Several factors are compelling hospitality investors and developers to partner with firms that specialize in property management, as we have seen in recent years.
These include the movement of substantial capital into a commercial real estate sector seen as having excellent upside potential, whether for hospitality-focused portfolios or as a diversification strategy for broader-based ones. Next is advanced technology, which has become indispensable, but increasingly expensive and complex to implement and administer. Not just for obvious areas such as reservations and revenue management, but also for back-of-house functions, human resources management and guest services.
Last, but certainly not least, comes labor. Again, it's indispensable and a growing expense, but in different ways. As we move forward, the challenge will be to develop a favorable synergy between technology and labor. The goals include reducing costs, while enhancing guest service and staff efficiency and satisfaction.
Finding the Right Partner
This movement started pre-pandemic with private equity assets coming into our space. For many of these investors, it was also appealing to take a stake in the management of owned properties. If I am buying these assets, I might as well have a seat at the table regarding decisions made related to how these properties are being run, while also achieving additional return on investment through property management “fees,” even if it becomes an internal transaction.
Post-pandemic, acquisitions and alliances continue apace. Beyond the largest global entities, there are many smaller ownership and property management firms that understand how our industry is redefining itself. Some ownership groups are fatigued and ripe for purchase. Others still have great zeal for developing and owning hotel assets for continued growth, but understand the advantages of enhancing their property management capabilities through partnerships and acquisitions. While the technology and labor pieces are not investment drivers, per se, they are important factors that lurk among any investor’s calculus.
Moreover, these alliances are adding vigor to our industry. They provide greater resources for hoteliers who already possess excellent local knowledge and are committed to hands-on, in person property management, attentive to owner’s needs. They will discover those exciting rebranding and development opportunities. How the brands will respond to the trends discussed remains to be seen. However, while value sectors are receiving strong investment interest at present, this is also an era for enhancing RevPAR and asset value by activating individual properties. Thus, there is an equally strong interest in lifestyle properties, soft branding and, even, independent hotels, developments at which local players can excel.
The key in this newer hospitality world is finding the right partner or partners, where the investment philosophies, human capital and organizational cultures mesh well. It takes time to cultivate relationships and ensure everyone is on the same page with goals and objectives, with comfort levels, not just numbers on the back of a napkin. No hospitality veteran wants to affix her or his star to a larger entity, only to find that it means loss of reasonable control or having to jettison loyal, high-performing colleagues. We believe these issues can be ameliorated with a thoughtful approach to mergers and acquisitions.
Coming Full Circle
Property management remains distinct from investment and development. This means boots on the ground; touching, feeling a property regularly; being instantly accessible and responsive to ownership, whether it is a large national private equity group or a smaller local or regional group of investors. We still must translate a hotel investment into a living, breathing guest experience and rewarding career for staff.
We believe this style of partnership is up to the task and will generate substantial value for investors, our hospitality people and our communities. As we have intimated, at the end of the day, life runs smoother when we go home with the one we brought to the dance. So, chose your partner carefully.
Kerry Ranson is a partner and president of operations at Raines.
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