Real estate investing is a team sport. It doesn’t matter at which level you play. You will be interacting with a variety of people to accomplish your investing goals. Each player on your hotel investment team brings a different skill set. The leader’s objective is to balance cost, quality, and timing to get the greatest value from each team member.
It helps to think in terms of internal and external when building your team. This is a matter of where the person sits but where she contributes. Your internal team is with you from start to finish and touches just about every aspect of a deal. Whereas, the external team comes in for ad hoc, project-based contributions.
Let’s dig in to see who these players are and how they function within the broader team.
- Chief Executive Officer
- Chief Investment Officer
- Acquisitions Associate
- Asset Manager
- Investor and/or Lender Relations Associate
- General Counsel
- Brand Representative
- General Contractor
- Architect, Engineer, and Interior Designer
- Property Manager
- Equity Partner
- Ad Hoc Legal
Ownership defines the internal team. That is, each person on the internal team is accountable for one or many aspects of the deal’s success. Each owns their portion, and it falls to them to bring internal and external resources to complete the job.
The hotel investment team positions listed below come from a role-based perspective, but one person could be responsible for many of these depending on the organization. For example, small organizations or young, entrepreneurial groups would distribute responsibility based on capability without building a hierarchy or attaching titles. However, to achieve scale, an organization must create systems and empower separate individuals in these functions to ensure consistent deal production.
The Chief Executive Officer is the leader of the organization. She is responsible for directing all strategic and functional aspects of the company. In addition, the CEO represents the values and objectives of the organization to staff and the industry.
Leadership is a challenging obligation. It requires constant oversight and recalibration. A firm understanding of the business is a threshold requirement. Beyond that, she must know how to ask good questions and push those in her care to seek creative solutions.
Styles vary greatly across leaders and organizations. However, the greatest leaders are self-aware enough to identify the gaps in their style and complement those weaknesses by aligning with others to strengthen those gaps. Basically, they know how to organize people in pursuit of a shared vision.
There’s no question that this is an earned position. Still, there is no prescription for where it fits in a career path. Great leaders are entrepreneurial, especially in real estate.
Compensation varies greatly, but typical corporate governance dictates some form of base pay plus performance bonuses in the form of equity participation. That said, many CEOs are owners and take compensation in the form of dividends from corporate profits anyway.
Investment strategy and execution for a hotel investment team is the domain of the Chief Investment Officer. Investors are concerned about three things:
- Pipeline: Can you deploy my money effectively?
- Strategy: Will you reach my target return with your investment thesis?
- Execution: Do you have the systems in place to realize the projected returns?
Search is expensive. It takes a lot of time and treasure to find a good investment manager just like it takes a lot to find a good deal.
The Chief Investment Officer (CIO) is the leader that bridges the gap between capital and execution. She takes responsibility for setting the investment strategy and filling the pipeline. The CIO is also responsible for communicating with investors and lenders about the ongoing success of each investment.
This is a mid- to late-career role that favors business developers and strategy-oriented individuals. Compensation structure aligns the interests between the deal maker and investors. Therefore, in addition to a base salary, a CIO usually has a transaction-related success bonus and equity participation in each deal.
The Acquisitions Associate is the CIO’s search engine. He builds relationships with potential deal sources to ensure a consistent flow of investment opportunities. Deals come from three sources:
- Owners: Direct outreach to buy off-market
- Brokers: Intermediaries that have a deep and broad network of owners
- Third-Parties: Influential service providers that work with owners on non-transactional aspects of their business
A skilled acquisitions associate operates like an intermediary. He creates and executes on a sales and marketing plan that keeps relationships fresh and value-oriented.
This is an early- to mid-career role that favors a person adept at business development. Compensation typically takes the form of a base salary plus transaction-related success bonuses.
Hotel operations are complex. They require intensive oversight and periodic adjustment, especially when undergoing major capital planning and expenditure. The asset manager is responsible for oversight of all aspects of a deal from the point of offer for acquisition to sale. She is the execution hub in your hotel investment team.
A skilled asset manager monitors for risks and opportunities and adjusts the execution to align with the spirit of the business plan. She knows that while the business plan is important, it is more important to take advantage of openings that will improve risk adjusted returns.
This is an early- to mid-career role that favors an analytical, process-oriented person. Compensation structures vary, but generally, they take the form of a base salary plus deal- or operations-related success bonuses.
Communication and transparency are the most important values in building and maintaining a consistent capital pipeline. Investors may know who you are, but they don’t know whether you are a high alpha manager until you show them. Further, they won’t stick around for the next deals unless you keep them informed of all happenings in their first deal.
Capital relationships are second only to acquisitions relationships. That is, even though there’s a chicken-egg paradox, capital flocks to good deals like a moth to a flame. That is, so long as your capital relations associate keeps investors and lenders engaged throughout the investment sales cycle.
Because of the knowledge and relationships required, this is a solidly mid-career role for excellent business developers. Compensation structures reward deal success and strength of capital relationships – base plus KPI-based bonuses.
Analysts have multiple roles throughout the organization. They support the acquisitions function with deal underwriting and financial modeling. They support asset management with low-level reviews of financial statements. Finally, they support investor and/or lender relations in preparation of communication materials.
An efficient organization understands the value each player brings to their work.
The executive committee arranges all inputs to produce the greatest output. Analysts are their apprentices that provide valuable technical support while they learn the craft.
Analysts are valuable beyond their administrative support function. Overseas outsourcing can be more affordable and efficient to perform many of these support functions. However, a thorough understanding of future holes in your game and key-person risks will reveal an opportunity to hire and train an analyst for that future role.
Real estate is tangible, but property rights make the United States the most attractive place for CRE investment in the world. The operational and liability aspects of hospitality real estate add a layer of risk that requires more legal guidance than a Big Four CRE asset.
The General Counsel is a skilled legal practitioner with a broad knowledge of the legal matters that may impact your organization. This knowledge is usually shallow in most areas and deep in a single area of daily importance, like transactions or liability.
Large organizations bring this expertise in house for efficiency and some cost savings. Small real estate companies can get a similar affect by working with a real estate generalist in a large law firm as part of their hotel investment team. An active, connected attorney brings in subject-matter experts for issues outside their knowledge scope.
Look for an attorney that has experience in real estate transactions and hospitality-related matters. She should understand the unique operational and contractual requirements of a hotel. Tenure in the business is significant inasmuch as experience is important and accrues over time.
Project-based participation characterizes the external hotel investment team. Each player on this side has an important role for ensuring success of the investment, but they do not own the outcome of the investment. The internal team owns the outcome of each external contribution and how it fits with the overall investment outcome.
Some of these positions may sit within the same organization as the internal team members. However, their work is project-based rather than a cradle-to-grave contribution. You may be surprised to see a few of these here as opposed to the internal team. Remember, we’re looking at this from a deal sponsor point of view. This conceptual framework can also be adapted for private equity, loan originations, and other investment structures.
Intermediaries are a critical part of the real estate transaction ecosystem. The best brokers specialize in a segment of the industry and provide more value than simply bird-dogging deals.
Sellers of real estate have a dual objective – the highest price with the greatest probability to close. A marketing process exposes the property to a variety of buyers and forces them to compete to win the deal. Building a database of trusted, qualified buyers takes time and focused energy.
Hotel real estate intermediaries usually focus on investment sales or capital markets. Their specialization varies across a variety of criteria, including:
- Product Type
- Transaction Size
- Client Type
- Debt (Capital Brokers)
- Equity (Capital Brokers)
Brokers allow a real estate organization to extend their transactional reach without investing in personnel. They are employed on a project basis and compensated with a success fee.
Branding is a core differentiator for hotel real estate investments. The brand identity and associated property-level amenities bring guests to your hotel and keep them engaged to come back often. The brand representative is the interface for owners.
Most hotel investment strategies focus on a small set of brands. For example, many institutional owners only invest in premium-branded select service hotels, like the Marriott, Hilton, and Hyatt brands. This has the benefit of building expertise. However, it also helps to focus and emphasize industry relationships with those that can help achieve the investment objective.
Brand representatives are employees of the branding company. Still, they are a critical part of your hotel investment team. A good relationship lubricates the contract negotiation and compresses time frames when closing on a deal. This provides a critical competitive advantage when making an offer where due diligence and transition timing is an important differentiator.
Just about every hotel transaction requires a change of ownership PIP. The scope of this property improvement varies from deal to deal. Some are simply paint, carpet, and FF&E, but the most invasive plans include hard construction. Either way, a general contractor (GC) provides access to resources for projects with a defined beginning and end.
Construction management is a specialized business that includes logistics, procurement, and contract negotiation, among many other specialized functions. Highly active development companies may bring this in house to achieve efficiencies at scale. However, most real estate investors can and should align with a high-quality external GC to ensure the best execution.
Hotel property improvements require a specialized logistical approach. Every room and every night afford an opportunity to increase revenue. Therefore, a well-planned renovation minimizes guest impact for public spaces as much as rooms.
Your general contractor should have experience with phased renovations. She will work closely with your property manager and asset manager to strategically plan and execute a property improvement plan that meets timing, quality, and cost objectives.
Guest experience is critical to achieving your hospitality objectives. The built environment defines hotel brands as much as the service level. The brand provides standards and guidelines for properties with a major hotel flag, but major improvements require additional assistance.
A high-quality construction design team is essential for new development. They may have limited involvement in a brand-mandated property improvement plan, as major brands provide tremendous support for routine PIPs. However, a property that is dropping a flag or an independent hotel re-imagining the guest experience will rely heavily on this team.
Architects form the core of the construction design team. Beyond building design, they coordinate third parties, represent the design with city officials, and interface with the general contractor on design implementation.
As with any third party getting involved with your project, hotel experience is essential. A hotel appeals to every sense – sight, smell, taste, touch, and hearing – for employees and guests. Your building should optimize these basics to elicit the indescribable experience that builds the guest loyalty that increases revenue.
Property culture is palpable. It starts with leadership, transitions to employees, and your guests are the final recipient. Regardless of how much technology changes the hospitality business, every critical guest touchpoint expresses the human touch. The brand influences this experience, but the property manager delivers it.
Property management comes in many forms depending on the investment strategy. Most major brands allow third-party management. However, the brand itself manages its luxury lifestyle brands to safeguard brand delivery. Similarly, many investors build an internal team or align with one or two highly-vetted property management companies to guarantee a consistent result.
Geographic coverage and brand experience are critical in selecting a property manager. The property manager is responsible for revenue and yield management. They build operational efficiency by working in tight clusters, and a solid knowledge of the submarket is the cornerstone of an optimal revenue segmentation strategy.
Property manager compensation comes as a percentage of gross operating revenue. This fee is three percent for most hotels, but it may be higher or lower depending on the gross revenue.
This traditional model is leftover from the days before franchising – when brands exclusively managed their hotels. However, the structure is adapting to an investor alignment model with consideration of profitability.
You may be thinking that such a critical component of the hotel investment team should be a part of the internal team. There are many arguments in support of that classification. However, the one overarching reality that trumps all arguments is that the property manager is replaceable. If she’s not performing, the asset manager can and should find someone else that can do the job better.
Capitalization is a critical component in creating value for an investment. There are the obvious aspects, like interest rate, leverage, and terms. However, the intangible factors of working with a lender are almost more important than the headline numbers.
Real estate is a relationship business. Relationships are important for getting deals done. They are even more important when it comes to executing your business plan.
The lender collects principal and interest payments as a matter of course. However, they also test the properties performance periodically to ensure compliance with all covenants.
Like any great relationship, the interaction with your lender should be easy and seamless. This can be difficult because many lenders use third-party loan servicing. That means you can have a great relationship with the originator or credit committee, but the loan servicer defines your daily experience.
Look for the full package when evaluating a lender. While lenders are replaceable, this is an expensive change.
A real estate partnership is a marriage, which, like a marriage, takes many different forms. Syndications empower the sponsor with responsibility for all major investment decisions. Joint ventures take a collaborative approach to major decisions. Regardless, transparency, communication, and compromise are critical to ensure a long-term, fruitful relationship.
Equity partnerships do not form overnight. They rely on a solid foundation of trust and alignment. From initial introduction to your first investment takes weeks, months, or years. Along the way, you need to court the partner with a value-oriented approach.
Hotels and real estate deals have a variety of legal needs that your General Counsel cannot handle alone. It is often helpful to keep a deep bench of advisors that you work with directly or in loose collaboration with your General Counsel.
Ad hoc legal advisory can cover topics ranging from joint venture agreements and private placements to entitlements and franchise agreements. The business terms of these legal matters are of critical importance.
The business leader must be integrally involved with crafting and understanding the nuanced implications of these specialized legal matters. Your General Counsel can handle most standard operational matters unilaterally, but specialty issues require increased executive attention.