Hotel Asset Management: Evaluating the Performance of Hotel Investments
Introduction
Hotel asset management refers to overseeing hotel properties to maximize investment
returns and mitigate risks for owners and investors. A key responsibility of hotel asset
managers is to continuously evaluate hotel investment performance to ensure ownership
goals are being met. Effectively evaluating hotel investment performance requires
understanding key performance indicators, benchmarking, factoring macroeconomic
conditions, and identifying areas for improvement.
This paper will examine how hotel asset managers evaluate the performance of hotel
investments. It will define common performance metrics, explore benchmarking strategies,
discuss macroeconomic impacts, and provide recommendations for improving
underperforming assets. The goal is to equip readers with an understanding of best
practices for ongoing performance evaluation from an asset management perspective.
Key Performance Indicators
To properly evaluate investment performance, asset managers must track a core set of
quantitative metrics known as key performance indicators (KPIs). Common financial KPIs
include:
- Revenue per Available Room (RevPAR): The most widely used lodging industry metric,
calculated as total room revenue divided by total room nights available. Trends in RevPAR
indicate changes in occupancy and average daily rate (ADR).
- Average Daily Rate (ADR): Room revenue divided by total occupied room nights. Tracks
changes in room pricing independent of occupancy levels.
- Occupancy Rate: Total occupied room nights divided by total room nights available,
expressed as a percentage. Indicates effectiveness of demand generation and room sales.
- Gross Operating Profit (GOP) Margin: GOP (gross operating profit or earnings before
interest, taxes, depreciation and amortization) divided by total revenues, expressed as a
percentage. Measures profitability at the property level.
- Revenue Growth: Year-over-year percentage change in total revenues. Helps evaluate
demand growth potential within a market.
- Expense Growth: Year-over-year percentage change in total expenses. Highlights
operating efficiency and cost management trends.
Beyond finances, other important operational KPIs include quality ratings, guest satisfaction
scores, employee retention rates, and brand compliance metrics. Consistent KPI
measurement and reporting provides understanding of historical trends as well as flags for
underperformance requiring further investigation.
Benchmarking Performance
To truly assess asset performance, KPIs must be benchmarked against appropriate frames
of reference. Hotel chains typically establish benchmarks based on past property and brand
performance. However, asset managers should also analyze:
- Competitive Set Benchmarks: KPI averages for directly competitive hotels in the same
submarket. Provides the most relevant localized performance comparisons.
- Market/Region Benchmarks: KPI averages for the entire destination/ metropolitan area the
hotel operates within. Offers broader context beyond just competitors.
- Chain/Flag Benchmarks: KPI goals set by the parent hotel company/brand. Helps evaluate
brand compliance and positioning relative to brand standards.
- Macroeconomic Trends: Broader economic conditions like employment, GDP growth,
tourism, that impact overall demand. Controls for external forces affecting performance.
Regular benchmarking identifies assets excelling or lagging expectations based on these
frames of reference. It allows asset managers to determine appropriate performance
thresholds as well as isolate property-specific operational factors requiring adjustment.
Role of Macroeconomic Conditions
Hotel investment performance does not occur in a vacuum and is heavily influenced by
macroeconomic cycles that shape overall demand. Asset managers must consider broader
economic conditions when evaluating investments to account for external impacts beyond
management's control. Key macro factors include:
- Employment & Wage Growth: Strong job and income growth fuels both business and
leisure travel demand. Recessions depress travel spending.
- GDP Growth: Rising/falling national, state, and local economic output impacts discretionary
travel budgets of both individuals and companies.
- Hotel Development Pipeline: Overbuilding during expansions can saturate markets, while
limited new supply supports performance during downturns.
- Fuel Prices: Higher gas prices constrain auto and air travel, dampening demand. Lower
costs boost road trip and airline travel accessibility.
- Exchange Rates: Foreign exchange fluctuations affect international visitations to
destinations with significant overseas markets.
- Pandemics & Natural Disasters: Unpredictable crises like COVID-19 or hurricanes can
abruptly halt travel, negatively impacting performance.
By analyzing macroeconomic indicators and forecasts, asset managers can adjust RevPAR
and profitability projections to account for anticipated business cycles. This provides a more
robust view of realistic investment potential over holding periods.
Improving Underperforming Assets
When benchmarking identifies properties underperforming expectations, asset managers
must carefully diagnose root causes and develop corrective action plans. Common issues
requiring attention include:
- Aging Product: Older properties with dated designs, fixtures, or amenities struggle to attract
modern travelers. Capital improvements may be needed.
- Inconsistent Branding: Deviations from brand standards, like poor service or condition
issues, damage reputation and business. Remediation is required.
- Ineffective Management: Management companies lacking expertise, funding staff
improperly could impact operations. Potential management change evaluation.
- Declining Market Dynamics: Some locations undergo permanent shifts negatively
impacting demand long-term. Potential adaptive reuse or redevelopment scenarios should
be explored.
- Excess Supply: Saturated submarkets due to overdevelopment challenges performance
industry-wide until supply/demand equilibrium returns. Limited corrective options.
After identifying root problems, asset managers work with owners, operators, and third
parties to design and implement tailored improvement plans. This may entail capital
reinvestment projects, management changes, renovating non-core assets to alternate uses
like multifamily, or selective dispositions if circumstances warrant. Careful execution and
ongoing re-evaluation determines success.
Case Study: Embassy Suites Hotel
To illustrate performance evaluation in practice, consider the case of a 300-room Embassy
Suites property located in a mid-sized Midwestern city. In its 3rd year of ownership, the asset
manager noticed RevPAR lagging 10% below the brand and market averages for 2
consecutive years despite generally healthy macroeconomic trends.
Upon deeper analysis of operating statements and benchmark data, the asset manager
determined expenses had crept approximately 5% higher than other similar full-service
hotels while revenues failed to keep pace. Further inquiries with local operations revealed
inadequate maintenance aging key infrastructure like HVAC units. Combined with outdated
lobby and F&B offerings, the product no longer matched guest expectations.
The asset manager's report recommended a phased capital plan over 3 years to fully
renovate public spaces, guestrooms, and replace outdated mechanical systems. Projections
estimated a 10-15% RevPAR boost post-renovation, supported by an improved competitive
position and restored operating efficiencies. Ownership ultimately approved the $8 million
overhaul, and within 18 months of completion RevPAR surpassed benchmarks and the
property returned to high compliance with brand standards.
This example shows how thorough performance analysis and targeted capital investment
can remedy underperformance and stabilize long-term returns. Proper vetting of corrective
strategies according to each asset's unique circumstances optimizes outcomes.
Recommendations for Hotel Asset Managers
To summarize best practices for evaluating hotel investment performance:
- Establish a core set of common and relevant quantitative KPIs to track consistently over
time.
- Conduct regular benchmarking against multiple relevant frames of reference to identify
outliers.
- Factor broader economic conditions and forecasts into projections to account for external
demand impacts.
- Carefully diagnose root causes when assets underperform benchmarks. Develop tailored
improvement strategies.
- Collaborate closely with operators, owners and third-parties to design and execute effective
corrective action plans as needed.
- Continuously re-assess performance against benchmarks post-intervention to ensure
initiatives stabilize returns as intended.
- Recognize no asset management solution fits all circumstances - consider adaptive reuse
or dispositions if revitalization proves unfeasible.
By thoroughly monitoring KPIs, rigorously benchmarking performance, accounting for
macroeconomic shifts, and developing customized improvement roadmaps when warranted,
hotel asset managers can optimize investment returns for owners through ongoing portfolio
evaluation and refinement. Consistent effort sustains profitable long-term holdings.
Conclusion
With hotel investments representing major long-term capital allocations for many real estate
portfolios, properly evaluating performance ranks among the core responsibilities of hotel
asset managers. This paper outlined an asset management framework and best practices
for ongoing monitoring and benchmarking of investment KPIs, factoring macroeconomic
conditions, identifying underperforming assets, and developing targeted strategies to remedy
shortfalls. Following these approaches equips asset managers to optimize returns for
owners through continuous performance oversight grounded in data and rigorous analysis.
Sustaining a thorough, customized and iterative evaluation process sustains profitability of
diverse hotel holdings over full economic cycles.
Hotel asset management refers to overseeing hotel properties to maximize investment
returns and mitigate risks for owners and investors. A key responsibility of hotel asset
managers is to continuously evaluate hotel investment performance to ensure ownership
goals are being met. Effectively evaluating hotel investment performance requires
understanding key performance indicators, benchmarking, factoring macroeconomic
conditions, and identifying areas for improvement.
This paper will examine how hotel asset managers evaluate the performance of hotel
investments. It will define common performance metrics, explore benchmarking strategies,
discuss macroeconomic impacts, and provide recommendations for improving
underperforming assets. The goal is to equip readers with an understanding of best
practices for ongoing performance evaluation from an asset management perspective.
Key Performance Indicators
To properly evaluate investment performance, asset managers must track a core set of
quantitative metrics known as key performance indicators (KPIs). Common financial KPIs
include:
- Revenue per Available Room (RevPAR): The most widely used lodging industry metric,
calculated as total room revenue divided by total room nights available. Trends in RevPAR
indicate changes in occupancy and average daily rate (ADR).
- Average Daily Rate (ADR): Room revenue divided by total occupied room nights. Tracks
changes in room pricing independent of occupancy levels.
- Occupancy Rate: Total occupied room nights divided by total room nights available,
expressed as a percentage. Indicates effectiveness of demand generation and room sales.
- Gross Operating Profit (GOP) Margin: GOP (gross operating profit or earnings before
interest, taxes, depreciation and amortization) divided by total revenues, expressed as a
percentage. Measures profitability at the property level.
- Revenue Growth: Year-over-year percentage change in total revenues. Helps evaluate
demand growth potential within a market.
- Expense Growth: Year-over-year percentage change in total expenses. Highlights
operating efficiency and cost management trends.
Beyond finances, other important operational KPIs include quality ratings, guest satisfaction
scores, employee retention rates, and brand compliance metrics. Consistent KPI
measurement and reporting provides understanding of historical trends as well as flags for
underperformance requiring further investigation.
Benchmarking Performance
To truly assess asset performance, KPIs must be benchmarked against appropriate frames
of reference. Hotel chains typically establish benchmarks based on past property and brand
performance. However, asset managers should also analyze:
- Competitive Set Benchmarks: KPI averages for directly competitive hotels in the same
submarket. Provides the most relevant localized performance comparisons.
- Market/Region Benchmarks: KPI averages for the entire destination/ metropolitan area the
hotel operates within. Offers broader context beyond just competitors.
- Chain/Flag Benchmarks: KPI goals set by the parent hotel company/brand. Helps evaluate
brand compliance and positioning relative to brand standards.
- Macroeconomic Trends: Broader economic conditions like employment, GDP growth,
tourism, that impact overall demand. Controls for external forces affecting performance.
Regular benchmarking identifies assets excelling or lagging expectations based on these
frames of reference. It allows asset managers to determine appropriate performance
thresholds as well as isolate property-specific operational factors requiring adjustment.
Role of Macroeconomic Conditions
Hotel investment performance does not occur in a vacuum and is heavily influenced by
macroeconomic cycles that shape overall demand. Asset managers must consider broader
economic conditions when evaluating investments to account for external impacts beyond
management's control. Key macro factors include:
- Employment & Wage Growth: Strong job and income growth fuels both business and
leisure travel demand. Recessions depress travel spending.
- GDP Growth: Rising/falling national, state, and local economic output impacts discretionary
travel budgets of both individuals and companies.
- Hotel Development Pipeline: Overbuilding during expansions can saturate markets, while
limited new supply supports performance during downturns.
- Fuel Prices: Higher gas prices constrain auto and air travel, dampening demand. Lower
costs boost road trip and airline travel accessibility.
- Exchange Rates: Foreign exchange fluctuations affect international visitations to
destinations with significant overseas markets.
- Pandemics & Natural Disasters: Unpredictable crises like COVID-19 or hurricanes can
abruptly halt travel, negatively impacting performance.
By analyzing macroeconomic indicators and forecasts, asset managers can adjust RevPAR
and profitability projections to account for anticipated business cycles. This provides a more
robust view of realistic investment potential over holding periods.
Improving Underperforming Assets
When benchmarking identifies properties underperforming expectations, asset managers
must carefully diagnose root causes and develop corrective action plans. Common issues
requiring attention include:
- Aging Product: Older properties with dated designs, fixtures, or amenities struggle to attract
modern travelers. Capital improvements may be needed.
- Inconsistent Branding: Deviations from brand standards, like poor service or condition
issues, damage reputation and business. Remediation is required.
- Ineffective Management: Management companies lacking expertise, funding staff
improperly could impact operations. Potential management change evaluation.
- Declining Market Dynamics: Some locations undergo permanent shifts negatively
impacting demand long-term. Potential adaptive reuse or redevelopment scenarios should
be explored.
- Excess Supply: Saturated submarkets due to overdevelopment challenges performance
industry-wide until supply/demand equilibrium returns. Limited corrective options.
After identifying root problems, asset managers work with owners, operators, and third
parties to design and implement tailored improvement plans. This may entail capital
reinvestment projects, management changes, renovating non-core assets to alternate uses
like multifamily, or selective dispositions if circumstances warrant. Careful execution and
ongoing re-evaluation determines success.
Case Study: Embassy Suites Hotel
To illustrate performance evaluation in practice, consider the case of a 300-room Embassy
Suites property located in a mid-sized Midwestern city. In its 3rd year of ownership, the asset
manager noticed RevPAR lagging 10% below the brand and market averages for 2
consecutive years despite generally healthy macroeconomic trends.
Upon deeper analysis of operating statements and benchmark data, the asset manager
determined expenses had crept approximately 5% higher than other similar full-service
hotels while revenues failed to keep pace. Further inquiries with local operations revealed
inadequate maintenance aging key infrastructure like HVAC units. Combined with outdated
lobby and F&B offerings, the product no longer matched guest expectations.
The asset manager's report recommended a phased capital plan over 3 years to fully
renovate public spaces, guestrooms, and replace outdated mechanical systems. Projections
estimated a 10-15% RevPAR boost post-renovation, supported by an improved competitive
position and restored operating efficiencies. Ownership ultimately approved the $8 million
overhaul, and within 18 months of completion RevPAR surpassed benchmarks and the
property returned to high compliance with brand standards.
This example shows how thorough performance analysis and targeted capital investment
can remedy underperformance and stabilize long-term returns. Proper vetting of corrective
strategies according to each asset's unique circumstances optimizes outcomes.
Recommendations for Hotel Asset Managers
To summarize best practices for evaluating hotel investment performance:
- Establish a core set of common and relevant quantitative KPIs to track consistently over
time.
- Conduct regular benchmarking against multiple relevant frames of reference to identify
outliers.
- Factor broader economic conditions and forecasts into projections to account for external
demand impacts.
- Carefully diagnose root causes when assets underperform benchmarks. Develop tailored
improvement strategies.
- Collaborate closely with operators, owners and third-parties to design and execute effective
corrective action plans as needed.
- Continuously re-assess performance against benchmarks post-intervention to ensure
initiatives stabilize returns as intended.
- Recognize no asset management solution fits all circumstances - consider adaptive reuse
or dispositions if revitalization proves unfeasible.
By thoroughly monitoring KPIs, rigorously benchmarking performance, accounting for
macroeconomic shifts, and developing customized improvement roadmaps when warranted,
hotel asset managers can optimize investment returns for owners through ongoing portfolio
evaluation and refinement. Consistent effort sustains profitable long-term holdings.
Conclusion
With hotel investments representing major long-term capital allocations for many real estate
portfolios, properly evaluating performance ranks among the core responsibilities of hotel
asset managers. This paper outlined an asset management framework and best practices
for ongoing monitoring and benchmarking of investment KPIs, factoring macroeconomic
conditions, identifying underperforming assets, and developing targeted strategies to remedy
shortfalls. Following these approaches equips asset managers to optimize returns for
owners through continuous performance oversight grounded in data and rigorous analysis.
Sustaining a thorough, customized and iterative evaluation process sustains profitability of
diverse hotel holdings over full economic cycles.
Hotel asset management refers to overseeing hotel properties to maximize investment
returns and mitigate risks for owners and investors. A key responsibility of hotel asset
managers is to continuously evaluate hotel investment performance to ensure ownership
goals are being met. Effectively evaluating hotel investment performance requires
understanding key performance indicators, benchmarking, factoring macroeconomic
conditions, and identifying areas for improvement.
This paper will examine how hotel asset managers evaluate the performance of hotel
investments. It will define common performance metrics, explore benchmarking strategies,
discuss macroeconomic impacts, and provide recommendations for improving
underperforming assets. The goal is to equip readers with an understanding of best
practices for ongoing performance evaluation from an asset management perspective.
Key Performance Indicators
To properly evaluate investment performance, asset managers must track a core set of
quantitative metrics known as key performance indicators (KPIs). Common financial KPIs
include:
- Revenue per Available Room (RevPAR): The most widely used lodging industry metric,
calculated as total room revenue divided by total room nights available. Trends in RevPAR
indicate changes in occupancy and average daily rate (ADR).
- Average Daily Rate (ADR): Room revenue divided by total occupied room nights. Tracks
changes in room pricing independent of occupancy levels.
- Occupancy Rate: Total occupied room nights divided by total room nights available,
expressed as a percentage. Indicates effectiveness of demand generation and room sales.
- Gross Operating Profit (GOP) Margin: GOP (gross operating profit or earnings before
interest, taxes, depreciation and amortization) divided by total revenues, expressed as a
percentage. Measures profitability at the property level.
- Revenue Growth: Year-over-year percentage change in total revenues. Helps evaluate
demand growth potential within a market.
- Expense Growth: Year-over-year percentage change in total expenses. Highlights
operating efficiency and cost management trends.
Beyond finances, other important operational KPIs include quality ratings, guest satisfaction
scores, employee retention rates, and brand compliance metrics. Consistent KPI
measurement and reporting provides understanding of historical trends as well as flags for
underperformance requiring further investigation.
Benchmarking Performance
To truly assess asset performance, KPIs must be benchmarked against appropriate frames
of reference. Hotel chains typically establish benchmarks based on past property and brand
performance. However, asset managers should also analyze:
- Competitive Set Benchmarks: KPI averages for directly competitive hotels in the same
submarket. Provides the most relevant localized performance comparisons.
- Market/Region Benchmarks: KPI averages for the entire destination/ metropolitan area the
hotel operates within. Offers broader context beyond just competitors.
- Chain/Flag Benchmarks: KPI goals set by the parent hotel company/brand. Helps evaluate
brand compliance and positioning relative to brand standards.
- Macroeconomic Trends: Broader economic conditions like employment, GDP growth,
tourism, that impact overall demand. Controls for external forces affecting performance.
Regular benchmarking identifies assets excelling or lagging expectations based on these
frames of reference. It allows asset managers to determine appropriate performance
thresholds as well as isolate property-specific operational factors requiring adjustment.
Role of Macroeconomic Conditions
Hotel investment performance does not occur in a vacuum and is heavily influenced by
macroeconomic cycles that shape overall demand. Asset managers must consider broader
economic conditions when evaluating investments to account for external impacts beyond
management's control. Key macro factors include:
- Employment & Wage Growth: Strong job and income growth fuels both business and
leisure travel demand. Recessions depress travel spending.
- GDP Growth: Rising/falling national, state, and local economic output impacts discretionary
travel budgets of both individuals and companies.
- Hotel Development Pipeline: Overbuilding during expansions can saturate markets, while
limited new supply supports performance during downturns.
- Fuel Prices: Higher gas prices constrain auto and air travel, dampening demand. Lower
costs boost road trip and airline travel accessibility.
- Exchange Rates: Foreign exchange fluctuations affect international visitations to
destinations with significant overseas markets.
- Pandemics & Natural Disasters: Unpredictable crises like COVID-19 or hurricanes can
abruptly halt travel, negatively impacting performance.
By analyzing macroeconomic indicators and forecasts, asset managers can adjust RevPAR
and profitability projections to account for anticipated business cycles. This provides a more
robust view of realistic investment potential over holding periods.
Improving Underperforming Assets
When benchmarking identifies properties underperforming expectations, asset managers
must carefully diagnose root causes and develop corrective action plans. Common issues
requiring attention include:
- Aging Product: Older properties with dated designs, fixtures, or amenities struggle to attract
modern travelers. Capital improvements may be needed.
- Inconsistent Branding: Deviations from brand standards, like poor service or condition
issues, damage reputation and business. Remediation is required.
- Ineffective Management: Management companies lacking expertise, funding staff
improperly could impact operations. Potential management change evaluation.
- Declining Market Dynamics: Some locations undergo permanent shifts negatively
impacting demand long-term. Potential adaptive reuse or redevelopment scenarios should
be explored.
- Excess Supply: Saturated submarkets due to overdevelopment challenges performance
industry-wide until supply/demand equilibrium returns. Limited corrective options.
After identifying root problems, asset managers work with owners, operators, and third
parties to design and implement tailored improvement plans. This may entail capital
reinvestment projects, management changes, renovating non-core assets to alternate uses
like multifamily, or selective dispositions if circumstances warrant. Careful execution and
ongoing re-evaluation determines success.
Case Study: Embassy Suites Hotel
To illustrate performance evaluation in practice, consider the case of a 300-room Embassy
Suites property located in a mid-sized Midwestern city. In its 3rd year of ownership, the asset
manager noticed RevPAR lagging 10% below the brand and market averages for 2
consecutive years despite generally healthy macroeconomic trends.
Upon deeper analysis of operating statements and benchmark data, the asset manager
determined expenses had crept approximately 5% higher than other similar full-service
hotels while revenues failed to keep pace. Further inquiries with local operations revealed
inadequate maintenance aging key infrastructure like HVAC units. Combined with outdated
lobby and F&B offerings, the product no longer matched guest expectations.
The asset manager's report recommended a phased capital plan over 3 years to fully
renovate public spaces, guestrooms, and replace outdated mechanical systems. Projections
estimated a 10-15% RevPAR boost post-renovation, supported by an improved competitive
position and restored operating efficiencies. Ownership ultimately approved the $8 million
overhaul, and within 18 months of completion RevPAR surpassed benchmarks and the
property returned to high compliance with brand standards.
This example shows how thorough performance analysis and targeted capital investment
can remedy underperformance and stabilize long-term returns. Proper vetting of corrective
strategies according to each asset's unique circumstances optimizes outcomes.
Recommendations for Hotel Asset Managers
To summarize best practices for evaluating hotel investment performance:
- Establish a core set of common and relevant quantitative KPIs to track consistently over
time.
- Conduct regular benchmarking against multiple relevant frames of reference to identify
outliers.
- Factor broader economic conditions and forecasts into projections to account for external
demand impacts.
- Carefully diagnose root causes when assets underperform benchmarks. Develop tailored
improvement strategies.
- Collaborate closely with operators, owners and third-parties to design and execute effective
corrective action plans as needed.
- Continuously re-assess performance against benchmarks post-intervention to ensure
initiatives stabilize returns as intended.
- Recognize no asset management solution fits all circumstances - consider adaptive reuse
or dispositions if revitalization proves unfeasible.
By thoroughly monitoring KPIs, rigorously benchmarking performance, accounting for
macroeconomic shifts, and developing customized improvement roadmaps when warranted,
hotel asset managers can optimize investment returns for owners through ongoing portfolio
evaluation and refinement. Consistent effort sustains profitable long-term holdings.
Conclusion
With hotel investments representing major long-term capital allocations for many real estate
portfolios, properly evaluating performance ranks among the core responsibilities of hotel
asset managers. This paper outlined an asset management framework and best practices
for ongoing monitoring and benchmarking of investment KPIs, factoring macroeconomic
conditions, identifying underperforming assets, and developing targeted strategies to remedy
shortfalls. Following these approaches equips asset managers to optimize returns for
owners through continuous performance oversight grounded in data and rigorous analysis.
Sustaining a thorough, customized and iterative evaluation process sustains profitability of
diverse hotel holdings over full economic cycles.
Hotel asset management refers to overseeing hotel properties to maximize investment
returns and mitigate risks for owners and investors. A key responsibility of hotel asset
managers is to continuously evaluate hotel investment performance to ensure ownership
goals are being met. Effectively evaluating hotel investment performance requires
understanding key performance indicators, benchmarking, factoring macroeconomic
conditions, and identifying areas for improvement.
This paper will examine how hotel asset managers evaluate the performance of hotel
investments. It will define common performance metrics, explore benchmarking strategies,
discuss macroeconomic impacts, and provide recommendations for improving
underperforming assets. The goal is to equip readers with an understanding of best
practices for ongoing performance evaluation from an asset management perspective.
Key Performance Indicators
To properly evaluate investment performance, asset managers must track a core set of
quantitative metrics known as key performance indicators (KPIs). Common financial KPIs
include:
- Revenue per Available Room (RevPAR): The most widely used lodging industry metric,
calculated as total room revenue divided by total room nights available. Trends in RevPAR
indicate changes in occupancy and average daily rate (ADR).
- Average Daily Rate (ADR): Room revenue divided by total occupied room nights. Tracks
changes in room pricing independent of occupancy levels.
- Occupancy Rate: Total occupied room nights divided by total room nights available,
expressed as a percentage. Indicates effectiveness of demand generation and room sales.
- Gross Operating Profit (GOP) Margin: GOP (gross operating profit or earnings before
interest, taxes, depreciation and amortization) divided by total revenues, expressed as a
percentage. Measures profitability at the property level.
- Revenue Growth: Year-over-year percentage change in total revenues. Helps evaluate
demand growth potential within a market.
- Expense Growth: Year-over-year percentage change in total expenses. Highlights
operating efficiency and cost management trends.
Beyond finances, other important operational KPIs include quality ratings, guest satisfaction
scores, employee retention rates, and brand compliance metrics. Consistent KPI
measurement and reporting provides understanding of historical trends as well as flags for
underperformance requiring further investigation.
Benchmarking Performance
To truly assess asset performance, KPIs must be benchmarked against appropriate frames
of reference. Hotel chains typically establish benchmarks based on past property and brand
performance. However, asset managers should also analyze:
- Competitive Set Benchmarks: KPI averages for directly competitive hotels in the same
submarket. Provides the most relevant localized performance comparisons.
- Market/Region Benchmarks: KPI averages for the entire destination/ metropolitan area the
hotel operates within. Offers broader context beyond just competitors.
- Chain/Flag Benchmarks: KPI goals set by the parent hotel company/brand. Helps evaluate
brand compliance and positioning relative to brand standards.
- Macroeconomic Trends: Broader economic conditions like employment, GDP growth,
tourism, that impact overall demand. Controls for external forces affecting performance.
Regular benchmarking identifies assets excelling or lagging expectations based on these
frames of reference. It allows asset managers to determine appropriate performance
thresholds as well as isolate property-specific operational factors requiring adjustment.
Role of Macroeconomic Conditions
Hotel investment performance does not occur in a vacuum and is heavily influenced by
macroeconomic cycles that shape overall demand. Asset managers must consider broader
economic conditions when evaluating investments to account for external impacts beyond
management's control. Key macro factors include:
- Employment & Wage Growth: Strong job and income growth fuels both business and
leisure travel demand. Recessions depress travel spending.
- GDP Growth: Rising/falling national, state, and local economic output impacts discretionary
travel budgets of both individuals and companies.
- Hotel Development Pipeline: Overbuilding during expansions can saturate markets, while
limited new supply supports performance during downturns.
- Fuel Prices: Higher gas prices constrain auto and air travel, dampening demand. Lower
costs boost road trip and airline travel accessibility.
- Exchange Rates: Foreign exchange fluctuations affect international visitations to
destinations with significant overseas markets.
- Pandemics & Natural Disasters: Unpredictable crises like COVID-19 or hurricanes can
abruptly halt travel, negatively impacting performance.
By analyzing macroeconomic indicators and forecasts, asset managers can adjust RevPAR
and profitability projections to account for anticipated business cycles. This provides a more
robust view of realistic investment potential over holding periods.
Improving Underperforming Assets
When benchmarking identifies properties underperforming expectations, asset managers
must carefully diagnose root causes and develop corrective action plans. Common issues
requiring attention include:
- Aging Product: Older properties with dated designs, fixtures, or amenities struggle to attract
modern travelers. Capital improvements may be needed.
- Inconsistent Branding: Deviations from brand standards, like poor service or condition
issues, damage reputation and business. Remediation is required.
- Ineffective Management: Management companies lacking expertise, funding staff
improperly could impact operations. Potential management change evaluation.
- Declining Market Dynamics: Some locations undergo permanent shifts negatively
impacting demand long-term. Potential adaptive reuse or redevelopment scenarios should
be explored.
- Excess Supply: Saturated submarkets due to overdevelopment challenges performance
industry-wide until supply/demand equilibrium returns. Limited corrective options.
After identifying root problems, asset managers work with owners, operators, and third
parties to design and implement tailored improvement plans. This may entail capital
reinvestment projects, management changes, renovating non-core assets to alternate uses
like multifamily, or selective dispositions if circumstances warrant. Careful execution and
ongoing re-evaluation determines success.
Case Study: Embassy Suites Hotel
To illustrate performance evaluation in practice, consider the case of a 300-room Embassy
Suites property located in a mid-sized Midwestern city. In its 3rd year of ownership, the asset
manager noticed RevPAR lagging 10% below the brand and market averages for 2
consecutive years despite generally healthy macroeconomic trends.
Upon deeper analysis of operating statements and benchmark data, the asset manager
determined expenses had crept approximately 5% higher than other similar full-service
hotels while revenues failed to keep pace. Further inquiries with local operations revealed
inadequate maintenance aging key infrastructure like HVAC units. Combined with outdated
lobby and F&B offerings, the product no longer matched guest expectations.
The asset manager's report recommended a phased capital plan over 3 years to fully
renovate public spaces, guestrooms, and replace outdated mechanical systems. Projections
estimated a 10-15% RevPAR boost post-renovation, supported by an improved competitive
position and restored operating efficiencies. Ownership ultimately approved the $8 million
overhaul, and within 18 months of completion RevPAR surpassed benchmarks and the
property returned to high compliance with brand standards.
This example shows how thorough performance analysis and targeted capital investment
can remedy underperformance and stabilize long-term returns. Proper vetting of corrective
strategies according to each asset's unique circumstances optimizes outcomes.
Recommendations for Hotel Asset Managers
To summarize best practices for evaluating hotel investment performance:
- Establish a core set of common and relevant quantitative KPIs to track consistently over
time.
- Conduct regular benchmarking against multiple relevant frames of reference to identify
outliers.
- Factor broader economic conditions and forecasts into projections to account for external
demand impacts.
- Carefully diagnose root causes when assets underperform benchmarks. Develop tailored
improvement strategies.
- Collaborate closely with operators, owners and third-parties to design and execute effective
corrective action plans as needed.
- Continuously re-assess performance against benchmarks post-intervention to ensure
initiatives stabilize returns as intended.
- Recognize no asset management solution fits all circumstances - consider adaptive reuse
or dispositions if revitalization proves unfeasible.
By thoroughly monitoring KPIs, rigorously benchmarking performance, accounting for
macroeconomic shifts, and developing customized improvement roadmaps when warranted,
hotel asset managers can optimize investment returns for owners through ongoing portfolio
evaluation and refinement. Consistent effort sustains profitable long-term holdings.
Conclusion
With hotel investments representing major long-term capital allocations for many real estate
portfolios, properly evaluating performance ranks among the core responsibilities of hotel
asset managers. This paper outlined an asset management framework and best practices
for ongoing monitoring and benchmarking of investment KPIs, factoring macroeconomic
conditions, identifying underperforming assets, and developing targeted strategies to remedy
shortfalls. Following these approaches equips asset managers to optimize returns for
owners through continuous performance oversight grounded in data and rigorous analysis.
Sustaining a thorough, customized and iterative evaluation process sustains profitability of
diverse hotel holdings over full economic cycles.
Hotel asset management refers to overseeing hotel properties to maximize investment
returns and mitigate risks for owners and investors. A key responsibility of hotel asset
managers is to continuously evaluate hotel investment performance to ensure ownership
goals are being met. Effectively evaluating hotel investment performance requires
understanding key performance indicators, benchmarking, factoring macroeconomic
conditions, and identifying areas for improvement.
This paper will examine how hotel asset managers evaluate the performance of hotel
investments. It will define common performance metrics, explore benchmarking strategies,
discuss macroeconomic impacts, and provide recommendations for improving
underperforming assets. The goal is to equip readers with an understanding of best
practices for ongoing performance evaluation from an asset management perspective.
Key Performance Indicators
To properly evaluate investment performance, asset managers must track a core set of
quantitative metrics known as key performance indicators (KPIs). Common financial KPIs
include:
- Revenue per Available Room (RevPAR): The most widely used lodging industry metric,
calculated as total room revenue divided by total room nights available. Trends in RevPAR
indicate changes in occupancy and average daily rate (ADR).
- Average Daily Rate (ADR): Room revenue divided by total occupied room nights. Tracks
changes in room pricing independent of occupancy levels.
- Occupancy Rate: Total occupied room nights divided by total room nights available,
expressed as a percentage. Indicates effectiveness of demand generation and room sales.
- Gross Operating Profit (GOP) Margin: GOP (gross operating profit or earnings before
interest, taxes, depreciation and amortization) divided by total revenues, expressed as a
percentage. Measures profitability at the property level.
- Revenue Growth: Year-over-year percentage change in total revenues. Helps evaluate
demand growth potential within a market.
- Expense Growth: Year-over-year percentage change in total expenses. Highlights
operating efficiency and cost management trends.
Beyond finances, other important operational KPIs include quality ratings, guest satisfaction
scores, employee retention rates, and brand compliance metrics. Consistent KPI
measurement and reporting provides understanding of historical trends as well as flags for
underperformance requiring further investigation.
Benchmarking Performance
To truly assess asset performance, KPIs must be benchmarked against appropriate frames
of reference. Hotel chains typically establish benchmarks based on past property and brand
performance. However, asset managers should also analyze:
- Competitive Set Benchmarks: KPI averages for directly competitive hotels in the same
submarket. Provides the most relevant localized performance comparisons.
- Market/Region Benchmarks: KPI averages for the entire destination/ metropolitan area the
hotel operates within. Offers broader context beyond just competitors.
- Chain/Flag Benchmarks: KPI goals set by the parent hotel company/brand. Helps evaluate
brand compliance and positioning relative to brand standards.
- Macroeconomic Trends: Broader economic conditions like employment, GDP growth,
tourism, that impact overall demand. Controls for external forces affecting performance.
Regular benchmarking identifies assets excelling or lagging expectations based on these
frames of reference. It allows asset managers to determine appropriate performance
thresholds as well as isolate property-specific operational factors requiring adjustment.
Role of Macroeconomic Conditions
Hotel investment performance does not occur in a vacuum and is heavily influenced by
macroeconomic cycles that shape overall demand. Asset managers must consider broader
economic conditions when evaluating investments to account for external impacts beyond
management's control. Key macro factors include:
- Employment & Wage Growth: Strong job and income growth fuels both business and
leisure travel demand. Recessions depress travel spending.
- GDP Growth: Rising/falling national, state, and local economic output impacts discretionary
travel budgets of both individuals and companies.
- Hotel Development Pipeline: Overbuilding during expansions can saturate markets, while
limited new supply supports performance during downturns.
- Fuel Prices: Higher gas prices constrain auto and air travel, dampening demand. Lower
costs boost road trip and airline travel accessibility.
- Exchange Rates: Foreign exchange fluctuations affect international visitations to
destinations with significant overseas markets.
- Pandemics & Natural Disasters: Unpredictable crises like COVID-19 or hurricanes can
abruptly halt travel, negatively impacting performance.
By analyzing macroeconomic indicators and forecasts, asset managers can adjust RevPAR
and profitability projections to account for anticipated business cycles. This provides a more
robust view of realistic investment potential over holding periods.
Improving Underperforming Assets
When benchmarking identifies properties underperforming expectations, asset managers
must carefully diagnose root causes and develop corrective action plans. Common issues
requiring attention include:
- Aging Product: Older properties with dated designs, fixtures, or amenities struggle to attract
modern travelers. Capital improvements may be needed.
- Inconsistent Branding: Deviations from brand standards, like poor service or condition
issues, damage reputation and business. Remediation is required.
- Ineffective Management: Management companies lacking expertise, funding staff
improperly could impact operations. Potential management change evaluation.
- Declining Market Dynamics: Some locations undergo permanent shifts negatively
impacting demand long-term. Potential adaptive reuse or redevelopment scenarios should
be explored.
- Excess Supply: Saturated submarkets due to overdevelopment challenges performance
industry-wide until supply/demand equilibrium returns. Limited corrective options.
After identifying root problems, asset managers work with owners, operators, and third
parties to design and implement tailored improvement plans. This may entail capital
reinvestment projects, management changes, renovating non-core assets to alternate uses
like multifamily, or selective dispositions if circumstances warrant. Careful execution and
ongoing re-evaluation determines success.
Case Study: Embassy Suites Hotel
To illustrate performance evaluation in practice, consider the case of a 300-room Embassy
Suites property located in a mid-sized Midwestern city. In its 3rd year of ownership, the asset
manager noticed RevPAR lagging 10% below the brand and market averages for 2
consecutive years despite generally healthy macroeconomic trends.
Upon deeper analysis of operating statements and benchmark data, the asset manager
determined expenses had crept approximately 5% higher than other similar full-service
hotels while revenues failed to keep pace. Further inquiries with local operations revealed
inadequate maintenance aging key infrastructure like HVAC units. Combined with outdated
lobby and F&B offerings, the product no longer matched guest expectations.
The asset manager's report recommended a phased capital plan over 3 years to fully
renovate public spaces, guestrooms, and replace outdated mechanical systems. Projections
estimated a 10-15% RevPAR boost post-renovation, supported by an improved competitive
position and restored operating efficiencies. Ownership ultimately approved the $8 million
overhaul, and within 18 months of completion RevPAR surpassed benchmarks and the
property returned to high compliance with brand standards.
This example shows how thorough performance analysis and targeted capital investment
can remedy underperformance and stabilize long-term returns. Proper vetting of corrective
strategies according to each asset's unique circumstances optimizes outcomes.
Recommendations for Hotel Asset Managers
To summarize best practices for evaluating hotel investment performance:
- Establish a core set of common and relevant quantitative KPIs to track consistently over
time.
- Conduct regular benchmarking against multiple relevant frames of reference to identify
outliers.
- Factor broader economic conditions and forecasts into projections to account for external
demand impacts.
- Carefully diagnose root causes when assets underperform benchmarks. Develop tailored
improvement strategies.
- Collaborate closely with operators, owners and third-parties to design and execute effective
corrective action plans as needed.
- Continuously re-assess performance against benchmarks post-intervention to ensure
initiatives stabilize returns as intended.
- Recognize no asset management solution fits all circumstances - consider adaptive reuse
or dispositions if revitalization proves unfeasible.
By thoroughly monitoring KPIs, rigorously benchmarking performance, accounting for
macroeconomic shifts, and developing customized improvement roadmaps when warranted,
hotel asset managers can optimize investment returns for owners through ongoing portfolio
evaluation and refinement. Consistent effort sustains profitable long-term holdings.
Conclusion
With hotel investments representing major long-term capital allocations for many real estate
portfolios, properly evaluating performance ranks among the core responsibilities of hotel
asset managers. This paper outlined an asset management framework and best practices
for ongoing monitoring and benchmarking of investment KPIs, factoring macroeconomic
conditions, identifying underperforming assets, and developing targeted strategies to remedy
shortfalls. Following these approaches equips asset managers to optimize returns for
owners through continuous performance oversight grounded in data and rigorous analysis.
Sustaining a thorough, customized and iterative evaluation process sustains profitability of
diverse hotel holdings over full economic cycles.
Hotel asset management refers to overseeing hotel properties to maximize investment
returns and mitigate risks for owners and investors. A key responsibility of hotel asset
managers is to continuously evaluate hotel investment performance to ensure ownership
goals are being met. Effectively evaluating hotel investment performance requires
understanding key performance indicators, benchmarking, factoring macroeconomic
conditions, and identifying areas for improvement.
This paper will examine how hotel asset managers evaluate the performance of hotel
investments. It will define common performance metrics, explore benchmarking strategies,
discuss macroeconomic impacts, and provide recommendations for improving
underperforming assets. The goal is to equip readers with an understanding of best
practices for ongoing performance evaluation from an asset management perspective.
Key Performance Indicators
To properly evaluate investment performance, asset managers must track a core set of
quantitative metrics known as key performance indicators (KPIs). Common financial KPIs
include:
- Revenue per Available Room (RevPAR): The most widely used lodging industry metric,
calculated as total room revenue divided by total room nights available. Trends in RevPAR
indicate changes in occupancy and average daily rate (ADR).
- Average Daily Rate (ADR): Room revenue divided by total occupied room nights. Tracks
changes in room pricing independent of occupancy levels.
- Occupancy Rate: Total occupied room nights divided by total room nights available,
expressed as a percentage. Indicates effectiveness of demand generation and room sales.
- Gross Operating Profit (GOP) Margin: GOP (gross operating profit or earnings before
interest, taxes, depreciation and amortization) divided by total revenues, expressed as a
percentage. Measures profitability at the property level.
- Revenue Growth: Year-over-year percentage change in total revenues. Helps evaluate
demand growth potential within a market.
- Expense Growth: Year-over-year percentage change in total expenses. Highlights
operating efficiency and cost management trends.
Beyond finances, other important operational KPIs include quality ratings, guest satisfaction
scores, employee retention rates, and brand compliance metrics. Consistent KPI
measurement and reporting provides understanding of historical trends as well as flags for
underperformance requiring further investigation.
Benchmarking Performance
To truly assess asset performance, KPIs must be benchmarked against appropriate frames
of reference. Hotel chains typically establish benchmarks based on past property and brand
performance. However, asset managers should also analyze:
- Competitive Set Benchmarks: KPI averages for directly competitive hotels in the same
submarket. Provides the most relevant localized performance comparisons.
- Market/Region Benchmarks: KPI averages for the entire destination/ metropolitan area the
hotel operates within. Offers broader context beyond just competitors.
- Chain/Flag Benchmarks: KPI goals set by the parent hotel company/brand. Helps evaluate
brand compliance and positioning relative to brand standards.
- Macroeconomic Trends: Broader economic conditions like employment, GDP growth,
tourism, that impact overall demand. Controls for external forces affecting performance.
Regular benchmarking identifies assets excelling or lagging expectations based on these
frames of reference. It allows asset managers to determine appropriate performance
thresholds as well as isolate property-specific operational factors requiring adjustment.
Role of Macroeconomic Conditions
Hotel investment performance does not occur in a vacuum and is heavily influenced by
macroeconomic cycles that shape overall demand. Asset managers must consider broader
economic conditions when evaluating investments to account for external impacts beyond
management's control. Key macro factors include:
- Employment & Wage Growth: Strong job and income growth fuels both business and
leisure travel demand. Recessions depress travel spending.
- GDP Growth: Rising/falling national, state, and local economic output impacts discretionary
travel budgets of both individuals and companies.
- Hotel Development Pipeline: Overbuilding during expansions can saturate markets, while
limited new supply supports performance during downturns.
- Fuel Prices: Higher gas prices constrain auto and air travel, dampening demand. Lower
costs boost road trip and airline travel accessibility.
- Exchange Rates: Foreign exchange fluctuations affect international visitations to
destinations with significant overseas markets.
- Pandemics & Natural Disasters: Unpredictable crises like COVID-19 or hurricanes can
abruptly halt travel, negatively impacting performance.
By analyzing macroeconomic indicators and forecasts, asset managers can adjust RevPAR
and profitability projections to account for anticipated business cycles. This provides a more
robust view of realistic investment potential over holding periods.
Improving Underperforming Assets
When benchmarking identifies properties underperforming expectations, asset managers
must carefully diagnose root causes and develop corrective action plans. Common issues
requiring attention include:
- Aging Product: Older properties with dated designs, fixtures, or amenities struggle to attract
modern travelers. Capital improvements may be needed.
- Inconsistent Branding: Deviations from brand standards, like poor service or condition
issues, damage reputation and business. Remediation is required.
- Ineffective Management: Management companies lacking expertise, funding staff
improperly could impact operations. Potential management change evaluation.
- Declining Market Dynamics: Some locations undergo permanent shifts negatively
impacting demand long-term. Potential adaptive reuse or redevelopment scenarios should
be explored.
- Excess Supply: Saturated submarkets due to overdevelopment challenges performance
industry-wide until supply/demand equilibrium returns. Limited corrective options.
After identifying root problems, asset managers work with owners, operators, and third
parties to design and implement tailored improvement plans. This may entail capital
reinvestment projects, management changes, renovating non-core assets to alternate uses
like multifamily, or selective dispositions if circumstances warrant. Careful execution and
ongoing re-evaluation determines success.
Case Study: Embassy Suites Hotel
To illustrate performance evaluation in practice, consider the case of a 300-room Embassy
Suites property located in a mid-sized Midwestern city. In its 3rd year of ownership, the asset
manager noticed RevPAR lagging 10% below the brand and market averages for 2
consecutive years despite generally healthy macroeconomic trends.
Upon deeper analysis of operating statements and benchmark data, the asset manager
determined expenses had crept approximately 5% higher than other similar full-service
hotels while revenues failed to keep pace. Further inquiries with local operations revealed
inadequate maintenance aging key infrastructure like HVAC units. Combined with outdated
lobby and F&B offerings, the product no longer matched guest expectations.
The asset manager's report recommended a phased capital plan over 3 years to fully
renovate public spaces, guestrooms, and replace outdated mechanical systems. Projections
estimated a 10-15% RevPAR boost post-renovation, supported by an improved competitive
position and restored operating efficiencies. Ownership ultimately approved the $8 million
overhaul, and within 18 months of completion RevPAR surpassed benchmarks and the
property returned to high compliance with brand standards.
This example shows how thorough performance analysis and targeted capital investment
can remedy underperformance and stabilize long-term returns. Proper vetting of corrective
strategies according to each asset's unique circumstances optimizes outcomes.
Recommendations for Hotel Asset Managers
To summarize best practices for evaluating hotel investment performance:
- Establish a core set of common and relevant quantitative KPIs to track consistently over
time.
- Conduct regular benchmarking against multiple relevant frames of reference to identify
outliers.
- Factor broader economic conditions and forecasts into projections to account for external
demand impacts.
- Carefully diagnose root causes when assets underperform benchmarks. Develop tailored
improvement strategies.
- Collaborate closely with operators, owners and third-parties to design and execute effective
corrective action plans as needed.
- Continuously re-assess performance against benchmarks post-intervention to ensure
initiatives stabilize returns as intended.
- Recognize no asset management solution fits all circumstances - consider adaptive reuse
or dispositions if revitalization proves unfeasible.
By thoroughly monitoring KPIs, rigorously benchmarking performance, accounting for
macroeconomic shifts, and developing customized improvement roadmaps when warranted,
hotel asset managers can optimize investment returns for owners through ongoing portfolio
evaluation and refinement. Consistent effort sustains profitable long-term holdings.
Conclusion
With hotel investments representing major long-term capital allocations for many real estate
portfolios, properly evaluating performance ranks among the core responsibilities of hotel
asset managers. This paper outlined an asset management framework and best practices
for ongoing monitoring and benchmarking of investment KPIs, factoring macroeconomic
conditions, identifying underperforming assets, and developing targeted strategies to remedy
shortfalls. Following these approaches equips asset managers to optimize returns for
owners through continuous performance oversight grounded in data and rigorous analysis.
Sustaining a thorough, customized and iterative evaluation process sustains profitability of
diverse hotel holdings over full economic cycles.
Hotel asset management refers to overseeing hotel properties to maximize investment
returns and mitigate risks for owners and investors. A key responsibility of hotel asset
managers is to continuously evaluate hotel investment performance to ensure ownership
goals are being met. Effectively evaluating hotel investment performance requires
understanding key performance indicators, benchmarking, factoring macroeconomic
conditions, and identifying areas for improvement.
This paper will examine how hotel asset managers evaluate the performance of hotel
investments. It will define common performance metrics, explore benchmarking strategies,
discuss macroeconomic impacts, and provide recommendations for improving
underperforming assets. The goal is to equip readers with an understanding of best
practices for ongoing performance evaluation from an asset management perspective.
Key Performance Indicators
To properly evaluate investment performance, asset managers must track a core set of
quantitative metrics known as key performance indicators (KPIs). Common financial KPIs
include:
- Revenue per Available Room (RevPAR): The most widely used lodging industry metric,
calculated as total room revenue divided by total room nights available. Trends in RevPAR
indicate changes in occupancy and average daily rate (ADR).
- Average Daily Rate (ADR): Room revenue divided by total occupied room nights. Tracks
changes in room pricing independent of occupancy levels.
- Occupancy Rate: Total occupied room nights divided by total room nights available,
expressed as a percentage. Indicates effectiveness of demand generation and room sales.
- Gross Operating Profit (GOP) Margin: GOP (gross operating profit or earnings before
interest, taxes, depreciation and amortization) divided by total revenues, expressed as a
percentage. Measures profitability at the property level.
- Revenue Growth: Year-over-year percentage change in total revenues. Helps evaluate
demand growth potential within a market.
- Expense Growth: Year-over-year percentage change in total expenses. Highlights
operating efficiency and cost management trends.
Beyond finances, other important operational KPIs include quality ratings, guest satisfaction
scores, employee retention rates, and brand compliance metrics. Consistent KPI
measurement and reporting provides understanding of historical trends as well as flags for
underperformance requiring further investigation.
Benchmarking Performance
To truly assess asset performance, KPIs must be benchmarked against appropriate frames
of reference. Hotel chains typically establish benchmarks based on past property and brand
performance. However, asset managers should also analyze:
- Competitive Set Benchmarks: KPI averages for directly competitive hotels in the same
submarket. Provides the most relevant localized performance comparisons.
- Market/Region Benchmarks: KPI averages for the entire destination/ metropolitan area the
hotel operates within. Offers broader context beyond just competitors.
- Chain/Flag Benchmarks: KPI goals set by the parent hotel company/brand. Helps evaluate
brand compliance and positioning relative to brand standards.
- Macroeconomic Trends: Broader economic conditions like employment, GDP growth,
tourism, that impact overall demand. Controls for external forces affecting performance.
Regular benchmarking identifies assets excelling or lagging expectations based on these
frames of reference. It allows asset managers to determine appropriate performance
thresholds as well as isolate property-specific operational factors requiring adjustment.
Role of Macroeconomic Conditions
Hotel investment performance does not occur in a vacuum and is heavily influenced by
macroeconomic cycles that shape overall demand. Asset managers must consider broader
economic conditions when evaluating investments to account for external impacts beyond
management's control. Key macro factors include:
- Employment & Wage Growth: Strong job and income growth fuels both business and
leisure travel demand. Recessions depress travel spending.
- GDP Growth: Rising/falling national, state, and local economic output impacts discretionary
travel budgets of both individuals and companies.
- Hotel Development Pipeline: Overbuilding during expansions can saturate markets, while
limited new supply supports performance during downturns.
- Fuel Prices: Higher gas prices constrain auto and air travel, dampening demand. Lower
costs boost road trip and airline travel accessibility.
- Exchange Rates: Foreign exchange fluctuations affect international visitations to
destinations with significant overseas markets.
- Pandemics & Natural Disasters: Unpredictable crises like COVID-19 or hurricanes can
abruptly halt travel, negatively impacting performance.
By analyzing macroeconomic indicators and forecasts, asset managers can adjust RevPAR
and profitability projections to account for anticipated business cycles. This provides a more
robust view of realistic investment potential over holding periods.
Improving Underperforming Assets
When benchmarking identifies properties underperforming expectations, asset managers
must carefully diagnose root causes and develop corrective action plans. Common issues
requiring attention include:
- Aging Product: Older properties with dated designs, fixtures, or amenities struggle to attract
modern travelers. Capital improvements may be needed.
- Inconsistent Branding: Deviations from brand standards, like poor service or condition
issues, damage reputation and business. Remediation is required.
- Ineffective Management: Management companies lacking expertise, funding staff
improperly could impact operations. Potential management change evaluation.
- Declining Market Dynamics: Some locations undergo permanent shifts negatively
impacting demand long-term. Potential adaptive reuse or redevelopment scenarios should
be explored.
- Excess Supply: Saturated submarkets due to overdevelopment challenges performance
industry-wide until supply/demand equilibrium returns. Limited corrective options.
After identifying root problems, asset managers work with owners, operators, and third
parties to design and implement tailored improvement plans. This may entail capital
reinvestment projects, management changes, renovating non-core assets to alternate uses
like multifamily, or selective dispositions if circumstances warrant. Careful execution and
ongoing re-evaluation determines success.
Case Study: Embassy Suites Hotel
To illustrate performance evaluation in practice, consider the case of a 300-room Embassy
Suites property located in a mid-sized Midwestern city. In its 3rd year of ownership, the asset
manager noticed RevPAR lagging 10% below the brand and market averages for 2
consecutive years despite generally healthy macroeconomic trends.
Upon deeper analysis of operating statements and benchmark data, the asset manager
determined expenses had crept approximately 5% higher than other similar full-service
hotels while revenues failed to keep pace. Further inquiries with local operations revealed
inadequate maintenance aging key infrastructure like HVAC units. Combined with outdated
lobby and F&B offerings, the product no longer matched guest expectations.
The asset manager's report recommended a phased capital plan over 3 years to fully
renovate public spaces, guestrooms, and replace outdated mechanical systems. Projections
estimated a 10-15% RevPAR boost post-renovation, supported by an improved competitive
position and restored operating efficiencies. Ownership ultimately approved the $8 million
overhaul, and within 18 months of completion RevPAR surpassed benchmarks and the
property returned to high compliance with brand standards.
This example shows how thorough performance analysis and targeted capital investment
can remedy underperformance and stabilize long-term returns. Proper vetting of corrective
strategies according to each asset's unique circumstances optimizes outcomes.
Recommendations for Hotel Asset Managers
To summarize best practices for evaluating hotel investment performance:
- Establish a core set of common and relevant quantitative KPIs to track consistently over
time.
- Conduct regular benchmarking against multiple relevant frames of reference to identify
outliers.
- Factor broader economic conditions and forecasts into projections to account for external
demand impacts.
- Carefully diagnose root causes when assets underperform benchmarks. Develop tailored
improvement strategies.
- Collaborate closely with operators, owners and third-parties to design and execute effective
corrective action plans as needed.
- Continuously re-assess performance against benchmarks post-intervention to ensure
initiatives stabilize returns as intended.
- Recognize no asset management solution fits all circumstances - consider adaptive reuse
or dispositions if revitalization proves unfeasible.
By thoroughly monitoring KPIs, rigorously benchmarking performance, accounting for
macroeconomic shifts, and developing customized improvement roadmaps when warranted,
hotel asset managers can optimize investment returns for owners through ongoing portfolio
evaluation and refinement. Consistent effort sustains profitable long-term holdings.
Conclusion
With hotel investments representing major long-term capital allocations for many real estate
portfolios, properly evaluating performance ranks among the core responsibilities of hotel
asset managers. This paper outlined an asset management framework and best practices
for ongoing monitoring and benchmarking of investment KPIs, factoring macroeconomic
conditions, identifying underperforming assets, and developing targeted strategies to remedy
shortfalls. Following these approaches equips asset managers to optimize returns for
owners through continuous performance oversight grounded in data and rigorous analysis.
Sustaining a thorough, customized and iterative evaluation process sustains profitability of
diverse hotel holdings over full economic cycles.
Hotel asset management refers to overseeing hotel properties to maximize investment
returns and mitigate risks for owners and investors. A key responsibility of hotel asset
managers is to continuously evaluate hotel investment performance to ensure ownership
goals are being met. Effectively evaluating hotel investment performance requires
understanding key performance indicators, benchmarking, factoring macroeconomic
conditions, and identifying areas for improvement.
This paper will examine how hotel asset managers evaluate the performance of hotel
investments. It will define common performance metrics, explore benchmarking strategies,
discuss macroeconomic impacts, and provide recommendations for improving
underperforming assets. The goal is to equip readers with an understanding of best
practices for ongoing performance evaluation from an asset management perspective.
Key Performance Indicators
To properly evaluate investment performance, asset managers must track a core set of
quantitative metrics known as key performance indicators (KPIs). Common financial KPIs
include:
- Revenue per Available Room (RevPAR): The most widely used lodging industry metric,
calculated as total room revenue divided by total room nights available. Trends in RevPAR
indicate changes in occupancy and average daily rate (ADR).
- Average Daily Rate (ADR): Room revenue divided by total occupied room nights. Tracks
changes in room pricing independent of occupancy levels.
- Occupancy Rate: Total occupied room nights divided by total room nights available,
expressed as a percentage. Indicates effectiveness of demand generation and room sales.
- Gross Operating Profit (GOP) Margin: GOP (gross operating profit or earnings before
interest, taxes, depreciation and amortization) divided by total revenues, expressed as a
percentage. Measures profitability at the property level.
- Revenue Growth: Year-over-year percentage change in total revenues. Helps evaluate
demand growth potential within a market.
- Expense Growth: Year-over-year percentage change in total expenses. Highlights
operating efficiency and cost management trends.
Beyond finances, other important operational KPIs include quality ratings, guest satisfaction
scores, employee retention rates, and brand compliance metrics. Consistent KPI
measurement and reporting provides understanding of historical trends as well as flags for
underperformance requiring further investigation.
Benchmarking Performance
To truly assess asset performance, KPIs must be benchmarked against appropriate frames
of reference. Hotel chains typically establish benchmarks based on past property and brand
performance. However, asset managers should also analyze:
- Competitive Set Benchmarks: KPI averages for directly competitive hotels in the same
submarket. Provides the most relevant localized performance comparisons.
- Market/Region Benchmarks: KPI averages for the entire destination/ metropolitan area the
hotel operates within. Offers broader context beyond just competitors.
- Chain/Flag Benchmarks: KPI goals set by the parent hotel company/brand. Helps evaluate
brand compliance and positioning relative to brand standards.
- Macroeconomic Trends: Broader economic conditions like employment, GDP growth,
tourism, that impact overall demand. Controls for external forces affecting performance.
Regular benchmarking identifies assets excelling or lagging expectations based on these
frames of reference. It allows asset managers to determine appropriate performance
thresholds as well as isolate property-specific operational factors requiring adjustment.
Role of Macroeconomic Conditions
Hotel investment performance does not occur in a vacuum and is heavily influenced by
macroeconomic cycles that shape overall demand. Asset managers must consider broader
economic conditions when evaluating investments to account for external impacts beyond
management's control. Key macro factors include:
- Employment & Wage Growth: Strong job and income growth fuels both business and
leisure travel demand. Recessions depress travel spending.
- GDP Growth: Rising/falling national, state, and local economic output impacts discretionary
travel budgets of both individuals and companies.
- Hotel Development Pipeline: Overbuilding during expansions can saturate markets, while
limited new supply supports performance during downturns.
- Fuel Prices: Higher gas prices constrain auto and air travel, dampening demand. Lower
costs boost road trip and airline travel accessibility.
- Exchange Rates: Foreign exchange fluctuations affect international visitations to
destinations with significant overseas markets.
- Pandemics & Natural Disasters: Unpredictable crises like COVID-19 or hurricanes can
abruptly halt travel, negatively impacting performance.
By analyzing macroeconomic indicators and forecasts, asset managers can adjust RevPAR
and profitability projections to account for anticipated business cycles. This provides a more
robust view of realistic investment potential over holding periods.
Improving Underperforming Assets
When benchmarking identifies properties underperforming expectations, asset managers
must carefully diagnose root causes and develop corrective action plans. Common issues
requiring attention include:
- Aging Product: Older properties with dated designs, fixtures, or amenities struggle to attract
modern travelers. Capital improvements may be needed.
- Inconsistent Branding: Deviations from brand standards, like poor service or condition
issues, damage reputation and business. Remediation is required.
- Ineffective Management: Management companies lacking expertise, funding staff
improperly could impact operations. Potential management change evaluation.
- Declining Market Dynamics: Some locations undergo permanent shifts negatively
impacting demand long-term. Potential adaptive reuse or redevelopment scenarios should
be explored.
- Excess Supply: Saturated submarkets due to overdevelopment challenges performance
industry-wide until supply/demand equilibrium returns. Limited corrective options.
After identifying root problems, asset managers work with owners, operators, and third
parties to design and implement tailored improvement plans. This may entail capital
reinvestment projects, management changes, renovating non-core assets to alternate uses
like multifamily, or selective dispositions if circumstances warrant. Careful execution and
ongoing re-evaluation determines success.
Case Study: Embassy Suites Hotel
To illustrate performance evaluation in practice, consider the case of a 300-room Embassy
Suites property located in a mid-sized Midwestern city. In its 3rd year of ownership, the asset
manager noticed RevPAR lagging 10% below the brand and market averages for 2
consecutive years despite generally healthy macroeconomic trends.
Upon deeper analysis of operating statements and benchmark data, the asset manager
determined expenses had crept approximately 5% higher than other similar full-service
hotels while revenues failed to keep pace. Further inquiries with local operations revealed
inadequate maintenance aging key infrastructure like HVAC units. Combined with outdated
lobby and F&B offerings, the product no longer matched guest expectations.
The asset manager's report recommended a phased capital plan over 3 years to fully
renovate public spaces, guestrooms, and replace outdated mechanical systems. Projections
estimated a 10-15% RevPAR boost post-renovation, supported by an improved competitive
position and restored operating efficiencies. Ownership ultimately approved the $8 million
overhaul, and within 18 months of completion RevPAR surpassed benchmarks and the
property returned to high compliance with brand standards.
This example shows how thorough performance analysis and targeted capital investment
can remedy underperformance and stabilize long-term returns. Proper vetting of corrective
strategies according to each asset's unique circumstances optimizes outcomes.
Recommendations for Hotel Asset Managers
To summarize best practices for evaluating hotel investment performance:
- Establish a core set of common and relevant quantitative KPIs to track consistently over
time.
- Conduct regular benchmarking against multiple relevant frames of reference to identify
outliers.
- Factor broader economic conditions and forecasts into projections to account for external
demand impacts.
- Carefully diagnose root causes when assets underperform benchmarks. Develop tailored
improvement strategies.
- Collaborate closely with operators, owners and third-parties to design and execute effective
corrective action plans as needed.
- Continuously re-assess performance against benchmarks post-intervention to ensure
initiatives stabilize returns as intended.
- Recognize no asset management solution fits all circumstances - consider adaptive reuse
or dispositions if revitalization proves unfeasible.
By thoroughly monitoring KPIs, rigorously benchmarking performance, accounting for
macroeconomic shifts, and developing customized improvement roadmaps when warranted,
hotel asset managers can optimize investment returns for owners through ongoing portfolio
evaluation and refinement. Consistent effort sustains profitable long-term holdings.
Conclusion
With hotel investments representing major long-term capital allocations for many real estate
portfolios, properly evaluating performance ranks among the core responsibilities of hotel
asset managers. This paper outlined an asset management framework and best practices
for ongoing monitoring and benchmarking of investment KPIs, factoring macroeconomic
conditions, identifying underperforming assets, and developing targeted strategies to remedy
shortfalls. Following these approaches equips asset managers to optimize returns for
owners through continuous performance oversight grounded in data and rigorous analysis.
Sustaining a thorough, customized and iterative evaluation process sustains profitability of
diverse hotel holdings over full economic cycles.
Hotel asset management refers to overseeing hotel properties to maximize investment
returns and mitigate risks for owners and investors. A key responsibility of hotel asset
managers is to continuously evaluate hotel investment performance to ensure ownership
goals are being met. Effectively evaluating hotel investment performance requires
understanding key performance indicators, benchmarking, factoring macroeconomic
conditions, and identifying areas for improvement.
This paper will examine how hotel asset managers evaluate the performance of hotel
investments. It will define common performance metrics, explore benchmarking strategies,
discuss macroeconomic impacts, and provide recommendations for improving
underperforming assets. The goal is to equip readers with an understanding of best
practices for ongoing performance evaluation from an asset management perspective.
Key Performance Indicators
To properly evaluate investment performance, asset managers must track a core set of
quantitative metrics known as key performance indicators (KPIs). Common financial KPIs
include:
- Revenue per Available Room (RevPAR): The most widely used lodging industry metric,
calculated as total room revenue divided by total room nights available. Trends in RevPAR
indicate changes in occupancy and average daily rate (ADR).
- Average Daily Rate (ADR): Room revenue divided by total occupied room nights. Tracks
changes in room pricing independent of occupancy levels.
- Occupancy Rate: Total occupied room nights divided by total room nights available,
expressed as a percentage. Indicates effectiveness of demand generation and room sales.
- Gross Operating Profit (GOP) Margin: GOP (gross operating profit or earnings before
interest, taxes, depreciation and amortization) divided by total revenues, expressed as a
percentage. Measures profitability at the property level.
- Revenue Growth: Year-over-year percentage change in total revenues. Helps evaluate
demand growth potential within a market.
- Expense Growth: Year-over-year percentage change in total expenses. Highlights
operating efficiency and cost management trends.
Beyond finances, other important operational KPIs include quality ratings, guest satisfaction
scores, employee retention rates, and brand compliance metrics. Consistent KPI
measurement and reporting provides understanding of historical trends as well as flags for
underperformance requiring further investigation.
Benchmarking Performance
To truly assess asset performance, KPIs must be benchmarked against appropriate frames
of reference. Hotel chains typically establish benchmarks based on past property and brand
performance. However, asset managers should also analyze:
- Competitive Set Benchmarks: KPI averages for directly competitive hotels in the same
submarket. Provides the most relevant localized performance comparisons.
- Market/Region Benchmarks: KPI averages for the entire destination/ metropolitan area the
hotel operates within. Offers broader context beyond just competitors.
- Chain/Flag Benchmarks: KPI goals set by the parent hotel company/brand. Helps evaluate
brand compliance and positioning relative to brand standards.
- Macroeconomic Trends: Broader economic conditions like employment, GDP growth,
tourism, that impact overall demand. Controls for external forces affecting performance.
Regular benchmarking identifies assets excelling or lagging expectations based on these
frames of reference. It allows asset managers to determine appropriate performance
thresholds as well as isolate property-specific operational factors requiring adjustment.
Role of Macroeconomic Conditions
Hotel investment performance does not occur in a vacuum and is heavily influenced by
macroeconomic cycles that shape overall demand. Asset managers must consider broader
economic conditions when evaluating investments to account for external impacts beyond
management's control. Key macro factors include:
- Employment & Wage Growth: Strong job and income growth fuels both business and
leisure travel demand. Recessions depress travel spending.
- GDP Growth: Rising/falling national, state, and local economic output impacts discretionary
travel budgets of both individuals and companies.
- Hotel Development Pipeline: Overbuilding during expansions can saturate markets, while
limited new supply supports performance during downturns.
- Fuel Prices: Higher gas prices constrain auto and air travel, dampening demand. Lower
costs boost road trip and airline travel accessibility.
- Exchange Rates: Foreign exchange fluctuations affect international visitations to
destinations with significant overseas markets.
- Pandemics & Natural Disasters: Unpredictable crises like COVID-19 or hurricanes can
abruptly halt travel, negatively impacting performance.
By analyzing macroeconomic indicators and forecasts, asset managers can adjust RevPAR
and profitability projections to account for anticipated business cycles. This provides a more
robust view of realistic investment potential over holding periods.
Improving Underperforming Assets
When benchmarking identifies properties underperforming expectations, asset managers
must carefully diagnose root causes and develop corrective action plans. Common issues
requiring attention include:
- Aging Product: Older properties with dated designs, fixtures, or amenities struggle to attract
modern travelers. Capital improvements may be needed.
- Inconsistent Branding: Deviations from brand standards, like poor service or condition
issues, damage reputation and business. Remediation is required.
- Ineffective Management: Management companies lacking expertise, funding staff
improperly could impact operations. Potential management change evaluation.
- Declining Market Dynamics: Some locations undergo permanent shifts negatively
impacting demand long-term. Potential adaptive reuse or redevelopment scenarios should
be explored.
- Excess Supply: Saturated submarkets due to overdevelopment challenges performance
industry-wide until supply/demand equilibrium returns. Limited corrective options.
After identifying root problems, asset managers work with owners, operators, and third
parties to design and implement tailored improvement plans. This may entail capital
reinvestment projects, management changes, renovating non-core assets to alternate uses
like multifamily, or selective dispositions if circumstances warrant. Careful execution and
ongoing re-evaluation determines success.
Case Study: Embassy Suites Hotel
To illustrate performance evaluation in practice, consider the case of a 300-room Embassy
Suites property located in a mid-sized Midwestern city. In its 3rd year of ownership, the asset
manager noticed RevPAR lagging 10% below the brand and market averages for 2
consecutive years despite generally healthy macroeconomic trends.
Upon deeper analysis of operating statements and benchmark data, the asset manager
determined expenses had crept approximately 5% higher than other similar full-service
hotels while revenues failed to keep pace. Further inquiries with local operations revealed
inadequate maintenance aging key infrastructure like HVAC units. Combined with outdated
lobby and F&B offerings, the product no longer matched guest expectations.
The asset manager's report recommended a phased capital plan over 3 years to fully
renovate public spaces, guestrooms, and replace outdated mechanical systems. Projections
estimated a 10-15% RevPAR boost post-renovation, supported by an improved competitive
position and restored operating efficiencies. Ownership ultimately approved the $8 million
overhaul, and within 18 months of completion RevPAR surpassed benchmarks and the
property returned to high compliance with brand standards.
This example shows how thorough performance analysis and targeted capital investment
can remedy underperformance and stabilize long-term returns. Proper vetting of corrective
strategies according to each asset's unique circumstances optimizes outcomes.
Recommendations for Hotel Asset Managers
To summarize best practices for evaluating hotel investment performance:
- Establish a core set of common and relevant quantitative KPIs to track consistently over
time.
- Conduct regular benchmarking against multiple relevant frames of reference to identify
outliers.
- Factor broader economic conditions and forecasts into projections to account for external
demand impacts.
- Carefully diagnose root causes when assets underperform benchmarks. Develop tailored
improvement strategies.
- Collaborate closely with operators, owners and third-parties to design and execute effective
corrective action plans as needed.
- Continuously re-assess performance against benchmarks post-intervention to ensure
initiatives stabilize returns as intended.
- Recognize no asset management solution fits all circumstances - consider adaptive reuse
or dispositions if revitalization proves unfeasible.
By thoroughly monitoring KPIs, rigorously benchmarking performance, accounting for
macroeconomic shifts, and developing customized improvement roadmaps when warranted,
hotel asset managers can optimize investment returns for owners through ongoing portfolio
evaluation and refinement. Consistent effort sustains profitable long-term holdings.
Conclusion
With hotel investments representing major long-term capital allocations for many real estate
portfolios, properly evaluating performance ranks among the core responsibilities of hotel
asset managers. This paper outlined an asset management framework and best practices
for ongoing monitoring and benchmarking of investment KPIs, factoring macroeconomic
conditions, identifying underperforming assets, and developing targeted strategies to remedy
shortfalls. Following these approaches equips asset managers to optimize returns for
owners through continuous performance oversight grounded in data and rigorous analysis.
Sustaining a thorough, customized and iterative evaluation process sustains profitability of
diverse hotel holdings over full economic cycles.
Hotel asset management refers to overseeing hotel properties to maximize investment
returns and mitigate risks for owners and investors. A key responsibility of hotel asset
managers is to continuously evaluate hotel investment performance to ensure ownership
goals are being met. Effectively evaluating hotel investment performance requires
understanding key performance indicators, benchmarking, factoring macroeconomic
conditions, and identifying areas for improvement.
This paper will examine how hotel asset managers evaluate the performance of hotel
investments. It will define common performance metrics, explore benchmarking strategies,
discuss macroeconomic impacts, and provide recommendations for improving
underperforming assets. The goal is to equip readers with an understanding of best
practices for ongoing performance evaluation from an asset management perspective.
Key Performance Indicators
To properly evaluate investment performance, asset managers must track a core set of
quantitative metrics known as key performance indicators (KPIs). Common financial KPIs
include:
- Revenue per Available Room (RevPAR): The most widely used lodging industry metric,
calculated as total room revenue divided by total room nights available. Trends in RevPAR
indicate changes in occupancy and average daily rate (ADR).
- Average Daily Rate (ADR): Room revenue divided by total occupied room nights. Tracks
changes in room pricing independent of occupancy levels.
- Occupancy Rate: Total occupied room nights divided by total room nights available,
expressed as a percentage. Indicates effectiveness of demand generation and room sales.
- Gross Operating Profit (GOP) Margin: GOP (gross operating profit or earnings before
interest, taxes, depreciation and amortization) divided by total revenues, expressed as a
percentage. Measures profitability at the property level.
- Revenue Growth: Year-over-year percentage change in total revenues. Helps evaluate
demand growth potential within a market.
- Expense Growth: Year-over-year percentage change in total expenses. Highlights
operating efficiency and cost management trends.
Beyond finances, other important operational KPIs include quality ratings, guest satisfaction
scores, employee retention rates, and brand compliance metrics. Consistent KPI
measurement and reporting provides understanding of historical trends as well as flags for
underperformance requiring further investigation.
Benchmarking Performance
To truly assess asset performance, KPIs must be benchmarked against appropriate frames
of reference. Hotel chains typically establish benchmarks based on past property and brand
performance. However, asset managers should also analyze:
- Competitive Set Benchmarks: KPI averages for directly competitive hotels in the same
submarket. Provides the most relevant localized performance comparisons.
- Market/Region Benchmarks: KPI averages for the entire destination/ metropolitan area the
hotel operates within. Offers broader context beyond just competitors.
- Chain/Flag Benchmarks: KPI goals set by the parent hotel company/brand. Helps evaluate
brand compliance and positioning relative to brand standards.
- Macroeconomic Trends: Broader economic conditions like employment, GDP growth,
tourism, that impact overall demand. Controls for external forces affecting performance.
Regular benchmarking identifies assets excelling or lagging expectations based on these
frames of reference. It allows asset managers to determine appropriate performance
thresholds as well as isolate property-specific operational factors requiring adjustment.
Role of Macroeconomic Conditions
Hotel investment performance does not occur in a vacuum and is heavily influenced by
macroeconomic cycles that shape overall demand. Asset managers must consider broader
economic conditions when evaluating investments to account for external impacts beyond
management's control. Key macro factors include:
- Employment & Wage Growth: Strong job and income growth fuels both business and
leisure travel demand. Recessions depress travel spending.
- GDP Growth: Rising/falling national, state, and local economic output impacts discretionary
travel budgets of both individuals and companies.
- Hotel Development Pipeline: Overbuilding during expansions can saturate markets, while
limited new supply supports performance during downturns.
- Fuel Prices: Higher gas prices constrain auto and air travel, dampening demand. Lower
costs boost road trip and airline travel accessibility.
- Exchange Rates: Foreign exchange fluctuations affect international visitations to
destinations with significant overseas markets.
- Pandemics & Natural Disasters: Unpredictable crises like COVID-19 or hurricanes can
abruptly halt travel, negatively impacting performance.
By analyzing macroeconomic indicators and forecasts, asset managers can adjust RevPAR
and profitability projections to account for anticipated business cycles. This provides a more
robust view of realistic investment potential over holding periods.
Improving Underperforming Assets
When benchmarking identifies properties underperforming expectations, asset managers
must carefully diagnose root causes and develop corrective action plans. Common issues
requiring attention include:
- Aging Product: Older properties with dated designs, fixtures, or amenities struggle to attract
modern travelers. Capital improvements may be needed.
- Inconsistent Branding: Deviations from brand standards, like poor service or condition
issues, damage reputation and business. Remediation is required.
- Ineffective Management: Management companies lacking expertise, funding staff
improperly could impact operations. Potential management change evaluation.
- Declining Market Dynamics: Some locations undergo permanent shifts negatively
impacting demand long-term. Potential adaptive reuse or redevelopment scenarios should
be explored.
- Excess Supply: Saturated submarkets due to overdevelopment challenges performance
industry-wide until supply/demand equilibrium returns. Limited corrective options.
After identifying root problems, asset managers work with owners, operators, and third
parties to design and implement tailored improvement plans. This may entail capital
reinvestment projects, management changes, renovating non-core assets to alternate uses
like multifamily, or selective dispositions if circumstances warrant. Careful execution and
ongoing re-evaluation determines success.
Case Study: Embassy Suites Hotel
To illustrate performance evaluation in practice, consider the case of a 300-room Embassy
Suites property located in a mid-sized Midwestern city. In its 3rd year of ownership, the asset
manager noticed RevPAR lagging 10% below the brand and market averages for 2
consecutive years despite generally healthy macroeconomic trends.
Upon deeper analysis of operating statements and benchmark data, the asset manager
determined expenses had crept approximately 5% higher than other similar full-service
hotels while revenues failed to keep pace. Further inquiries with local operations revealed
inadequate maintenance aging key infrastructure like HVAC units. Combined with outdated
lobby and F&B offerings, the product no longer matched guest expectations.
The asset manager's report recommended a phased capital plan over 3 years to fully
renovate public spaces, guestrooms, and replace outdated mechanical systems. Projections
estimated a 10-15% RevPAR boost post-renovation, supported by an improved competitive
position and restored operating efficiencies. Ownership ultimately approved the $8 million
overhaul, and within 18 months of completion RevPAR surpassed benchmarks and the
property returned to high compliance with brand standards.
This example shows how thorough performance analysis and targeted capital investment
can remedy underperformance and stabilize long-term returns. Proper vetting of corrective
strategies according to each asset's unique circumstances optimizes outcomes.
Recommendations for Hotel Asset Managers
To summarize best practices for evaluating hotel investment performance:
- Establish a core set of common and relevant quantitative KPIs to track consistently over
time.
- Conduct regular benchmarking against multiple relevant frames of reference to identify
outliers.
- Factor broader economic conditions and forecasts into projections to account for external
demand impacts.
- Carefully diagnose root causes when assets underperform benchmarks. Develop tailored
improvement strategies.
- Collaborate closely with operators, owners and third-parties to design and execute effective
corrective action plans as needed.
- Continuously re-assess performance against benchmarks post-intervention to ensure
initiatives stabilize returns as intended.
- Recognize no asset management solution fits all circumstances - consider adaptive reuse
or dispositions if revitalization proves unfeasible.
By thoroughly monitoring KPIs, rigorously benchmarking performance, accounting for
macroeconomic shifts, and developing customized improvement roadmaps when warranted,
hotel asset managers can optimize investment returns for owners through ongoing portfolio
evaluation and refinement. Consistent effort sustains profitable long-term holdings.
Conclusion
With hotel investments representing major long-term capital allocations for many real estate
portfolios, properly evaluating performance ranks among the core responsibilities of hotel
asset managers. This paper outlined an asset management framework and best practices
for ongoing monitoring and benchmarking of investment KPIs, factoring macroeconomic
conditions, identifying underperforming assets, and developing targeted strategies to remedy
shortfalls. Following these approaches equips asset managers to optimize returns for
owners through continuous performance oversight grounded in data and rigorous analysis.
Sustaining a thorough, customized and iterative evaluation process sustains profitability of
diverse hotel holdings over full economic cycles.
Hotel asset management refers to overseeing hotel properties to maximize investment
returns and mitigate risks for owners and investors. A key responsibility of hotel asset
managers is to continuously evaluate hotel investment performance to ensure ownership
goals are being met. Effectively evaluating hotel investment performance requires
understanding key performance indicators, benchmarking, factoring macroeconomic
conditions, and identifying areas for improvement.
This paper will examine how hotel asset managers evaluate the performance of hotel
investments. It will define common performance metrics, explore benchmarking strategies,
discuss macroeconomic impacts, and provide recommendations for improving
underperforming assets. The goal is to equip readers with an understanding of best
practices for ongoing performance evaluation from an asset management perspective.
Key Performance Indicators
To properly evaluate investment performance, asset managers must track a core set of
quantitative metrics known as key performance indicators (KPIs). Common financial KPIs
include:
- Revenue per Available Room (RevPAR): The most widely used lodging industry metric,
calculated as total room revenue divided by total room nights available. Trends in RevPAR
indicate changes in occupancy and average daily rate (ADR).
- Average Daily Rate (ADR): Room revenue divided by total occupied room nights. Tracks
changes in room pricing independent of occupancy levels.
- Occupancy Rate: Total occupied room nights divided by total room nights available,
expressed as a percentage. Indicates effectiveness of demand generation and room sales.
- Gross Operating Profit (GOP) Margin: GOP (gross operating profit or earnings before
interest, taxes, depreciation and amortization) divided by total revenues, expressed as a
percentage. Measures profitability at the property level.
- Revenue Growth: Year-over-year percentage change in total revenues. Helps evaluate
demand growth potential within a market.
- Expense Growth: Year-over-year percentage change in total expenses. Highlights
operating efficiency and cost management trends.
Beyond finances, other important operational KPIs include quality ratings, guest satisfaction
scores, employee retention rates, and brand compliance metrics. Consistent KPI
measurement and reporting provides understanding of historical trends as well as flags for
underperformance requiring further investigation.
Benchmarking Performance
To truly assess asset performance, KPIs must be benchmarked against appropriate frames
of reference. Hotel chains typically establish benchmarks based on past property and brand
performance. However, asset managers should also analyze:
- Competitive Set Benchmarks: KPI averages for directly competitive hotels in the same
submarket. Provides the most relevant localized performance comparisons.
- Market/Region Benchmarks: KPI averages for the entire destination/ metropolitan area the
hotel operates within. Offers broader context beyond just competitors.
- Chain/Flag Benchmarks: KPI goals set by the parent hotel company/brand. Helps evaluate
brand compliance and positioning relative to brand standards.
- Macroeconomic Trends: Broader economic conditions like employment, GDP growth,
tourism, that impact overall demand. Controls for external forces affecting performance.
Regular benchmarking identifies assets excelling or lagging expectations based on these
frames of reference. It allows asset managers to determine appropriate performance
thresholds as well as isolate property-specific operational factors requiring adjustment.
Role of Macroeconomic Conditions
Hotel investment performance does not occur in a vacuum and is heavily influenced by
macroeconomic cycles that shape overall demand. Asset managers must consider broader
economic conditions when evaluating investments to account for external impacts beyond
management's control. Key macro factors include:
- Employment & Wage Growth: Strong job and income growth fuels both business and
leisure travel demand. Recessions depress travel spending.
- GDP Growth: Rising/falling national, state, and local economic output impacts discretionary
travel budgets of both individuals and companies.
- Hotel Development Pipeline: Overbuilding during expansions can saturate markets, while
limited new supply supports performance during downturns.
- Fuel Prices: Higher gas prices constrain auto and air travel, dampening demand. Lower
costs boost road trip and airline travel accessibility.
- Exchange Rates: Foreign exchange fluctuations affect international visitations to
destinations with significant overseas markets.
- Pandemics & Natural Disasters: Unpredictable crises like COVID-19 or hurricanes can
abruptly halt travel, negatively impacting performance.
By analyzing macroeconomic indicators and forecasts, asset managers can adjust RevPAR
and profitability projections to account for anticipated business cycles. This provides a more
robust view of realistic investment potential over holding periods.
Improving Underperforming Assets
When benchmarking identifies properties underperforming expectations, asset managers
must carefully diagnose root causes and develop corrective action plans. Common issues
requiring attention include:
- Aging Product: Older properties with dated designs, fixtures, or amenities struggle to attract
modern travelers. Capital improvements may be needed.
- Inconsistent Branding: Deviations from brand standards, like poor service or condition
issues, damage reputation and business. Remediation is required.
- Ineffective Management: Management companies lacking expertise, funding staff
improperly could impact operations. Potential management change evaluation.
- Declining Market Dynamics: Some locations undergo permanent shifts negatively
impacting demand long-term. Potential adaptive reuse or redevelopment scenarios should
be explored.
- Excess Supply: Saturated submarkets due to overdevelopment challenges performance
industry-wide until supply/demand equilibrium returns. Limited corrective options.
After identifying root problems, asset managers work with owners, operators, and third
parties to design and implement tailored improvement plans. This may entail capital
reinvestment projects, management changes, renovating non-core assets to alternate uses
like multifamily, or selective dispositions if circumstances warrant. Careful execution and
ongoing re-evaluation determines success.
Case Study: Embassy Suites Hotel
To illustrate performance evaluation in practice, consider the case of a 300-room Embassy
Suites property located in a mid-sized Midwestern city. In its 3rd year of ownership, the asset
manager noticed RevPAR lagging 10% below the brand and market averages for 2
consecutive years despite generally healthy macroeconomic trends.
Upon deeper analysis of operating statements and benchmark data, the asset manager
determined expenses had crept approximately 5% higher than other similar full-service
hotels while revenues failed to keep pace. Further inquiries with local operations revealed
inadequate maintenance aging key infrastructure like HVAC units. Combined with outdated
lobby and F&B offerings, the product no longer matched guest expectations.
The asset manager's report recommended a phased capital plan over 3 years to fully
renovate public spaces, guestrooms, and replace outdated mechanical systems. Projections
estimated a 10-15% RevPAR boost post-renovation, supported by an improved competitive
position and restored operating efficiencies. Ownership ultimately approved the $8 million
overhaul, and within 18 months of completion RevPAR surpassed benchmarks and the
property returned to high compliance with brand standards.
This example shows how thorough performance analysis and targeted capital investment
can remedy underperformance and stabilize long-term returns. Proper vetting of corrective
strategies according to each asset's unique circumstances optimizes outcomes.
Recommendations for Hotel Asset Managers
To summarize best practices for evaluating hotel investment performance:
- Establish a core set of common and relevant quantitative KPIs to track consistently over
time.
- Conduct regular benchmarking against multiple relevant frames of reference to identify
outliers.
- Factor broader economic conditions and forecasts into projections to account for external
demand impacts.
- Carefully diagnose root causes when assets underperform benchmarks. Develop tailored
improvement strategies.
- Collaborate closely with operators, owners and third-parties to design and execute effective
corrective action plans as needed.
- Continuously re-assess performance against benchmarks post-intervention to ensure
initiatives stabilize returns as intended.
- Recognize no asset management solution fits all circumstances - consider adaptive reuse
or dispositions if revitalization proves unfeasible.
By thoroughly monitoring KPIs, rigorously benchmarking performance, accounting for
macroeconomic shifts, and developing customized improvement roadmaps when warranted,
hotel asset managers can optimize investment returns for owners through ongoing portfolio
evaluation and refinement. Consistent effort sustains profitable long-term holdings.
Conclusion
With hotel investments representing major long-term capital allocations for many real estate
portfolios, properly evaluating performance ranks among the core responsibilities of hotel
asset managers. This paper outlined an asset management framework and best practices
for ongoing monitoring and benchmarking of investment KPIs, factoring macroeconomic
conditions, identifying underperforming assets, and developing targeted strategies to remedy
shortfalls. Following these approaches equips asset managers to optimize returns for
owners through continuous performance oversight grounded in data and rigorous analysis.
Sustaining a thorough, customized and iterative evaluation process sustains profitability of
diverse hotel holdings over full economic cycles.
