Accountability in a real estate organization extends well-beyond the relationship between sponsor and investor or lender. Everyone has an obligation to deliver results for themselves and a series of stakeholders. Further, a great long-term investment requires many inputs to maximize returns for everyone involved. Therefore, a clear, objective responsibility chain is essential to success in real estate investing.

Accountability Defined

Accountability is simply the assignment of responsibility for the success of a defined objective. Responsibility relies on communication and alignment to ensure all stakeholders know and understand expectations and risks. Clarity of purpose is more important here than looking for a warm body to place credit or blame.

Organizational Accountability

Corporate governance is the formal structure that controls and directs an organization. Principles and procedures dictate the rights, roles, and responsibilities of each stakeholder. A collection of standard operating procedures and policy manuals codify these structures. However, even with all the formal documentation, organizational culture still drives most daily activity.

Real estate organizations are responsible for executing toward a clearly defined business plan in each deal. Internal and external stakeholders, including financial partners, employees, guests, and the community have a tremendous influence on that plan.

Significant external risks, including general economic conditions, have the potential to dramatically alter the deal’s success. Therefore, a thoughtful corporate governance plan combined with an equally thoughtful business plan addresses a variety of risks and potential mitigation on a platform and deal level, respectively.

Leaders and managers can only control so much, thus it is wise to establish formal structures to spread the responsibility when possible.

Individual Accountability

Many organizations hold integrity and personal responsibility as cornerstone values. This follows from the principle that optimal machine performance arises from each part working at its greatest potential.

Each stakeholder in an organization and deal has a responsibility to deliver a prescribed result. Job descriptions and periodic reviews keep each person on track to achieving these goals. Still, many organizations suffer from accountability creep, where a single result is attributable to too many people.

Small organizations are particularly susceptible because each person “wears many hats.” Consequently, a strong set of guiding principles paired with automatic enforcement mechanisms make it easy to settle any ambiguity.

Building Blocks

Every organization incorporates accountability and responsibility into its DNA to some degree. The strength and application vary between companies and even within execution teams. However, accountability foundations are universal and driven by human nature and social norms.

Accountability Principles

Mission, vision, transparency, and integrity are foundational principles that empower accountability. These four abstract concepts are essential to unify a team.

Mission and vision form the “why.” They are the concrete representation of the reason we do what we do by translating the dream into words and actions. Mission is the unifying message that draws teams together, and the vision keeps them moving in the same direction.

Transparency drives communication. Teams thrive on shared information and clear objectives. The greatest modern leaders believe that secrecy kills organizations. Information has a gravitational pull, and overt secrecy creates a vacuum, which allows rumors and misinformation to seep into an organization.

Responsibility relies on each stakeholder’s knowledge of what is important and when. Open communication is essential for satisfying this need.

Finally, integrity is the engine of responsibility. Personal integrity aligns the individual with their responsibility. Empowered with a clear mission and abundant information, each member of the team can move forward effectively. The team knows that its contribution is important, and they are confident that other aspects of the investment receive similar attention by others in the organization.

Process integrity keeps the team connected toward achieving a common mission. Each person on the team is responsible for maintaining the machine that is driving them toward the stated objectives. A system with automatic stabilizers ensures that everyone can continue moving in a unified direction.

Business Plan

Every great real estate investment starts with a simple concept. It may be scrawled on the back of an envelope or quickly calculated in an Excel sheet. Still, the concept arises from painstaking search and learning, over time, about what works.

A business plan that formalizes these investment objectives is the foundation of accountability in each deal.

Every investment starts with a hypothesis. “If I do this, then I will get that.” This statement’s structure provides “this” as your expected action and “that” as your desired outcome. Such a hypothesis outlines the mission and vision for your investment.

A good business plan, when shared throughout the organization, is a communication tool for aligning the team. Deal sponsors can only control what is within their sphere of influence. A transparent statement of these objectives and the freedom to execute creatively empowers everyone on the team to exert their influence where it matters.

Planning is critical to success, but you rarely follow the plan to the letter. Its value is in laying out the manageable details of the objectives and actions expected to drive a desired result.

For example, your business plan may prescribe a new revenue segmentation to reach the target Net RevPAR. However, historical information and an incomplete knowledge of the market motivates this prescription. It is inherently flawed for that reason.

That said, a clear, unifying objective forms the foundation on which to build the super structure of assigned responsibility.

Responsible Parties

People – living, breathing human beings – are the conduit for achievement. Great business plans and organizational philosophy contribute plenty to setting a productive mindset, but they DO nothing. Even the organizational zeitgeist has very little to do with a project’s success.

Building and aligning an all-star team is difficult work.

Organizational accountability relies on clearly defined rights, roles, and responsibilities. A framework, like the RACI Model, where RACI stands for Responsible, Accountable, Consulted, and Informed is best for defining these duties.

Break your business plan into annual, quarterly, monthly, and weekly goals. Then, map to daily tasks or objectives to achieve them. This is where accountability comes into play.

The RACI Model assigns people within the organization to each goal and task according the following methodology:

  • Responsible – Owns the task
  • Accountable – Approves the Responsible party’s work
  • Consulted – Contributes information or work to the task
  • Informed – Receives status updates, but is not consulted

For example, the asset manager would be accountable for completion of a construction project, but the general contractor is responsible. Architects, engineers, and others may be consulted. And the CEO would be informed of its progress.

Each workflow has sub-workflows that influence and contribute to the other. As you can see in the example above, a general contractor may be responsible for the entire construction project, but subcontractors are responsible for component parts to which she is ultimately accountable.

Hotel Stakeholders

A hotel investment sponsor is responsible for many tasks and accountable to a variety of stakeholders. Each stakeholder has a variety of concerns that combine to influence their overall opinion of your efforts.

Peak by Chip Conley, founder of Joie de Vivre, is the manifesto for optimizing the hotel experience for each of these stakeholders. He explains with fine detail how the Maslow Hierarchy of Needs affects each person that touches your investment. One must meet her most basic needs before she can move up to the pyramid to achieve self-actualization.

Guests

Hotel guests are paying and non-paying customers that use your rooms, public spaces, and grounds. A clean and safe environment is their most basic need, and the foundation for building a remarkable experience. However, the success of your investment goes beyond providing a safe environment.

Hoteliers regularly overlook customer acquisition cost with their focus on “heads in beds.” Online travel agencies (OTAs) and brand marketing provide the easiest methods to fill your hotel, but they come at tremendous cost. Direct bookings are the most cost effective, but they comprise a small share of total revenue.

Guests that move up Maslow’s pyramid, where your hotel meets social and esteem needs, are more likely to recommend to their friends and colleagues. They become raving fans when unremarkable expectations result in a memorable stay.

Exceptional guest experience is the foundation of hotel efficiency. After you have them hooked, make it clear that a direct booking is more beneficial to the hotel than booking through the OTAs or brand call center.

Employees

Employees are the most important stakeholder in any organization. They are the people that execute on a well-communicated vision and maximize returns from interactions with other stakeholders.

The spirit of hospitality is essential to work in the hotel business in any capacity. This goes beyond the front desk positions. Everyone from the maintenance crew to the financial analyst to the CEO must believe in the fundamental purpose of providing remarkable guest experiences. That’s a tall order.

People management is the property manager’s primary role. Everything else is noise. Great property managers look for potential and put talent on a pedestal.

Traditional, industrial human capital models that perceive talent as interchangeable is long gone. Customers like to do business with people that appreciate them and promote their self-confidence. People that already feel the same for themselves are the only ones that can deliver this level of attention. Therefore, employers must strive to rapidly move employees to the top of the Maslow pyramid.

Financial Partners

Every lender and investor has a different set of financial and non-financial objectives. A good, safe risk-adjusted return is only one aspect that influences an investment decision. Real estate investments, especially in hospitality, come with community impact and a variety of risks that weigh heavily in that decision.

Too many real estate investment sponsors perceive the power balance unreasonably weighted toward financial partners. However, the most successful sponsors understand that there is a shared need. The financiers need sponsors to source, underwrite, and execute on deals as much as the dealmakers need financial support.

That said, the minute you take money from an investor or lender, you become accountable to them for returning that money with interest. This is a healthy dynamic that provides additional pressure to perform.

Success builds upon itself. As you outperform for one investor, your stock improves to take on others and make them compete on terms. Rock solid operations and talent management empower this virtuous cycle.

Community

Neighbors, government officials, students, and so many others have a greater impact on the long-term success of your investment than most dealmakers give them credit. Community is the fabric from which talent emerges and gets woven back into.

As a business owner, you are as much accountable to the community as it is to you.

Hotels are responsible for lodging visitors, hiring residents, and keeping up spaces that contribute to the integrity of the built environment. The investment sponsor is accountable to the community for these and many more things.

Community actors are responsible for creating the environment for a hotel to thrive. Demand is born of the hard work and creativity of all the leaders and their followers within the community. The community is accountable to its local businesses to ensure a vibrant, growing economy.

Management’s Role

An effective hotel investment operation separates asset management from property management to clearly define the accountability structure. Each are responsible for a broad range of tasks that factor into the investment’s success. Similarly, each is accountable to the other throughout the investment lifecycle to efficiently move from one major project to the next.

A healthy tension between property and asset management produces the greatest results because it drives each party to do better and become the best version of itself.

Asset Manager

Asset managers are accountable to the deal sponsor and, ultimately, the financial partners by way of their responsibility for executing the business plan. While this may include financing decisions, the daily routine centers around coordinating all the pieces that go into operation and maintenance of the hotel.

The asset manager must also actively identify and mitigate risks that would materially impair the performance of the hotel. These risks could arise internally or externally, and in many cases, they are a blessing in disguise that forces a beneficial adjustment to the business plan.

Many vertically-integrated investment companies initially attempt to combine the asset management function into their operations division, but it quickly becomes clear that separation of the two is essential due to the scope of responsibilities and the need for an objective third party overseeing the property manager.

An astute asset manager understands the operations enough to effectively coordinate any decisions that may have an impact on guest experience. However, they do not get involved in the daily operations.

Property Manager

The property manager is accountable to the asset manager for the daily operations of the hotel. Their responsibilities include managing talent, procurement, customer acquisition, general maintenance, and many other operational activities.

As discussed, property operations is a people business. Guests expect an experience that meets or exceeds their expectations. The manager can only control what is within her power to influence, and so much of the guest experience evolves from expectations set outside that sphere.

Exceptional property managers have a strong back-office and robust systems and processes that support effective operations. Still, this is just a threshold requirement in this hypercompetitive business. The best property managers create a culture of accountability, creativity, and integrity to push every person to her optimal self.

Two-Way Accountability

The relationship between asset and property managers is the most important of all interactions in your hotel investment. It may be even more important than the relationship with your guests.

Asset managers must provide a physical product that the property manager can sell effectively. Similarly, the property manager works to optimize every aspect of revenue generation and expense management to maximize profitability.

On its face, this seems like a simple concept. Nevertheless, many investors get this balance wrong, which results in lost profits and reduced asset value.

Accountability is as much a part of your culture as your formalized systems. The way employees talk about your operations and interact with each other has a material impact on the quality of the guest experience and profitability of the investment.

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