As a receiver and hotel management company, Lizanatay's objective is to maintain the highest possible value of the asset. Given that Lizanatay owns hotels itself, viewing things from the perspective of a successful owner makes this second nature. We will act in accordance with all powers and duties set forth by the receivership order including the periodic preparation and submission of reports to the court and any other party as directed by the court.
A hotel receivership requires a tremendous amount of full-time oversight to protect the asset appropriately. The following narrative is a brief description of some very basic areas of why a hotel requires intensive involvement by an experienced hospitality management corporation. Although it was written regarding an 82 unit property with an absentee owner that lost its flag, all these principles will apply. If the property has a restaurant or IS a restaurant, they apply many times over.
Receiverships vary in scope and can involve countless business decisions. Generally, a receiver has to make good, creative business decisions about an unlimited variety of potential issues that may arise. In some arenas, certain issues are predictable and therefore, a specialist in that area is advantageous. A receivership of an office building or an apartment complex might easily be handled by the receiver through charging an hourly rate and evaluating the property and management. If management is inadequate or for whatever reason opts for self-termination, the receiver can, without an extreme expense, handle the payment of a small maintenance and janitorial staff, collect some accounts receivable, some payables, and recruit replacement management. A hotel, on the other hand, has so many moving parts with opportunities for both improvement and loss prevention, full-time, intensive, managerial oversight is necessary. To handle this efficiently and at cost effectively, a well established team with intact systems must be utilized. With our extensive experience in Hospitality Management, we are very confident that the following areas will need to be addressed.
General – In all likelihood, with a failing absentee owner, there is an overall lack of personal interest, incentive, motivation and “ownership” by all staff because there seems to be no reward for them personally. Worse, the ownership itself doesn’t seem to care so why should they. This creates a myriad of problems and magnifies all of the following issues. With an absentee owner who has led their property to the point of losing their franchise or defaulting on loans, we can assume the worst of the worst.
Turnover – Turnover is extremely costly, especially in this business where turnover is already high. It distracts the General Manager from other duties because they are frequently concerning themselves with schedule changes, recruiting, interviewing and covering shifts. Sudden schedule changes lead to overtime. Often the General Manager of an absentee owner overpays staff in order to attempt to retain them. With high turnover, a department is overstaffed due to training hours. Among the highest costs of turnover is that inexperienced staff is less productive and makes mistakes. At the front desk, this is critical since a few rooms sold at too low of a rate or lost rooms due to not understanding how to sell, can add up quickly.
Overpaid/Overstaffed – Almost always, in the situation of an absentee owner with a neglected property, staff is overpaid, and departments carry too many hours due to inappropriate scheduling and poor productivity. If the average person on a staff of this size is paid $1 above the appropriate level for full-time hours, the annual cost equates to over $40,000 annually. If the average of 16 hours is accumulated each day in unnecessary hours, which can easily occur, the cost is over $58,000 annually.
Theft – There is often theft of product and money by many staff members. It takes experience in knowing how these often creative ways of stealing are accomplished in order to prevent it.
General Manager – One of the primary functions of the management company is to manage the General Manager. The general manager is often one of the overpaid, especially for their skill set. General Managers of a property this size often have very little to no knowledge of accounting and revenue management. They are often discouraged by their current owner’s lack of support and the decline of the property. They are often actually the one RESPONSIBLE for the decline of the property. They usually know how to run the front office PMS (property management system) and guide staff at varying levels of competence. They should (but often don’t) know brand standards with which to comply. They may or may not have knowledge of maintenance. They may or may not (usually not) be inspecting rooms for quality. They usually place orders for supplies but rarely price compare or complete inventory to determine shrinkage. They total time cards but don’t usually look for discrepancies in scheduled times vs. punch times. Suppose, a front desk agent fails to show up for a shift and the general manager is unreachable. Who handles that if it is not a management company? When a hotel is branded, the general manager is regularly absent due to travel for franchise required training and meetings in which case someone qualified will have to step in.
Systems / Protocols – A good management company utilizes proven systems with specific and measurable standards and protocols with which to implement countless controls and procedures. All of these are preexisting and are easily trained, evaluated and maintained. Submitting supply orders to the management company’s purchasing department is an example. The purchasing department shops the order, checks the order against budget pace, and has the order delivered. There is a system for maintenance projects to track what is required, the condition of each room, what should be assigned in-house, done by the management company’s engineering department or outsourced. There are step by step scripts of how to quote rates and make reservations for optimal sales at the highest rates at the front desk. There are housekeeping protocols to hold accountable time spent per room as well as quality and methods by which to meet those requirements. Another protocol is a step by step method by which to handle guest complaints.
Accounting – It is unlikely that there is a budget or an appropriate, usable budget in place. A budget and adherence to the budget is a critical function of the management company. This involves daily accounting of what costs apply to which line items in order to know whether or not the current practices are being upheld to budget. It involves a purchasing department which has a handle on the best pricing for everything ordered due to numerous brands, volume buying, personal relationships with account managers and constant price negotiations. General accounting for a hotel has specific nuances like the guest ledger which is a second accounts receivable account, changing on an hourly basis for guests currently checked in to the hotel. Without a qualified management company, accounting often lags by months, delaying the timely addressing of red flagged areas. It is extremely rare for a property manager of this type to have a broad enough understanding of accounting to do it at all, let alone properly. Certain functions like a statement of cash-flows, I have never seen done at this level. This report is critical to understanding and forecasting cash usage and needs and identifying potential theft.
Sales – A good management company has the time and expertise to conduct direct sales for a property while an independent manager does not. This can amount to a great deal of revenue. Securing a contract with only 4 rooms per night at a rate of $60 equates to $87,600 per year.
Front Desk/Revenue Management – Literally thousands can be lost in a single day of front desk mismanagement. Reservations are taken over the course of many days, sometimes a year in advance for special events. To illustrate, consider the following, conservative estimation of mismanagement. If, over the course of 90 days prior to the end of the day of arrival, only 2 reservation calls fail to be converted at a low rate of $79, and the total occupancy of 50 rooms has an ADR of only $3 lower than it might otherwise have had, this equates to almost $10,000 per month or $120,000 per year.
Housekeeping – Housekeeping’s primary challenge is maintain quality at the appropriate cost. This requires the right protocols and training to those protocols. Some of the aspects that cause housekeeping to lack productivity are as follows: Too many housekeepers for the number of rooms rented, poor training, poor accountability, low linen inventory, poor hotel maintenance, inadequate tools, inappropriate staffing in laundry and numerous other reasons. If each housekeeper has too few rooms to clean, they will go more slowly because they have more time to complete their list of rooms. There is added time to stocking carts times the number of housekeepers, clocking in, taking breaks (usually unauthorized) which they take at liberty since they have plenty of time due to a short rooms list. Often, there are too many laundry attendants or when it isn’t busy enough, there should be no laundry attendant at all because the head housekeeper has time to both inspect rooms and do laundry. If there are too few linens in inventory, housekeepers are unproductive because they have to wait for the inventory they have to wash before they can place it in their rooms. If these linens require replacement, a management company will know which linens to buy at what volume to get the right pricing and maximize productivity without overstocking. They will also already know which linens will be accepted by the franchise by which they are working towards obtaining so that they will not have to replace. If the labor cost in housekeeping is causing a time per room increase of 15 minutes (which wouldn’t be surprising), at 50 rooms per day, this equates to $41,000 per year or over $3,400 per month. This is not including the cost of an excessive pay rate if that is also an issue.
Maintenance – In a limited service property with failing absentee ownership most maintenance projects are outsourced. A qualified hotel management company has engineering staff available to handle projects in house. An example that we recently encountered is a property that, prior to take over, the owner had replaced the boiler at a cost of $20,000. We have repeatedly used a superior, more energy efficient system at a cost of $3,500. Another example is that PTAC units are routinely replaced at a cost of $600-$1,000 when our experienced staff finds that more often than not, the problem is a circuit board at a cost of $60. The nature and amount of these kinds of instances vary, but a savings of $10,000 from poor to proper management would easily be attained in a year.
There are other countless areas for asset protection involved in hotel property management. Those listed above are only a few examples. I believe this brief outline illustrates the involvement required of a hotel receiver.
Below summarize the total potential costs of these examples: