Why short-term asset management is a bad strategy

A long-term view of asset management is crucial to getting the most out of an asset, even if your company is only going to hold a hotel for a short period of time.

In many cases short-term solutions do not act in the longer-term interests of assets and can be a turn-off for prospective investors.

“It is important to have robust measurements in place [to assess performance] but it is also about how you approach long or short term. Mostly in Europe investment will be private equity, with a shorter term window, but that certainly doesn’t mean we think about things in a short term way,” insisted Keith Griffiths, head of hotels, Pro-Invest Europe during a panel discussion at the Annual Hotel Conference. “You need to have that North Star long term plan and then execute your part of it no matter how long you are in place.”

Steve Jones, managing director Wyboston Venue Management agreed and said that company always take a long-term view and has that in mind in any asset management initiatives.

“The short-term view really wastes a lot of money if you don’t have a view of the long term plan. Some properties need investment to keep doing well, some need urgent action or you will go to the abyss with it,” he said. “You need to assess what’s going to give the best bang for buck, but we look with a long term plan and very ethically. You have to have those plans so everyone is getting what they need out of the deal.”

Long-term planning

He said that if the asset manager has a good long-term plan and is also looking after the environment, ultimately it will help the investor.

“When you have a 20- or 30-year view then that justifies the capex on something like solar panels,” he added.

Griffiths added that financial metrics were not the only measure of success and that asset management needed to consider each hotel in a more holistic way if value was to be optimised.

“There are the clear financial measures but they need to be triangulated with other softer measures. If you have the belief that they drive value and profitability then you need to keep a close eye on those too,” he said. “There can be myriad reasons why your investment is performing compared with the general market. In addition, if you are deploying capital anyway, you have to make sure that that is at the cutting edge of sustainability.”

Out performance complex

Martin Creydt, director and SVP, Pandox, added that to out-perform was, in theory, “very easy to correlate, if we drive better than the competition then good”.

“But in practice it is much more complex, for example a rival hotel can reopen down the road and hit your performance,” he pointed out. “We look at the potential of what to do, invest and then hopefully have a beautiful little operation that can be leased out or extended. The good thing with our business model is that we have all the opportunities, it’s like an a la carte list.”

Steven Smit, Director, Vertiq Capital, said that typically the company’s shareholders are long-term holders, and added that the business is very hands on with the operation of the two hotels it owns in Paris and London.

“Paris we bought 2014 and have no intention so sell anytime soon, London we acquired in 2022 but is also long term,” he said.

In terms of how best to asset management a hotel in order to leave the right amount of value on the table is largely dependent on the type of buyer. For example, a long-term investor looking for an income play is likely to want a hotel where there is no more asset management value to be had, a more opportunistic buyer may want to be able to add their own value.

“It really depends on what type of capital you are working with,” he said. “It’s also about striking the balance between the location of the hotel and the positioning of the asset from a micro and macro in terms of utilisation of the asset. The other element is the revenue and costs, where it’s likely we’ll see a bit of a slowdown and there will be a squeeze at some point, so you have to stay ahead of the curve.

Wyboston’s Jones also reflected that some priorities and customer expectations had changed since the pandemic, and hotels needed to remain agile and respond to changing trends,

“We have to change and adapt, the pandemic definitely let us shake the tree and ask what will make us best in class,” he said. “For example, is packaging up offers something that is consumer-led or brand led? Is it not better to unpackage, the way they do in the US? Above all, assets need to be adapted in line with changing consumer behaviour.”