Despite grim analysis of and predictions for the hospitality sector; the Pandemic has provided an opportunistic period for hospitality management firms. This is a trend across all categories; from secondary management/operations of big box brands, to independent boutique hotel assets.
The surge in COVID-19 cases in regions across the country, restrictions on travel and small business operations in primary, secondary and tertiary markets, has caused closures, low occupancy, and ADR. The fiscal impact on hotels and resorts, has resulted in restructuring and/or re-financing of hospitality assets. In some instances, outright sales and acquisition of distressed hotel assets. Lenders are even more stringent in reviewing the Operations and Management of assets seeking refinancing, to ensure future profit and returns.
The criteria for the selection of management firms has become multi-layered. It is not enough to have “skin in the game” in order to compete for a management contract. What owners and lenders want to see is the past performance, structure, and strategy for operating, attracting, and maintaining market share, occupancy levels and ADR. Particularly in this period of uncertainty due to a declining economy and Pandemic.
In other words, operators must shift their models to meet the goals of hotel owners, clients/investors, along with change in travel demand. A Pivot if you will, to properly identify the new demands and travel patterns in the age of COVID-19 and beyond.
Travel will return slowly, in the summer months since the identification of the virus, there was pent up demand. Travelers were keeping it local, meaning, Drive To destinations, offering natural surroundings loaded with soft adventure and outdoor activities. Social distancing being the key driver in selecting a destination and hotel.
I can substantiate that point from my personal preference of destinations I can drive to or travel via Amtrak. The hook for me is the natural experience and accommodations within close proximity to outdoor activities. And I am not alone. During my travels, this summer I found a significant amount of travelers enjoying nature reserves, hiking trails, camping grounds, river, and lakes. Hotels that do an excellent job promoting natural surroundings, what is nearby, along with protocol to keep guests safe, are top of mind for travelers in this Pandemic period.
So, how is this time opportunistic for hotel brands and management firms desiring to expand their portfolios of managed hotel assets? They can take the pulse of the traveling public, what are their preferences? Really consider if preferences of the new traveling public can be delivered based upon the management company’s present model. And, most importantly, can the hotel asset meet the demands or be Repositioned to accommodate the “New Normal.” That includes reimagining staffing, to ensure the operations staff, as well as sales, can meet the demands and deliver to exceed the guests’ expectations.
Repositioning should take place not only at the property level, but within management firms. Now is the time to create a new “Playbook,” one that can be revisited and edited as we move through the phases to come of this pandemic. This may all sound daunting; however, it truly is not. If management firms take the time to analyze present travel patterns and demands, they can structure successfully to secure new management contracts.
At Morgensheer Hospitality, Inc., we recommend management firms to our clientele of independent hotel and resort owners, and investors. Our goal is to facilitate successful long-term relationships that will garner results for our clients, realizing their investment goals. In this very uncertain time, we are seeing an increase in existing hotel owners desiring to replace or retain management firms. We are assisting clients presently to identify operating partners who are equipped to manage strategically and successfully during this uncertain period.
For us, assisting our clients entails doing a deep dive into the operations of a management firm, to carefully review structure (includes staffing), distribution, operations, performance (growth/expansion), core philosophy and concept, and communications. The culture of the organization matters; we need to understand that there is a culture that is cohesive and principled. The latter is critical as it will determine the relationship with owners/investors and ultimately trickle down to the overall guest experience.
Securing new management contracts is not difficult, achieving goals (deliverables) and retaining the contract is the challenge. Pivot – if you have not done so already; now is the time to revise and/or perhaps, devise a new strategy encompassing several phases to accommodate both the economic downturn and Pandemic crisis. In other words, as things change your plan should enable you to quickly and without interruption, shift gears.
The good news is that there are hotel and resort assets in need of management operators. There are also investors desiring to ‘rebrand’ and/or sign with Big Box brands from 3 stars to 5-star luxury. Development of hotel assets continues as many have been in the works long before the Pandemic. The show must go on and so there is a need for management operators.
By now your question is simply how do I as a branded hospitality company desiring to expand my portfolio; or boutique management firms looking to secure management contracts? How do I attract hotel owners (potential clients) in this opportunistic and competitive climate?
Review Current Playbook
- Take a look at your current portfolio of managed hotel assets. Are there several categories, example 3, 4 and star in your portfolio? Consider the destinations in which you operate? Which are viable, according to forecasts and current traveling public demands and trends?
- Go back over the business plan, forecasts and contracts that were in play. Can the plans be revised to meet present economic and Pandemic conditions?
- Pre-COVID_19 what were revenue/performance? Did you meet goals? Which markets were strong, weak, and where did you see opportunities?
- Ownership – is the client committed to your plan/relationship? Have your communications with ownership been consistent and productive? How are you managing expectations during the crisis?
- Staff – were you satisfied with staffing? Did you need to add or eliminate staff and/or positions? What was their strength and impact on the overall goals and objectives of the firm? Is there an opportunity to restructure to meet the new Normal? It is actually the right time to do this as there are many talented hospitality professionals furloughed and/or looking for opportunities.
Resources – Research, Intel, and Network
- Research – are you in touch directly with travel industry sources and those who service the industry? This includes:
- Travel professionals/planners
- Market analysts
- Financial services/institutions
- Consultants (hospitality industry)
- The Traveling Public – watch regional trends
It is critical that you do your research and most importantly, monitor the patterns of travelers, the latter is the most reliable and will help you structure business, sales, and marketing plans.
Sales and Marketing/Partnerships
- Sales/Marketing – what are you doing to redirect and prepare for the coming quarters? How are you engaging with past clients and guests? Now is not the time to reduce sales staff; especially if your new plan calls for expansion of management contracts. Who can assist in that effort?
- Programs/Incentives – are current programs, rewards and/or incentives relevant? Did they generate interest and results? Can you retool based upon your research?
- Partnerships – review your partners to determine whether the relationship(s) are relevant to this period. If not, seek partners with the goal of not only adding value to the management company, but also to owners and guests. Carefully review their plans and protocols, have honest conversations to ensure that your core philosophies and practices are aligned.
- What does your current executive team look like? And are they relevant to the time we are in? Review the effectiveness of the Executive team; how impactful are they to the acquisition and retention of contracts? Most important, how significant will their roles be in the coming quarters?
- Executive Team – Consider how your Executive Team can assist in the overall goal of expansion. Roles will be changing in the age of the Pandemic and beyond. A Reset if you will.
- Expansion – Rethink if you will, the role of the President of the management firm. Should the position also include expansion? Food for thought, depending upon the size of the management firm and portfolio type, should you not identify a President with a finance/investment and real estate background? In other words, a leader who can also identify management/operation contract opportunities, and negotiate contracts? A candidate with a well-established network of investors in the hospitality and real estate sector? Who better to expand your portfolio? Shake it up, you have nothing to lose and management/operations contracts to gain.
- Protecting guests and employees – it is important to include in your operating plans and presentations, protocol for providing safe accommodations and workplace. This should be in line with science and regulations issued in the destinations in which you operate and seek to expand into.
- Communicate often with guests and employees the measures you have taken on behalf of ownership to keep everyone safe. The strategy is to be knowledgeable when it comes to changing guidelines and regulations.
- Partnerships – by now you are well plugged into the science of public protection guidelines by way of strong relationships with local municipalities. Or you should be, as this is the most valuable tool in the toolbox of attracting guests. The plan should include an extensive protocol for healthful accommodations and public spaces. Your protocol should be enforced at the property level; all employees must adhere to the protocol and openly share with guests.
Securing Contracts – Brand Expansion
- Investment – Owners and developers seek operators who invest in their hospitality assets. What “invest in” looks like being deal dependent. It is more than the actual dollar amount, but comfort in knowing that they will have an operator who is committed to the success of the hospitality asset. Most important, the operator who is in it for the long run. It is important to understand that before approaching your target.
- Expected ROI (For Real) – Be clear and honest with yourself in terms of what you are willing to invest and the expected ROI as a result of your efforts (management/operations). The destination and economic climate of course will be key. Researching is critical here as it requires much more than STR Reports and reviewing the local comp sets. But overall; how is the economy performing? What are the economic forecasts, one, two or three years out? Which are the sectors most affected by a downturn? Can you identify emerging markets and successfully capture?
- Prospecting – How do you go about prospecting? The majority of hotel management contract opportunities are off-market or fly under the radar. You should build a network of trusted contacts within the commercial real estate and finance sectors. These are the folks who are representing developers, hotel owners and investors, simply in the know. Be prepared to present to them first as their reputations are on the line as they are recommending your firm to their clients. And will continue to do so, becoming valued members of your network.
- Proposals – From my experience, many very capable and results-oriented management/operations firms miss the mark when it comes to proposals. They tend to be elaborate marketing decks, visual but light on facts and figures. Keep in mind that oftentimes you are speaking to investors, those with finance backgrounds and very little hospitality operations knowledge. You can identify those management firms who present well; they are the companies with strategic and expansive portfolios. So, educate and provide facts and figures.
- Rule of thumb, even if you are well-known, present as if your target has never heard of you. In other words, educate your prospect on the industry and the category in which you and they operate. Highlight strength and performance.
- It is all about the numbers. Hotel owners and investors want to see performance and results. That should be included in your presentation.
- Your team is also critical, not just the executive team, but operations – experience, role, and responsibility. Many firms make the mistake of presenting the executive team; keep in mind that Operations is the key and you must demonstrate your capability.
- Tailor Made – the actual proposal should speak to the asset as opposed to a rundown of the services provided, standard proposal contract and fee structure. Dig deep, really understand the asset, the market, economic conditions, and forecasts. Research ownership – portfolios, investment criteria and current and past transactions. ake into consideration any capital improvements, etc. required in order to turn the asset around or position, in the case of new development. The proposal should be strictly about the asset you are targeting with extensive information to demonstrate not only your expertise, but rather, methodology for improvement and knowledge of the asset and market. Measurement – explain in great detail how ownership can and should measure performance and results, based upon the asset, market, forecasts and other conditions. Again, you are demonstrating competency and setting the tone for the professional relationship going forward. Most importantly, accountability.
- Meet on Property – the most successful tactic for securing the management contract is an in-person presentation of the proposal. Show up. And show up with key members of the team, including day to day team member(s). This is about relationship building and demonstrating your commitment and level of interest. It is impressive and the beginning of truly cultivating the relationship with the owner/investor.
The most impressive presentation I have ever witnessed was when a boutique hospitality brand operator showed up with ownership, operations, and sales team. The presentation was informative and interactive. The hotel owner/investor was blown away. We were all blown away. Needless to say, the decision was made at the conclusion of that presentation. They landed the contract. What they did which was brilliant was to show up with key team members. Most importantly, the interactive component was strategic on their part; that was the beginning of ‘cultivating’ what has become a very strong partnership and relationship with the owner. Brilliant!
- Bigger is not always better. As you consider (see above) growth strategy, it is important to consider the future of travel. Again, based upon economic indicators and travel patterns. What does the future of travel look like? Based upon your findings, that should determine the size of your portfolio and target destinations.
- Will expansion affect the quality of service? Rather than volume, consider size and category. If you are a boutique management firm, perhaps the strategy is to diversify your portfolio by adding short-term/extended. A different product, I know, but one to consider given the demand as a result of the Pandemic. Most importantly, make certain you have star team members in the destinations in which you would like to expand.
Now that you have secured the management contract; or two or many, you want to ensure you retain the contract. Owners are being extremely diligent when evaluating contracts. Expect to see the standard contract reduced by years with solid exit clauses. They are in the driver’s seat at the moment. That said, there are strategies you can devise to retain contracts.
- Consistency – make certain messages, plans, protocols, operations are consistent
- Communications – along with ownership, devise a plan for effective, productive, and consistent communications
- Visibility – it is important for the Executive and key team members to be visible on the property, not just for meetings and presentations
- Review Operations – show up regularly to review operations. Get a feel for the guests/clients, team performance, as well as the local market
- Know the Neighbors –management firms should be partnered and connected with local industry, tourism, and businesses. In other words, be seen and involved
- Economic Indicators – keep your eye on the market, through partnership relationships in finance, in order to Pivot and adjust to changes in the market
- Devise sales/marketing plans that can accommodate shifts in forecasts – economic downturns, etc., and adjust to emerging markets (New Normal of travelers)
This is an interesting period in the hospitality industry; a Reset and/or Pivot if you will. Those are the buzz words going forward. We have seen dramatic changes in our industry over last few decades. One thing is for certain, the hospitality industry always rebounds, albeit different but nevertheless, rebound. And when it does; new markets, products and demand will present tremendous opportunities for those prepared.
About the Author
Trica Jean-Baptiste is the founder and President of Morgensheer Hospitality, Inc., a New York-based Consortium of seasoned Hospitality, Real Estate Sales Advisory, Hotel Turn Around and Management Operations, International Investment Advisory, Revenue Management, Global Development Management Strategy, Resort Real Estate, Resort Development and Operations, Construction Management Development, Architecture/Interior Design, Valuation, Marketing Communications, representing Development and Capital Markets operating as one entity. The Morgensheer Hospitality, Inc. The Consortium provides strategic hospitality services to real estate investors acquiring and developing hospitality assets.
Prior to embarking upon a second career in commercial real estate, Trica Jean-Baptiste was president and founder of Trica Jean-Baptiste Communications, LLC; an award-winning boutique Travel Hospitality PR based in NYC for 15 years. While heading up Trica Jean-Baptiste Communications, LLC. she represented some of travel’s leading hotels, resorts and tourism units: Rocco Forte Hotels, Star Hotel’s the Michelangelo Hotel, St. Giles Hotels New York, Hotel St-Barth Isle de France, Rosewood Hotels’ Caneel Bay and Little Dix Bay, Hotel Esprit St-German (Paris, France); Dubai Tourism, Scotland Business Tourism Unit, Brussels to name a few. Trica is a licensed real estate sales associate in (New York State).
She is the author of OPERATION RESET: A GUIDE TO REINVENT YOUR CAREER IN ANY ECONOMY.
Trica is also the host of, RESET YOUR CAREER IN ANY ECONOMY Podcast on Spotify, Apple Pocket Casts, Google Podcast and wherever Podcast is available.