Real estate investment opportunities are abundant and varied. Brokers develop marketing materials to grab your attention and envision yourself executing on the deal. A great hotel investment strategy keeps you focused on your objective by helping to resist their allure. More importantly, it can put you in a proactive position to guide your team toward actions that will move the needle for your business.
Every strategy starts with two components – status quo and objective. The status quo defines where you are today along with the challenges and opportunities for growth. Your objective is where you expect to end up within the defined timeframe.
Specialization is critical to your success as a real estate investor. Growth depends on having a solid foundation on which to build a thriving business. This foundation comes from playing to your strengths and setting audacious goals to strengthen your weaknesses.
Hotels have dozens of areas to specialize. Specialties start with geography, but they quickly balloon when you add product type, brands, and risk appetite. These four dimensions are enough to start building a targeted hotel investment strategy.
Many institutional investors focus solely on Marriott, Hilton, and Hyatt branded select service properties in primary and secondary markets. Add a regional definition, and you have a clear target.
Targets like this allow you to narrow the field of more than 65,000 properties in the United States to a more manageable 1,500 (give or take). You can easily visit all these hotels in a year or two. Further, you can expect that no more than 1,000 investors own such a sample, which simplifies a direct outreach campaign.
Public perception is another benefit of narrowing your approach. You brand yourself with every deal you spend time on. Owners, brokers, and influential third-parties get to know your interests by the types of deals you review with them. As a result, they will send you opportunities based on that criteria.
Discipline in this area is essential. It’s too easy to expand your investment criteria when something tangentially similar enters your periphery. This feature creep will slow you down because each new dimension introduces a new learning curve that will distract you from other opportunities.
Your asset management approach is just as much a part of your hotel investment strategy as the investment criteria. Hotel investing is a labor- and capital-intensive business. The way you intend to attract guests, manage daily operations, and execute major capital expenditures has a material impact on your approach to the business.
The path to hotel ownership is varied. Many hotel investors come to ownership from being an operator, while others approach it from investing in other real estate. It’s important to know your strengths and bring on partners that align with your strategy to fill in the gaps.
Hotels provide so much to the people they touch. This human element is a critical part of the success in any hotel. Your operational strategy should take a position on the culture you want to create in each hotel. Thereafter, you can define the execution plan that involves systems, processes, and branding.
Asset and property management are two distinct roles in any real estate investment. The simplest way to define their positions is long- versus short-term focus, respectively. There is a natural, positive tension in this relationship that keeps both sides accountable to their objectives.
Set clear expectations for how you plan to impact guests and employees. Further, define how that impact with influence the expected investment returns. Property culture drives loyalty, which results in stable revenues and operations in the long-term.
Brands know that an ownership transition is the optimal time to mandate a property upgrade. Most sales occur prior to the expiration of the franchise agreement. This gives brands the upper hand in the negotiation and allows them to demand a higher quality product.
Even independent properties without a brand-mandated PIP may require small touches that define the new life under new management. A four percent FF&E reserve is rarely enough to satisfy all the needs of a property over time. Therefore, new owners must prepare for a major capital improvement project early in their investment cycle.
Every hotel investment strategy should consider a renovation throughout the hold period, even if it doesn’t happen in the beginning. The strategy should address quality, cost, and timing of each required improvement. Brand-approved vendors may dictate much of the balance of these three aspects. However, you can determine how they’re deployed.
A hotel has four major construction areas – rooms, public spaces, building systems, and building envelope. The guest becomes intimately familiar with your hotel in all these areas, and each is critically important in its own way.
- Rooms provide a comfortable, private domain
- Public spaces appeal to the social aspects of your target guest
- Building systems must be invisible to the guest and just work
- The building envelope maintains the internal environment by keeping the elements out
Construction and operations must be closely linked in your hotel investment strategy. Operators are responsible to manage and sell through renovation projects that impact the guest experience. Such a renovation project takes rooms out of service, but it also changes the environment for available rooms.
Your team’s capacity to handle a project in terms of skill and bandwidth is a vital consideration.
On-property staff can manage a light brand PIP that comprises simple paint, carpet, and FF&E upgrades. Whereas, major capital improvement plans require a general contractor with hotel project experience.
You’ll also need to consider the opportunity cost of moving an asset manager into such an intensive project management role. An outsourced solution may be best if your strategy focuses on growth.
Relationships are the bread and butter of business.
Great companies are collections of people that trust each other working toward a common objective. Therefore, a great hotel investment strategy places extraordinary attention on building relationships and servicing people.
Identify all the stakeholders in your business. Employees, guests, and investors are the typical major stakeholder groups for most hotel operators. Each has different needs and desires, and each should be the target of unexpected delight.
You introduce a new stakeholder – the intermediary – when it comes to sourcing new investment opportunities. Each person that you approach as a source for new business becomes part of your value chain. Understand what these people value and leave them a little better than you found them.
Be purposeful in your relationship building approach. You will have to process through hundreds of opportunities until you find the one that aligns with your objectives. Therefore, it’s important to build clarity, patience, and resilience into your relationship strategy.
Relationship maintenance is a marketing effort. Your brand builds through aggregated interactions with each person over time.
This rarely happens organically. Chances are good that your target is not actively seeking ways to get to know you better. You must be the catalyst if you want to achieve the objectives you’ve set for each relationship.
Every great business took time to get there. Branding takes time and consistency to become recognizable, and operations improve through trial and error. Therefore, you need to keep your hotel investment strategy fresh with regular reporting and repositioning.
Real estate investment best practices are stable over time. Nevertheless, technology is always enabling new approaches that can potentially improve your business. Expand your perspective on technology to include new means and methods of practicing your craft – not just new digital toys.
Keep an eye on what is working or not in your business from the perspectives outlined above. Look first to improve with the resources you have and seek outside assistance only after you’ve squeezed all the juice.
Businesses progress through seasons or trends. Cyclical trends are those that represent operational challenges and opportunities. Secular trends are those that represent values or mindset shifts.
A cyclical trend in your business may be expanding your strategy from select service only to include extended stay. A secular shift would be a long-term strategy to build a proprietary operations platform as opposed to using full third-party management.
Work with the seasons in your business to define the cycles that will get you to your goal. Reposition constantly, but always keep an eye toward the objective. The day-to-day tactics often matter a lot less than the mission for the quarter, year, or decade.