Lessons Lived, Lessons Learned: Management companies plan for a brighter future post COVID

As the rollout of vaccines continues and travel restrictions are beginning to be relaxed, the seeming end of the COVID-19 pandemic is nearing. With this, management companies are now looking at the lessons they learned while operating during extreme circumstances to prepare for a much-anticipated and hoped-for upswing in travel and for the new challenges they may face.

“There is a lot of learning that has gone on during this pandemic,” said Ben Seidel, CEO, Real Hospitality Group. “Anyone you talk to would probably have a different set of challenges, but the same major ones were not unique to any part of the country—or any particular company.”

The early days of the pandemic caused management companies to make a lot of very tough decisions—from laying off and furloughing longtime employees to suspending or severely limiting operations at some properties. But as the pandemic continued, hotels began to adjust to survive, and to get into a groove to make their operations work.

“People talk about the new normal,” said Raul Moronta, chief commercial officer, Remington Hotels. “We are looking at it more that we have a long road ahead and we are trying to find the best way to add resources as revenues come in. This has been an interesting exercise to do that. We had a tough going for a few months and eventually we figured it out, got our footing and were able to achieve longer-term planning. As the year progressed, we started making a lot of decisions for the longer term to make sure that we remain viable and successful.”

Strengthened relationships

Relationships with both owners and associates were strengthened as communications increased because of the pandemic—and management companies expect that to continue.

“You need to go through difficult experiences to build meaningful relationships,” said Naveen Kakarla, president/CEO, HHM, formerly known as Hersha Hospitality Management. “Quite frankly, a challenge like this last year is going to drive you into one of two directions, and we decided pretty early on that our franchise operating model and culture required that we were incredibly transparent as to what we knew, what we were planning for and what we’re betting on. What I noticed is that all of our owners reciprocated in kind. We are much more aligned and available—not just in relationships, but even from a numbers and projections perspective—than we ever have been.”

HHM set up weekly and monthly check-ins with its owners and operating teams. “They are a bit more formal and have a lot more urgency than they ever have,” he said. “We have found that these meetings have enhanced our ability to make decisions quickly and to keep scrappy. I do imagine the high touch and high communication that was required in the earliest days are things that we are going to continue.”

During the COVID crisis, owners began to rely on their management companies and their knowledge of the ins and outs of the industry—and the numbers—more than ever.

That reliance began almost immediately as the pandemic first hit. Chris Russell, CEO, Spire Hospitality, like many other industry leaders, had to present his owners with the facts and projections needed to make some tough decisions. “We went to revenue declines literally overnight with cancellations,” he said. “We went through every single hotel, and in the matter of a few days, put together a best-guess forecast as to what we thought it would take just to stay open. We were very, very conservative because we thought it was going to be bad, and adjusted forecasts to show what would happen if we  suddenly closed a hotel.”

He continued, “We presented that to every owner, and we walked them through it, saying, ‘Here is what you are going to lose if we stay open and here is what we are going to lose if we close.’ We went over worst-case scenarios with our owners and made a decision. All of our owners were great and very supportive. They said, ‘Listen, we think there is more risk in closing, so we are just going to stay open.’”

As the pandemic continued, the management companies presented the owners with the data they needed to know about property performance. “Forecasting, particularly on the cash side, became an imperative, so our conversations that may have occurred once a month were now more likely once or twice a week,” said Joseph Bojanowski, president, PM Hotel Group. “The alignment around their objective, while it was always there, felt a little tighter and more communicative than it had been in the past. To some degree, it was mutual survival, so that formed a closer bond than we had in the past with a number of our ownership groups.”

Cash management was vital to that survival, as revenues were down. “Keeping [the owners] updated on what the forecast was for the asset was very important to them,” said Moronta, representing Remington Hotels, which in addition to its own properties is a third-party manager for other owners. “In a number of cases, they had to do refinancing. While you were not generating as much revenue, forecasting became extremely important, not for the revenue generation, but for the cash burn. We were in situations where most were funding the operation and we needed to be able to give them what was the bare minimum we needed to do to operate the asset.”

Kyle Hughey, EVP/COO, Charlestowne Hotels, said that owners relied on their team’s knowledge because management companies are constantly in communication with their on-property employees, which, he said, went from a five to a 10 in terms of level of communication. “We have made a real push to keep that going,” he said. “Where, historically, we had let property teams and operations directors maintain that relationship, when the pandemic hit, they needed to fill the corporate data team in. Our owners wanted to hear what we were seeing across our portfolios. It was just from a different perspective and a different point of view.”

Like many management companies, Charlestowne has already built the increased communications into its operation going forward. “We built this calendar just to make sure we are continuing those touches,” said Hughey. “Some of the owners really appreciated just knowing the industry norms or how the industry is doing. Our management company business is really about those relationships and it has allowed us to really deepen those.”

In addition to strengthening communications with their owners, management companies have reported stronger relationships with their employees because of the pandemic.

Aimbridge Hospitality invested heavily in its internal communications throughout the pandemic. “We instituted ‘power hours’ where we had calls seven days a week,” said Mike Deitemeyer, president/CEO of the company. “Any general manager could hop on the line and listen to the latest pandemic updates and ask questions. Part of it though, too, was understanding how to communicate in more flexible and different ways. We launched things like virtual property inspections. When we couldn’t get to a hotel, we could still ‘walk’ the hotel with the GM, understanding the opportunities, issues and challenges they face. We had an operations resources team working on various initiatives to make sure we were still doing what we needed to do and still supporting the hotels as they needed.”

At HVMG, the communication with employees went beyond just the daily operations of the business. The company realized that the pandemic was having a psychological effect on everyone. “The fear of the unknown,” said Mary Beth Cutshall, EVP/chief development officer of the company. “The ability to feel somewhat isolated… We really believe that it was more important than ever before to connect with each other and overcommunicate.”

The company also held a standing end-of-day call with its leadership. “Decisions were having to be made so quickly in the moment, and we really needed to not only share what the challenge might be and the best solution—working together on that—we needed to check in with each other,” she said. “We needed to make sure everybody was OK. I really think that helped tremendously, and the importance of communication is probably something that we will take with us after the pandemic.”

Spire’s Russell said that keeping connected with employees was extremely important during the pandemic, with the company holding its annual awards ceremony virtually on Zoom. “One of the things we had to do was have connections with the employees, especially because we didn’t want them to feel like they were alone in the field,” he said. “We did chats with various department heads and other managers in the hotel just to stay connected not only with our leadership team, but certainly with other line people in the field. That was great and is something that we are going to continue to do. When you couldn’t get to the hotel, keeping that connection made it special.”

Cross-functioning roles

While management companies increased communications with their staffs, many employees were doing more than what was in their original job descriptions due to extensive layoffs and furloughs. That being said, the firms found several benefits from their employees taking on those additional responsibilities.

“First and foremost, what we learned is that we have been incredibly fortunate with the team that we have, not just at the home-office level but at the property level,” said Daniel del Olmo, president/COO, Sage Hotel Management. “To put that in perspective, we found out that we have talented leaders in general managers, executive committee members, managers and supervisors, who were able to stretch beyond their immediate responsibilities. Think: the general manager taking on valet parking, taking a shift at the front desk or stripping beds to help out housekeeping due to the fact that we had to significantly reduce our operating expenses.”

Del Olmo said that those leaders taking on additional responsibilities has actually been a benefit in terms of retention. “Where in the past we might have lost some of these leaders because they were ready for a promotion and we didn’t have anything available organically, we now have been able to not only retain them, but give them a great opportunity to effectively have a wider impact. That was a massive lesson for us.”

It also helped the company get through this last year of the pandemic. “Fortunately, great talent definitely helps, not just from an expense standpoint, but from a retention, gross learning and development standpoint,” he said. “That translated into our RevPAR index across our portfolio actually growing 100 basis points year-over-year to 109.5. It is a testament to our teams really dive in and make the most out of the situation.”

HVMG’s Cutshall said that employees taking on different functions—from property engineers getting certified to take care of the pool to other employees handling landscaping—created value for the properties and helped the bottom line.

The cross-functioning roles of employees is something she said will continue. “It allows you to work with your talent and take care of needs as they come up versus a bifurcation of roles,” she said. “It is also excellent for development planning. People who want to have a career in this industry, being exposed to different areas of the hotel and understanding how they work helps teamwork overall.”

It helps from a talent hiring perspective as well. “If you have someone who can work in food and beverage and is familiar with the front office, having that flexibility and being able to flex and flow really is beneficial for the P&L, as well as the camaraderie and the morale of the property,” she said. “When someone understands what another team member does and how it benefits the property, there is a lot of good that comes from that.”

Spire’s Russell said that as they are hiring to fill positions, they are looking for people who can multitask. “Now that we have hired back, we are looking at different experiences,” he said. “‘Can you work the front desk? Can you work in housekeeping? We are not going to overhire right now. We are just going to be smart about it.”

Another benefit of employees taking on more responsibilities is that teams became closer to one another. “Our teams have become very close-knit, which is a very good consequence,” said Moronta. “In one of our hotels in New York, members of our front-desk staff are called curators to curate experiences. Now, every associate is a curator—we expect housekeepers to learn the front office system and front desk clerks to clean rooms and maintain lobby spaces and provide the breakfast offering. It is complete cross-training, a real team effort. The unintended consequence is that people are much tighter as a team. Turnover has been extremely low, which is really good. I would like to see that continue.”

Labor market

While no one wanted to lay off so many loyal and experienced employees, as companies are preparing for an upswing in travel, other companies have benefited from talent being available on the job market.

“We have added some really tremendous people in the industry that, quite frankly, we wouldn’t have had the opportunity to add had this not happened,” said Rich Russo, principal, Highgate. “We have looked at an opportunity to continue to build the organization all around. While we have experienced growth on the hotel unit size, where we have been very focused is on building that team. If we have had areas to improve, we have improved them, or we are making sure that we are superseding our growth with people. Ultimately, it is great people that execute on managing hotels, on growing your business, so we’ve been very focused on that side of the business, and it is something that we will continue to focus on.”

As companies are preparing for the return of travel to previous levels, they are concerned about a potential labor crunch, in terms of employees who were let go at the beginning of the pandemic returning and filling positions that will be needed to replace them. 

“One of the bigger challenges that we are going to be facing as an industry is that we permanently lost associates to other industries,” said PM Hotel Group’s Bojanowski. “When we are looking to rehire, there aren’t going to be as many hospitality associates, and to the extent that there are, we are all going to be fighting it out for them, whether it is hotels or bars and restaurants. Some of them are driving Amazon vehicles or working in call centers. Healthcare did pretty well through this, so some of them are working in hospitals or senior living facilities. They took our employees, and they are not coming back.”

Labor is a concern for Cutshall as well. “Talent is at a critical juncture in the industry for everybody,” she said. “We are very focused on supporting many activities that help our hotels in hiring for the rise in business demand that is expected.”

To help with the rise in hiring that will be necessary, the company’s HR team has created a comprehensive plan of tools for hotels. “It includes referral programs for new hires,” she said. “There is also a retention program that motivates existing team members.”

Cutshall said the company has hired more than 700 associates in the past six months, but in the next three to four months, HVMG expects the need to hire another 650 associates. “You can imagine the volume of processes and effort that goes into that,” said Cutshall. “This is just to stabilize our associates at the property. We are working very diligently on the tools to help at the property level, as well as the corporate level. It is also really imperative to us that we find the right mix of central and corporate responsibilities and property-level responsibilities.”

The potential of reduced labor may mean that the discontinuation of everyday room cleaning and breakfast buffets that came about because of the pandemic may continue. “We just don’t have the labor pool to bring back the original paradigm of cleaning stayover rooms and the massive amounts of labor to prepare and serve the select-service industry’s breakfast buffet,’’ said Real Hospitality’s Seidel. “It is the cost of it and, more importantly, is the lack of labor pool that is willing to work either in a hotel or, for that matter, anywhere as we compete with the federal government’s benefits to stay home.”

New technologies

In anticipation of the labor crunch and the erratic nature of occupancies, Aimbridge is beta-testing a program using gig technology. “In the near future, you will be able to work in an Aimbridge hotel, and if you want to get paid daily the way you would with an Uber or DoorDash or one of those, you will be able to take that option,” said Deitemeyer. “In markets where we have density—there are markets where we have 16 hotels—we are introducing what is basically a gig shift product, where you can work at one of our Marriott properties as an engineer, desk clerk or housekeeper, and you can go onto an app and you’ll be able to look at if there are extra shifts at other hotels in the market that Aimbridge runs.”

He said that the company was looking into the technology prior to the pandemic, but the current situation has given it urgency, adding, “We have to be more innovative in how we pull people into work and provide opportunities for people that are more flexible and different than what they have been in the past.”

Adopting new technology is one area that Bojanowski views as a huge benefit of the pandemic. “Our industry has a reputation of being extremely slow on the adoption of technology,” he said. “In the last year, however, we have probably moved through five years of normal technology adoption.”

The fact that guests adapted to new technologies quickly made it necessary for hospitality to do so. “Our guests started using digital check-in and digital keys to reduce exposure issues with humans,” he said. “They started using the apps for guest requests like towels. That adoption of technology by our guests has also caused us to accelerate our adoption of technology. Think QR codes in restaurants instead of menus. Around these guest-request systems, we are using artificial intelligence (AI) where 70-80% of the requests are actually being responded to by AI.”

Streamlining operations

The initial drop-off in occupancies and revenues meant that hotel operations had to be severely streamlined to keep costs to a minimum. Some of that streamlining will continue going forward.

“The other bucket of big learning is that you can effectively manage even more cost efficiently,” said Sage’s del Olmo. “It is fair to say that when times are good, there is not necessarily the right focus on looking at efficiencies. This past year, it was essential to look at all service contracts. It was essential to look at all F&B operating hours and all sorts of offerings that we had at the properties to see what was really essential to succeed in delivering that guest expectation, and to see how we could do that differently. That yielded better results from our operating cost perspective, but our guests from across our portfolio actually were comfortable with the fact that they wouldn’t get overnight housekeeping, and they understood why.”

That streamlining helped companies survive the pandemic and even do relatively well. “It is something that we always prided ourselves on doing, but we think that we have taken the operating model to places that we wouldn’t have thought of but for COVID,” said Highgate’s Russo. “We are in some markets that are running absolutely incredible ADRs now, where the flow-through on those changes is outstanding. We had some select-service hotels where revenues were down 20%, 30%, 40%, but profit was up. That was all based on how that hotel was running, what those service standards are, how we are using our scale across the platform in running these hotels. That is something that was a huge benefit to a lot of the growth we are experiencing in that we are scaling the organization to be able to run much leaner, much more efficient. I think it will really show itself in spades down the road from a profitability standpoint.”

Bojanowski said that though times will be getting better, the streamlining of operations will help management companies meet their financial obligation to owners. “We need to be able to contribute at a higher level to our ownership groups and they need to get in front of these deferred obligations,” he said. “They are going to need three or four points more of profit margin. We are going to do that through streamlining an operation, and we are going to get to streamlining an operation through adoption of technology.”

Looking ahead

Management companies have learned a number of lessons to move forward as travel returns, and some companies have launched specific initiatives to meet the challenges.

Cutshall said that her company is specifically using the lessons they learned during the pandemic to launch HVMG 2.0, including “improving market share and maximizing hotel performance and optimizing the internal processes, while reducing automating and eliminating non-value activities,” she said. “It is also identifying and installing optimum operating models for each of our hotels and this includes a focus on improved efficiency.”

HVMG 2.0 also includes better communications, incorporating business intelligence analytics to drive the company’s decision making and providing this information to its key stakeholders, which translates into improved reporting and further communications. “The lessons learned from how we approached operations of the past year has drastically changed how we are going to be moving forward,” she said. “We are excited about the next chapter. We are excited about what we learned and how much more efficient we are and how much more able we are to lean on technology automation and new automated operating models. It is going to be exciting.”

Bojanowski said that PM Hotel Group’s mantra going forward is “prepare to thrive.” Aldready, Sage Patel was promoted to the newly created role of corporate director of strategic initiatives to develop, manage and help implement programs that help the company’s owners.

Sage Hotel Management has made a series of strategic changes within its organization to “own the upswing” as the hospitality industry recovers, according to del Olmo. These changes include the organization of its portfolio of hotels into three distinct operating verticals, the appointment of VPs for each vertical and the expansion of the company’s growth and development team. The new verticals are The Upscale Collection, Sage’s branded focused-service hotels; The Premier Collection, Sage’s branded luxury, soft-branded and full-service hotels; and The Independent Collection, Sage’s portfolio of independent hotels.

“When we did our planning at the end of the year to look ahead, we knew that because we operate primarily in urban environments and the upper-upscale luxury categories both independent and branded, our trajectory in terms of recovery to pre-pandemic levels was going to take us probably until late ’23, early ’24,” he said. “We felt that there are two opportunities here. Out of every challenge there is always opportunity, and because we had a very solid organization—financially stable, 10 years of talent—with the ability to stretch and grow, we looked at two areas. We wanted to own the upswing when the business returns in 2021, how do we go about that? Secondly, how do we prepare for a period of what we thought will be accelerated growth.”