Asset managers - essential or excessive expense?

The role and value of asset managers in the hotel industry will be one of the hot topics under discussion at the Arabian Hotel Investment Conference, so Hotelier spoke to the experts ahead of time to find out whether asset managers are an essential or excessive expense

Hotel asset management has gradually been evolving in the Middle East, but it is still a service not fully understood by some owners and operators alike. To tackle this issue, next month’s Arabian Hotel Investment Conference (AHIC) will include a breakout session dedicated to the role of asset managers (May 2). A panel of specialists will gather together to debate the best types of asset management — in-house or outsourced — and discuss which types of business could best benefit from their services. Hotelier Middle East has the sneak preview, as we find out whether asset managers are the industry’s new best friend, or a superfluous expense.

WHO NEEDS AN ASSET MANAGER ANYWAY?

Asset management was born out of a realisation by owners that “the operator’s interests are not always aligned with theirs,” says Wasl Hospitality general manager St John Kelliher, one of the AHIC panelists.

“I believe that all hotels should have a hotel asset manager, as they play an integral role within the investment scope of operations,” says Kelliher. “It is sometimes difficult for an operator to see the asset from all angles, and the focus gets limited to merely creating profit from the facility rather than increasing the value of the asset in the short and long term investment cycle. Asset management specialises in both; the returns on operation and the increasing value of the asset,” explains Kelliher.

The asset managers Hotelier spoke with were generally in agreement on this note, with Frank Croston, partner at Hamilton Hotel Partners, adding that neither the type of owner nor their location was important when considering using asset management — industry knowledge is what is important.

“We see benefits across the spectrum of ownership by type in the Middle East region — from family businesses to Sovereign Wealth Funds, including businesses that are directly or indirectly government owned,” says Croston.

“The reasoning behind appointing an asset manager remains the same whether the asset is in London, New York, Beirut or Riyadh. The role is to optimise returns to the owner over time, of both a capital and income capture, and to maintain a constructive and challenging dialogue with the operating partner.

“If the owner has both the time and industry awareness to fulfil this role themselves, the asset management function may not be required, otherwise it will provide a level of comfort to the owner that all efforts are being made to safeguard and maximise their overall return on investment,” Croston adds.

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The economic downturn has highlighted a demand for the services of asset managers, as a result of more distressed properties on the market. AHIC panelist Siegfried Nierhaus, managing director at Atlas Hospitality LLC, says the company has seen an increase in demand as a result of the financial crisis.

“Owners having distressed properties as a result of a lack of experienced operators would certainly look for experienced hoteliers, professional consultants or knowledgeable asset managers to help and advise them during these turbulent times,” says Nierhaus.

Kuwait Real Estate Centre head of hotels Marco Nijhof, who is also speaking on the panel, said that while he had not seen an increase in demands, he believed that this was likely to come from financial institutions in the near future.

“I think that more of the financial institutions are realising that they sit on real estate assets, which are possibly below market value now for some time,” says Nijhof. “These institutions cannot off-load at the current market conditions and they will now have to take an active interest in the distressed property so that at least the property (both physically and financially) starts to look better, in order to eventually get the best price.”

“There are financial institutions that do not have the hotel knowledge and it is these companies that will ask for support from the asset management companies,” he predicts.

IN-HOUSE OR OUTSOURCED?

It might seem prudent to have an asset manager in-house and accessible round the clock, but this is normally counter-productive, according to the experts. Of course, they all have a vested interest in promoting asset management as it is their business, but they also do make some valid points.

Vision Hospitality Asset Management CEO Clive Hillier says: “Having asset management in-house would appear to give owners and operators a more hands on approach. However, this argument is severely flawed in that in-house asset managers only have access to comparable information for their own assets.