This year has seen continued transformations to the European hotel real estate sector. Bolstered by a buoyant economy and promising RevPAR and ADR figures, hospitality real estate in Europe has become an increasingly attractive investment opportunity for overseas investors. Money has been pouring in not only from the Middle East, but we have also seen an ever increasing number of U.S. investors setting their sights on hotels across the pond.
Large hotel portfolios were up for grabs as the major hotel management companies, such as InterContinental Hotels Group and Hilton Hotels Corporation, continued to offload their hotel assets in Europe, in order to pay down their debt, fund their continued expansion and also in order to concentrate on their core competency of managing hotels. As Host Hotels set up shop in the U.K., U.S. investment banks such as Morgan Stanley increased their presence, and The Blackstone Group flexed its muscle, one couldn’t help but feel that the European hotel industry was shedding its last cobwebs as it assimilated the more pragmatic view of hotel real estate that has been prevalent in the United States.
In tandem with the proliferation of hotel-owning entities in Europe, there is an ever-increasing need for people to manage these portfolios. At our London office, we have witnessed a substantial rise in inquiries pertaining to hotel Asset Manager searches. The job descriptions range from the simple owner’s representative, to the “desktop” Asset Manager who plies through P&Ls, to the hands-on Asset Manager who, in addition to going over the finances, will actually sit down with the property’s general manager and make very concrete suggestions to improve revenue generation and profitability.
The inherent problem in filling these positions is the lack of a true hotel asset management tradition in Europe. In contrast to the United States, European hotel companies and investors have been slower to realize the benefit of employing a middle-man between the owner or owning-company and the on-property General Manager. By concentrating on maximizing every aspect of profitability, from both a real estate and operational perspective, the Asset Manager can add tremendous value to the bottom line. This position also represents an important control element to the actions and decisions of the GM. In those cases where the management company and the owner are two separate entities, it is important to make sure that the maximum possible profitability is achieved, as the GM will sometimes be more concerned with high occupancy rates in order to achieve higher market share for the operating company.
An obvious solution to the lack of local talent would be to tap into the large pool of hotel Asset Managers that is available in the U.S. However, there is a certain cultural/language barrier to cross-Atlantic transfers. Hiring companies are very intent on employing people with the requisite language skills, the cultural understanding, and the region-specific market knowledge to be effective in a marketplace where English will only get you so far. While Americans may have the necessary technical expertise, few have the linguistic or cultural ability to make the move.
Even if the employer is prepared to compromise on market/cultural knowledge in favor of technical skill, it can be hard to convince Asset Managers in the United States to make the transition to Europe, especially for a long-term move. The situation is not helped by the recent fall of the dollar and the fact that Europe’s two main capitals, Paris and London, consistently rank higher than American cities on cost of living indices.
Faced by the lack of European hotel Asset Managers and the difficulty in sourcing American talent, many of the bigger funds and investment banks have been assigning their general property Asset Managers to look after their hotel investments in Europe. The problem they encounter, however, is that they do not have the necessary industry-specific knowledge to address the variety of operating and reinvestment issues inherent in hotels. The plethora of different property types and increasingly popular inclusion of shared ownership and residential elements to new hotel projects necessitates an in depth knowledge of this specific asset class.
So where will Europe’s future hotel Asset Managers come from? Consider these options:
- There are those Europeans with an operational background in hotels who may at some point have transitioned from working for one of the big consulting companies to more dedicated hotel asset management opportunities in the United States. These people may be looking to return to their cultural roots, or could be enticed by the opportunities for career growth that are currently opening up in Europe.
- The hotel real estate consulting companies in Europe may also offer good prospects. These people certainly have the necessary market knowledge, hotel expertise and financial acumen, although there may be a certain learning curve to consider in the move from valuations, feasibility studies and transaction advisory services to incorporating the owner’s viewpoint in dealing with hotel properties.
- There is also a certain pool of talent within the big hotel management companies’ European offices. Some of the people who were taking care of capital allocation, during the times when hotel management companies still owned many of the hotels that they managed, could make the transition to asset management for the owning company. Again, there is a certain change in mindset necessary for this transition.
- Some hospitality professionals have anticipated this change in dealing with hotel real estate in Europe. Accordingly there are a small number of companies in Europe that conduct hotel asset management in the American mould. A quick Google search would reveal several more that claim to offer professional hotel asset management services but these often turn out to be hotel veterans offering perfunctory advice on a case to case basis. Thus, while caution is advised, the necessary scrutiny can lead to some very good prospects.
Finding good hotel Asset Managers for European companies is not easy and will not become easier in the short to medium term, but it is also far from impossible. By pursuing the avenues mentioned above and employing a little creativity in sourcing candidates, we believe that every open position can eventually be filled. As we come to the end of this year, there appears to be no slow down in hotel transactions and the demand for hotel Asset Managers is only superseded by the demand for Hotel Developers. We can definitely foresee this demand increasing over the next year, thereby offering a new potential career path for those qualified.