is to understand the key aspects of the deal and try to identify a management company whose skills and expertise match. Ensuring that the owner and management companyfs objectives align will help further the overall success of the deal.

We would like to offer our thanks specifically to the following management companies that were very generous with their time and information during the course of our research for this article:

Aimbridge Hospitality……….http://www.aimbridgehospitality.com
Crestline Hotels & Resorts…..http://www.crestlinehotels.com
Hostmark Hospitality Group…..http://www.hostmark.com
LinChris Hotel Corporation…..http://www.linchris.com
Marshall Hotels & Resorts……http://www.marshallhotels.com
New Castle Hotels & Resorts….http://www.newcastlehotels.com
Newport Hospitality Group……http://nhghotels.com
Pyramid Hotel Group…………http://pyramidhotelgroup.com
Roedel Companies……………http://roedelcompanies.com
Sage Hospitality……………http://www.sagehospitality.com
White Lodging………………http://www.whitelodging.com

About the Author
Natalie Francoeur joined Pinnacle Advisory Group in May 2005 and is currently a Senior Vice President within the firm’s Boston office. In addition to working on the asset management team, Natalie has extensive experience with hotel impact studies, feasibility and appraisal work. Prior to joining Pinnacle, Natalie held positions within hospitality operations and marketing and also within the wine industry. Natalie holds a Bachelors Degree from Cornell University’s School of Hotel Administration and a Masters Degree from the F.W. Olin Graduate School of Business at Babson College.

Hotel Equity and Lender Perspectives (HELP) Conference Presentation

April 8, 2014 6:44 pm

Presentation given by Rachel J. Roginsky, ISHC

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Maine Outlook 2014 – Matthew Arrants

January 16, 2014 6:46 pm

Presentation given by Matthew Arrants, ISHC

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To Brand or Not to Brand….or Something Inbetween?

January 1, 2014 6:13 pm

The decision on whether to pursue a brand affiliation or to operate independently is one that hotel owners and developers need to weigh when considering options for new hotel development. There are numerous considerations to be made, based on a variety of factors including the hotel’s target audience, marketing benefits, design and operating guidelines, and costs associated with branding. However, the hard lines between branded versus independent are continuing to blur, as the emergence of quasi-brand options, or “soft brands” continues to become an attractive option on a number of levels.

Maintaining the independence and individuality of an independent hotel is attractive to many hoteliers, however, the convenience and power offered by brands is tempting when it comes down to the numbers. The proliferation of soft brands is evidence that there is a space between these two worlds that can be filled. Soft brand collections, such as Preferred Hotel Group, Leading Hotels of the World, and Small Luxury Hotels of the World offer alliances for hotels to maintain their individuality while at the same time leveraging the services of a brand. Traditional hotel brands, including major hotel chains, have also become players by launching their own soft brands. Examples include Choice’s Ascend Collection, described by the brand as “a network of historic, boutique and unique hotels that offer guests an authentic, local experience”, which began in 2008 and now has 118 properties throughout the United States, Canada, Europe, Central America, Australia and the Caribbean. In November 2013, Marriott’s Autograph Collection, penned as an “ensemble of strikingly independent hotels”, reached a milestone of 50 hotels in 13 countries in less than three years since the brand’s inception. An early player to market properties under a soft brand was Starwood with its Luxury Collection. The grouping of hotels, which dates back to the CIGA brand originating in 1906 as a collection of Europe’s most iconic properties, now consists of more than 85 hotels and resorts in more than 30 countries that offer unique, authentic experiences.

Among the advantages of choosing a soft brand are the obvious benefits of retaining independence in name, and maintaining a property’s individual character or charm. As one example, we have found that this is an attractive option when discussing branding options with colleges and universities that are looking to develop an on-campus hotel. To satisfy the priorities of the institution and create a sense of place, universities often prefer a hotel with a name that incorporates the name of the school so that the hotel is viewed as part of the university. However, in demand periods where school-generated business lulls and the hotel must rely on outside business as a supplement, universities see the advantage of having a brand affiliation that can bring visibility to other customers that it would not otherwise reach.

Joining a loose affiliation often gives the hotelier more flexible contract terms and lower fees than they would find when choosing to affiliate under a traditional brand flag. Having access to a larger scale marketing and reservation systems, purchasing power, and strength of distribution systems are benefits on the operational side for hotel owners, but having an association with a brand or a collection can also give a peace of mind to the traveler who wants the comfort of a certain standard that they know they will get when booking, but who are looking for a unique experience at the same time. Finally, when considering financing options, lender confidence with a brand name attached to the project versus an unknown independent can be a critical factor in the branding choice.

Soft brands are not a magical sweet spot on the branding spectrum for all properties. In each case, the hotel owner needs to do a comprehensive cost-benefit analysis to see where their needs and priorities lie on the scale from independent to traditional brand. But perhaps similar to how boutique hotels entered the market as a new class of hotels, soft brands are gaining in popularity and their definition is continuously evolving.

About the Author
Rosemary Rowen is a consultant based in Pinnacle Advisory Group’s Boston office. Since joining Pinnacle in 2013, she has completed work involving lodging supply and demand analyses, facility recommendations, brand assessments, and appraisals of both branded and independent hotels and resorts. Rosemary holds a Bachelor of Science degree from the School of Hotel Administration at Cornell University and her industry background includes roles in hotel sales and operations as well as analyst experience.

Rhode Island Hospitality Economic Outlook Presentation by Rachel Roginsky

September 12, 2013 1:18 pm

Presented by Rachel Roginsky

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Payroll Pressures

September 1, 2013 6:14 pm

LABOR COST FORECASTS

Budget season is upon us, and it is time to study the factor that would change the single greatest expense category:  Labor

Wage Rates
In real dollars, the American worker earned 0.1 percent less in July 2013 than in July 2012, after the nominal adjustment for inflation.  Because of the weakness in the economy, wage rates are likely to be stable during 2014, with some notable exceptions:

• California’s $8.00 minimum wage will increase 12.5 percent to $9.00 in July of 2014
• Minimum wage in the State of New York will increase 9.4% on January, 1.  The base wage rate for tipped employees did not increase.
•  Connecticut will increase its minimum wage by 3.5%.
• Minimum wage rates will be increased at inflation in: Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont and Washington DC.  Nevada has already announced that there will be no change for 2014.

Pressure is building however.  Back in March, Gov.Track.us.com estimated that the federal Fair Minimum Wage Act of 2013 proposed by President Obama had less than a 14% chance of getting out of committee, and less than a 2% chance of getting passed unless the Democrats regain control of the House.  The next congressional election will be held in November 2014, and numerous surveys have shown that the majority of Americans (80 percent according to the Huffington Post) support the increased minimum wage.  Its odds of passing could increase mid-2014, if Republicans seeking to preserve their 33 seat majority decide to court the working class.

If passed, the Fair Minimum Wage Act of 2013 would increase the federal minimum to $8.20 beginning three months after the legislation is passed, then to $9.15 one year after the legislation is passed.  It would stabilize at $10.10 in real dollars, and then be indexed to changes in the consumer price index.  Only seven states currently have 2014 minimum wage rates above $8.20: California, Connecticut, Illinois, New York, Oregon, Vermont and Washington. The vast majority of states match the current federal rate of $7.25.  If adapted, the legislation could increase starting wages for low-skilled jobs by as much as 13 percent.

This may be a good time for the hotel industry to reconsider its vehement opposition to an increase in the minimum wage rate.  When unions sponsor living wage laws, the outcome is generally far less favorable.   In 2013 the City of Long Beach became the most recent community to enact a living wage law for the hotel industry:  $13 per hour (California does not permit a tip credit.)  An LA mayoral candidate who was narrowly defeated in May ran on a campaign of $15 per hour for all hotel workers.  Other pressure is being exerted by “living wage” referendums that are typically funded by Unite Here Hoteliers in the Seatac area of Seattle, who are fighting a union sponsored $15/hour “living wage” campaign that will be decided in November.  Living wage campaigns for hotel, airport and rental car workers have already been passed in San Francisco, San Jose and LAX.

Increased Union pressure is being exerted across the county.  At various times this summer fast food workers from picketing for $15/hour; protests and walk-outs were organized by the Service Employees International Union (SEIU) in Chicago, Detroit, Flint, Kansas City, New York City, Milwaukee, and St Louis.

This external pressure is not going away.  When the incremental costs of the Affordable Care Act (Obama Care) are known and absorbed, it may be time for the hotel industry to defuse the Union pressure by proactively granting wage increases for its hourly employees.

Health Insurance Costs
There have been a number of headlines across the country regarding double and triple digit increases in health insurance premiums as a result of the Affordable Care Act.  For example, the Society of Actuarials forecast that individual plan premiums would increase 32% in 2014, as previously uninsurable individuals entered the system.  Most of these jaw-dropping numbers relate to premiums purchased by individuals, they do not refer to group policies.  That being said, it is a safe bet that group premiums will increase as insurers anticipate worst case pay-out scenarios.

Some 56 of working Americans were covered by an employer-sponsored program that is grandfathered in as of the date of the ACA’s passage (March 23, 2010).  These programs are exempt from some (but not all) of the new rules.  Your hotel’s existing program may be grandfathered in if it has not:

• (1) significantly cut or reduced benefits since March, 2010,
• (2) increased the co-insurance charge percentage,
• (3) raised patient co-payments by more than the greater of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points,
• (4) raised deductibles by more than a percentage equal to medical inflation plus 15 percentage points,
• (5) lowered employer contributions by more than 5 percentage points,
• (6) decreased the annual dollar limit or add an annual dollar limit where none existing previously

What are the key exceptions for a grandfathered policy?

• The maximum $2,000 individual deductible and the maximum $4,000 family deductible do notapply.  For the rest of the policies, these will commence in 2015.
• Preventative care is not born 100% by the policy provider
• There is no 10% cap on policy premium rate increases (before triggering a 3rd party audit)

If your policy is not grandfathered, the ACA says that employers cannot require an employee to pay more than 9.5% of W-2 wages for an individual plan.  If your hotel has full-time employees earning $9.00 per hour and they have an annual income of $18,720 ($9.00 x 2,080), then your hotel  may not pass on more than $1,778 in the cost of coverage, or $148 per month, or be faced with a $3,000 per employee penalty.  The Human Resource Department will need to monitor this, and complete more paperwork, i.e. incur more hours.

Offsetting tactics include:  increasing deductibles (beware, there are new mandated maximums); increasing employee contributions (up to 9.5% of W-2 wages), replacing full-time positions with two ineligible part-time positions, or sub-contracting/outsourcing some positions.

Beware though that “gaming” the system by converting full-time positions to two, part-time positions adds grist for union-organization efforts.

How much will the average group policy premium increase?  That answer appears to be a function of the relative cost of insurance in each state.  In general, in high-cost states like Massachusetts, Blue Cross Blue Shield is anticipating nominal (3.7%) increases, whereas in a low-cost state like North Carolina, Blue Cross is advising employers to expect an 18% increase in premiums.

Nationally, the average large group premium (per employee) rose 6.2% in 2010, 8.5% in 2011 and 4.9% in 2012.  At their worst in the early 2000’s, employer-sponsored insurance premiums rose by 10% to 14% per year.  If your insurance broker has not provided a premium estimate for 2014, a 12% increase seems as good a number as any.

About the author:

Karen Johnson MAI, ISHC is Principal of Pinnacle Advisory Group West located in Newport Beach, California. Ms Johnson has been active as a hospitality consultant since 1981. Ms Johnson has prepared valuations and analyses for urban hotels, suburban hotels, resort hotels, casino hotels, conference centers, economy lodging, convention hotels, branded residences, condo-hotels, fractionals and entire resort communities. She has testified or provided expert witness reports throughout the US as well as arbitration proceedings in the UK.

Ms. Johnson is an MAI and a member of the Urban Land Institute, sitting on the Entertainment Council. She was also admitted to the International Society of Hospitality Consultants (ISHC.)

Outlook 2014 Presentation given at the MLA by Rachel Roginsky

July 19, 2013 1:35 pm

Presented by by Rachel Roginsky

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Shortened Booking Windows – The New Normal?

July 1, 2013 6:17 pm

With “recovery” being the ultimate buzzword in the hospitality sector over the past two years, we are noting one major trend that has yet to revert to its former, pre-recessionary ways: shorter booking windows in the meetings and conventions market. Not only are group booking windows shorter, but so are average stays, and even room blocks are downsizing. Operators can no longer rely on pace reports to predict group business volumes ninety days in advance. Although the booking windows may increase as recovery progresses – especially in the more highly sought after group destinations – the general consensus is that shorter booking windows are here to stay.

What Research Shows
According to a mid-2011 study performed by Zentila and marketing firm Ypartnership, the average booking window for off-site meetings is now only 36 days[1]. Before the so-called “AIG effect,” booking windows for larger conferences and conventions would be anywhere between three to five years. This presents a harsh new reality for meeting planners. Even the definition of “short term” is shrinking. Whereas that label in the past might have implied a range within 90 days, the 150 meeting planners surveyed in Zentila/Ypartnership’s study defined it as a mere 13 days.

For shorter-term meetings, approximately half of planners (53 percent) said they needed just two to three days to find a venue and 33 percent indicated they needed four days.

According to the 2013 American Express Meetings Forecast report:

“Planners are being asked by their companies to ‘do more with less’ and many are finding that their tighter meeting budgets are not approved until their company’s previous quarter results are known.  This dynamic is putting increased pressure on already reduced lead times.”

The American Express Meetings report further states that while organizations recognize the value of meetings and events, due to the cost-conscious environment, the meeting approval process may continue to be prolonged.  As long as the meeting planners are operating outside of the seven-day airfare rules and the seats are available, they will likely continue to do so.

How Operators Combat Shortening Booking Windows
Some operators are offering clients 10 percent to 20 percent off of meetings packages if they book 90 days or further in advance. Other operators are further adapting by scheduling meetings closer together. For example, it is commonplace to have 800 departures and 800 arrivals on the same day at the Sheraton in Denver.[2] To offset the inconvenience of checking in amidst larger crowds, the hotel will set aside a meeting room offering beverages and snacks while holding luggage for guests that are unable to check in right away.

More discipline is also being shown in restricting arrival and departure patterns, similar to the airline industry.  If a smaller group requests utilizing a popular group night (Tuesday and Wednesday), they will have to pay a premium rate or the business will go to a larger group. Hotels also supplement their revenue through increased food and beverage sales by offering upgraded receptions and/or plated meals.

Shortened Booking Windows Could (Moderately) Increase as Recovery Continues
Although most groups are more flexible about their dates with the abilities of advanced technology, booking windows may moderately lengthen as 2012 hotel fundamentals boasted overall improvement. This has already been demonstrated in the larger meeting/convention markets of New York City, Chicago, Las Vegas, and Orlando. However, we note that nation-wide, group demand growth has lagged behind the pace of transient demand, and the March 2013 TravelClick Perspective reports that group commitments for 2013 remain ahead of last year by only 0.9 percent – a figure that was revised downward from 2.2 percent at the beginning of January due to the softening of consumer and business confidence resulting from uncertainties created by the fiscal cliff and sequestration. Nevertheless, group demand is expected to slowly improve through 2014, as in most markets these issues are more hype than actual problem.

With occupancies returning to pre-recessionary levels, hotel managers are targeting more aggressive rate strategies going forward, and are less willing to concede room rates for group business as transient business remains healthy.  Meetings and Conventions reports that room rates are expected to reach 2008 (unadjusted) levels as the US achieves above-inflationary rate increases in 2013 and beyond.  Increases in room rates should entice planners to book further in advance should discounted rates be offered.

It is interesting to note that, although room rates are increasing, few meeting planners are having trouble finding rooms. Surprisingly, some meeting planners indicate that it is easier to find room availability this year than last year (this can be partly attributed to the national overbuilding of conventions and convention hotels in the US today, creating a glut of available space).

Given that hotel rooms are still available in 2013, the lead time for booking events has not yet changed for most planners, with the length of booking windows almost the same this year as last year.  While there is currently no notable change in booking windows, an impact should become more evident as recovery continues.

Potential Impact from Airfares on Booking Windows
Currently, meeting planners have had no substantial reason to book months in advance as airfares do not largely fluctuate until 28 days prior to departure, and prices are at their lowest between 18 to 28 days prior departure.[3] However, the average fare increases approximately 5 percent two weeks before departure, and increases 30 percent the week prior departure, only limiting very last-minute bookings.

With carriers attempting to hike more than 1 million fares across their system, ticket prices are expected to increase approximately 7 percent this year.[4]  The possible merger between American Airlines and US Airways would likely lead to further airfare hikes and cuts in capacity.  Airfare increases may price lastminute groups out of the market and as a result impact booking windows, especially for those booking less than 18 days prior to departure.

In summary, we predict that although the shorter booking windows may moderately expand as the economy improves, this new trend will be a long-term one as long as airfares do not interfere and price groups out of the market. Only hotel operators that capitalize on shorter booking windows by adapting and developing strategies can realize new business opportunities and come out ahead.

About the Authors:

Sandra Lien is a Vice president of Pinnacle Advisory Group in Newport Beach, California. A graduate of the Cornell University School of Hotel Administration, Ms. Lien has extensive experience in feasibility analysis, due diligence and valuation of hotels, condo hotels, timeshare facilities, and convention hotels.

Jenny Lee is a Vice President of Pinnacle Advisory Group in the West Coast office. Specializing in researching and providing counseling on complex hospitality real estate issues, she holds a Master of Business Administration from University of Chicago’s Booth School of Business and is a graduate of Cornell University’s School of Hotel Administration.

[1] “Sales teams feel pinch of short booking windows,” Hotelnewsnow.com, July 2011

[2] “Hoteliers combat shrinking meetings trend,” Hotelnewsnow.com, February 1, 2013

[3] “How to get the cheapest price on airfare”, FOXBusiness, August 30, 2012

[4] “Fliers can expect higher airfares, fewer airlines, more fees, experts say,” NBCNews.com, December 30, 2012

Hotel Asset Management for Colleges and Universities

April 1, 2013 6:19 pm

Written by: Matthew Arrants

Over the last several years there has been a dramatic increase in the number of colleges and universities developing lodging facilities on or near their campuses. As hotel owners, colleges and universities are unique relative to more traditional owners such as individual investors, private equity funds and/or Real Estate Investment Trusts (REITS), as profit is often not the institution’s primary consideration. Additionally, they are often the largest lodging demand generator, are very concerned with protecting the reputation of their brand and strive to integrate hotel operations with the school. As a result of these complex factors, hotel asset management for college and university-owned facilities is particularly challenging, requiring an in-depth knowledge of the both the lodging industry as well as the academic environment. Understanding the Goals for the Facility

Colleges and Universities develop on-campus lodging facilities for a variety of reasons. Some of the more common goals include providing:

• an enhanced visitor experience;
• a facility to house and entertain potential donors;
• a catalyst for revitalizing a local area; and
• support of other internal interests (e.g. executive development programs or hospitality management curricula).

Profitability can sometimes be at the bottom of the list, if it makes the list at all. The lack of emphasis that colleges and universities place on profitability creates two issues. First, these hotels often generate less income than they could due to mandated preferred pricing for internal clients. Second, it may be difficult to measure management’s performance against the school’s intangible objectives.

The Profitability Challenge

Measuring a hotel manager’s effectiveness can be more complex in universities and colleges than in other environments, particularly if the institution places pricing or operating restrictions on the manager in pursuit of its intangible objectives. Profitability, one of the traditional measures of management effectiveness, is a lesser priority for many colleges and universities and alternative measures of management performance must be utilized. Typically, these include guest and employee satisfaction surveys, on-line reviews, and benchmarking reports from Smith Travel Research. It is the role of the asset manager to identify appropriate alternative measures of performance and evaluate management’s performance within the context of the institution’s objectives, both intangible and financial.

Removing profitability as a key metric in measuring performance can create a degree of complacency on the part of operators. In addition, the focus on intangible measures of performance (e.g. guest satisfaction scores, and the satisfaction of critical stakeholders such as trustees and donors) provides an excuse for operators who may not be focusing enough on revenue management, sales, or expense control. These are all areas that are outside the experience of the typical college or university administrator that is responsible for the hotel.

Recognizing that they do not have the necessary skill set to operate a lodging facility, most colleges and universities hire a third party management company. Unfortunately, the school’s interests are often not completely aligned with those of the management company. Since operators receive the bulk of their income from top line revenues, they have a tendency to maximize revenues while putting less emphasis on controlling expenses. At the same time, schools need to be concerned about their reputation and thus are susceptible to overspending on the product and service levels. The net result is a hotel with strong revenues but diminishing profitability. Without a qualified third party asset manager, most schools are not qualified to effectively evaluate the costs versus the benefits of the product and service levels proposed by management.

The challenge in using profitability (or return on investment) to measure success for college and university hotels is the complexity of the equation. How does one factor in the facility’s impact on securing a large donation from a benefactor who has been housed and entertained at the on campus hotel? What is the financial benefit of providing a comfortable place to stay for visitors to the campus? How much money does the facility retain for the school that otherwise might be spent at privately owned hotels? In our work with colleges and universities we attempt to identify and address those issues and then apply reasonable benchmarks.

Demand and Pricing

The fact that the school is the largest source of lodging demand presents a major challenge with regard to pricing. As the primary demand generator for the hotel, it makes sense that the school-related visitors would receive a discount. The challenge is determining the right rate structure. If lodging demand generated by the school is too heavily discounted, management would be losing out on management fee income. This could lead management to target other sources of demand that might displace demand from the school, or to charge exorbitant rates to non-school affiliated visitors, which in turn could tarnish the school’s reputation or cause travelers to use competitive hotels that are not owned by the school. The asset manager serves to advise the owner and the operator on dynamic pricing that helps to maintain this delicate balance.

Integration with the School

Many schools attempt to integrate the hotel with the rest of the university to leverage existing operations, relationships and facilities. For example, most large universities have extensive in-house resources that can provide services and support for marketing, advertising, and public relations. They also have resources that can support the engineering function of a hotel such as plumbers and electricians. Lastly, due to their size, some schools have their own power plant, or receive volume pricing that can benefit the hotel operation. When considering these economies of scale, it’s important to understand the strengths of the school and the needs of the hotel. For example, the school may have great web designers in house, but they have no experience with hotels. That could present a challenge for the operator who is ultimately going to be responsible for the website. The role of the asset manager is to objectively evaluate the functions provided by the school and advise ownership and management as to their effectiveness for the hotel operation.

Conclusion

Colleges and universities face unique challenges as hotel owners due to the complexity of their goals and objectives. Furthermore, as a result of their unique and complex goals, it is difficult to ensure that hotels owned by colleges and universities are performing to their full potential. To maximize their performance colleges and universities are well served to have professional independent third party asset managers to support them.

About the Author

Matt Arrants, Executive Vice President of Pinnacle Advisory Group, has extensive experience in asset management and hotel operations analysis. His clients include universities, hospitals, real estate investment funds and hotel owners and lenders. A former chairman if the International Society of Hospitality Consultants, he lectures regularly at Cornell University’s School of Hotel Administration and Boston University’s School of Hotel Administration. He formerly held management positions within several major hotel operators.

Since 1991, Pinnacle has provided advice and analysis on the full spectrum of hospitality properties: hotels, resorts, conference centers, timeshare and other residential resort facilities, golf courses, ski slopes, marinas, and such public assembly facilities as theme parks, arenas, convention centers and exhibition centers.