*The purpose of this article is to speak directly to the 150,000 Hotel Managers in the US - acting as a friendly Hotel Management Chief Operating Officer/COO (the role that connects you, your property & regional teams, to your Mgt Co's CEO, the Chief of Human Resources, and Chief Financial Officer, all of whom are your connection to the Ownership/Real Estate Investment Groups.
Understanding, Translating and Aligning Real Estate Investments and Asset Management with Hotel Operators and GMs: Creating a Cohesive Leadership Environment:
Know the terms
Learn the basics
Engage fully
Share Knowledge w your Team
= Higher Job Security, Retention, Engagement and Potential for Personal Income Growth, and a path to ownership yourself
Understanding the Impact of Fed Rate Cuts on Hotel Operations
Introduction:
As hotel operators, you might not always hear about financial shifts like the Federal Reserve’s interest rate cuts from your COO or property owners. But it’s essential to understand how these macroeconomic factors can influence your day-to-day life. Let me share some insights so you can be better prepared to join these conversations and understand their impact on your property and team.
1. Interest Rate Cuts: A Game-Changer - What's in it for you?
The Fed is set to lower interest rates, potentially reducing the cost of borrowing. This means:
Higher Probability of Sale: If your hotel isn’t under renovation or doesn’t have a plan for one in the next 6-12 months, there’s a 50% chance it could be sold within the next 12-24 months.
Market Movement: Even if your property doesn’t sell, there’s a 75% chance it will be put on the market, similar to listing a home.
**Do not react by resigning or being afraid. Read on...
Example: If you manage a 100-room Hilton property and earn $100,000 annually, consider this: Hilton and Marriott select service properties rarely sell for less than $100,000 per room ("per key"). That makes the minimum value $10 million. With a minimum $2.5 million renovation ("PIP"), understanding these figures can help you engage in conversations about the future of your property.
*Your $10M hotel just became a $15M real estate investment (with PIP, reserves, fees, etc.), which requires returns that you will directly impact, that's huge value you bring to the table.
2. The Domino Effect of Hotel Sales
A hotel sale often comes with a PIP (Product Improvement Plan), meaning upgrades and renovations are on the horizon. YES!
Investment Breakdown: For Marriott or Hilton brands, renovations can cost at least $25,000 per room. This is on top of the purchase price, turning your $10 million property into a $15 million investment.
Impact on Operations: This can mean new amenities, addressing long-standing issues like HVAC failures, and improving guest experiences.
Example: If your property undergoes a $3 million renovation, everything from new furniture to upgraded systems might be included, easing operational headaches and boosting morale.
*Alert - also, the budgeted revenues and GOP will also increase for the next 5+ years, so become excellent at focusing on that growth and your reputation and job/income security will rise in the same way.
3. Navigating These Changes
Be Proactive, Not Reactive:
Ask the Right Questions: If your COO or owner isn’t sharing these insights, use your courage to ask. Understanding how these changes impact ADR, occupancy, and RevPAR can help you prepare your team.
Highlight Your Value: Be prepared to share ideas on improving the property or suggest new revenue streams like adding a retail market, a new menu or outlet or additional room configurations.
*One Hotel GM, convinced ownership to convert half the meeting space to a professional multi-media recording studio. It started with an idea and a clear business case.
4. Why This Matters: Building a Connected Team
By understanding these macroeconomic shifts, you can share this knowledge with your team, creating:
More Engagement: Teams appreciate being in the loop and understanding the ‘why’ behind changes.
Higher Retention: Aligned teams are more likely to stay engaged, reducing turnover.
More Fun: When everyone is on the same page, it turns challenges into collaborative opportunities.
Example: Use the upcoming changes to have a brainstorming session with your entire team on how to maximize post-renovation revenue. This keeps everyone involved and motivated.
Conclusion: Empowering Leadership Through Knowledge
*Stay informed, ask questions, and share what you learn. Understanding these economic factors and how they impact your property allows you to lead with confidence and clarity.
About the Author:
Adam Zembruski, a former Hotel General Manager, Management Company Executive, and current owner, asset manager, and strategic org-wide growth advisor, is dedicated to aligning the interests of ownership, management companies, and hotel operators. He is often hired as a temporary or fractional COO or even a hotel GM or Regional Director to bridge communication gaps, drive revenues and profitability and foster collaboration.
Adam has been a mess, a success and a mess again, and has lived the hotel life in the dark as an operator and in the light as an owner, and will be a mess again....yet is an optimist, believing this industry impacts the world in a unique, positive way, and that that successful operations start from the top and advocates for engaging property teams early and often, using frequent communication, feedback loops, and encouragement to optimize engagement and drive performance. He also loves run-on sentences and mixed metaphors.
Through his work with Hospiamo, a social enterprise, he is watching patterns form into a wave and is learning humbly to ride that wave. Adam believes that every hotel manager needs a coach - someone to support their mental health, educate, share knowledge and navigate the unique stresses faced by career service industry professionals. He envisions a future where a network, not a company, leads with collaboration and innovation to drive revenues, asset values, and loyalty, creating a community of empowered hospitality leaders.
Adam can be reached at adam@hospiamo.com - or by fax, morse code, telepathy.
Thank you to ChatGPT for the conversation, editing, proofreading and imagery....
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