When I was General Manager of a hotel and I would tell non-hotel people that we had a sales team, I would often get the question, “Why do you have a sales team? Don’t people just call up and make a reservation?” It was a great question because to an outsider, the process of selling rooms in a hotel is limited to their experience of booking a hotel room. Similarly, I have people ask me what I do for a living, and when I say I am an asset manager, they reply, “Doesn’t the property already have an operator?” Let me see if I can shed some light on that question.
I joined PEG Companies as an asset manager in December of 2019, and although I had researched what that position entailed, I was not prepared for the complexity of what the job really involved. My first six months was the proverbial drinking from a fire hose, and truthfully, I was probably just as effective only internalizing a small portion of the information that was being thrown at me. I think that it took me the better part of nine months to get a handle on the complexity of the position. The long and short of it is that I oversee each property from an owner’s perspective and try to maximize the value and return of the asset for the ownership/investors. But what does that mean?
As a liaison between ownership and the asset, an asset manager must be familiar with all the related legal documents including:
- Operating Agreements: These detail the organizational structure and ownership of each asset. They describe the responsibilities and benefits of owning an asset including finances, obligations, dissolution, and procedures.
- Management Agreements – These describe who operate the property and what the expectations of that management company will be including fees, responsibilities, and reporting, and assignment of duties between ownership and operator.
- Franchise Agreements – These detail the expectations and services provided by the hotel brand (Residence Inn, Holiday Inn Express, etc.) including the term, fees, reporting, and a plethora of legal terms.
- Loan documents – These include all the terms of the loan including rates, maturity dates, reporting, covenants, penalties, guarantors, and definitions of all the details.
Each of these documents can range from 20 pages to well over 100 pages, so the key is not to memorize the information but to become knowledgeable about the key covenantal obligations. Those documents listed above are just a portion of the various documents I study daily, but they are also among the most important.
A knowledge of the documents is only one key to an asset manager’s success. These are only tools to help an Asset Manager make decisions. The rest of an asset manager’s job is strategic in nature and centered on maximizing the return to the investor. That means looking at things from a macro level but also knowing when to dive into a micro level.
Monthly, good asset managers review the operating and LLC-level financials and analytical reporting of each asset as well as challenges the operator on key variances or areas where there may be opportunities to improve performance. It is important to note that we are not always seeking change but seeking to understand. We may suggest that an expense item is not in line with industry standard or other like-branded operations, or we may suggest that we feel there are occupancy opportunities; however, it is up to the operator to decide how to get from point A to point B. We only help set the goals. From an ownership perspective, it is much more important to understand where we are at from a cash flow perspective than where we are from an NOI perspective because there are many costs that are booked below the operating profit such as debt service and partnership costs.
Asset managers also handle reporting duties and assist with providing investors commentary addressing how the assets are performing and strategies related to the properties. This includes searching for savings in real estate or income taxes by working with third parties who have expertise in the area or looking for additional revenue streams that fall outside the operations of the asset like leasing rooftop space or other ancillary income. Due to COVID-19, 2020 meant doing more with less including looking for programs that offered government assistance and supporting those efforts like PPP funding or finding government grants. While these efforts were magnified during the pandemic, there are always opportunities out there to locate non-traditional sources of revenue.
The asset manager also handles inquiries on potential asset sales and analyzing whether it is the right time and price to sell. This requires a knowledge of each market that we have a presence in, the ability to forecast into the future, and working closely with many other teams within our company to present estimated returns based on our analysis. It also requires understanding the desires of ownership. Based on our findings, we simply make recommendations or offer alternatives to ownership.
Being an asset manager requires that one be somewhat of a renaissance person but often may be better described as a jack of all trades. Though I have only been in my position for 15 months, I have experienced more growth and knowledge acquisition in that 15 months than in any other time in my career. An asset manager is responsible for a property’s full life cycle – cradle to grave.
Finally, here is the most important thing that I have learned about being an asset manager: My success depends on those around me. It would be impossible for me to be successful in forecasting without a strong finance team that continually supply me with updated information. It would be impossible to negotiate with banks or understand the minutia of lending terms without our Director of Debt who understands the banking world. My ability to understand where we are at from a cash standpoint would be impossible without dedicated and competent accounting personnel. Lastly, a strong relationship of trust with the property management company is essential to continued financial performance improvement. Being willing to listen to and learn from each stakeholder within a company is the key to being successful as an asset manager, and the saying that “you are only as good as your weakest link” certainly applies to the position of an asset manager.
So, if one is looking for a job that is multi-faceted, requires attention to detail, and the success of which depends on the entire team, an asset management position is the right job for you. Each day is challenging and, most of all, rewarding.