Four Critical Components to Hospitality Real Estate Investment

Lausanne October 5 2018

Each hotel is a real estate asset. A student of hospitality business, therefore, must master real estate competencies. Learning how to work with numbers is an essential pre-requisite to claim a leadership position in the industry. These were some of the practical insights shared with the students of EHL by Barry Bloom, Ph.D., the President and COO of Xenia Hotels & Resorts, Inc., a leading hotel REIT listed on the New York Stock Exchange.

Dr. Bloom is as much academically inclined as he is an astute industry executive. This was easy to gauge when I met him earlier this year for the first time at the American Real Estate Society Conference, a leading academic conference. He graciously accepted the invitation to visit EHL and deliver his lecture.

Barry also announced that the best hotel investment analysis project from EHL this semester will earn a certificate of recognition from Xenia.

His decorated career shows a fine balance of research orientation and deep industry insights. These qualities, naturally, kept the audience riveted over the course of the hour-long talk.

He stressed four critical components of hospitality real estate investment management:

1.      Acquisitions: The Mantra of “Buy Low, Sell High” is the key to prudent asset acquisitions. Operating fundamentals are as critical to acquisition decisions as is the potential for price appreciation. One must shun acquisitions that are driven primarily by ego. The bottom-line is to identify assets with strong upside potential.

2.      Operations Oversight: Asset management entails efficiently “managing the managers”. Rigorously structured activities and ongoing, careful analysis of each hotel in the portfolio ensures generating optimal value from the owned assets.

3.      Capital Expenditure: Beyond the regular “reserves for replacements”, a careful budgeting for capital improvements to the owned assets may lever the returns up. Such improvement plans, however, must be based on a strong vision and clear evidence that marginal returns will increase over time.

4.      Disposition:  After acquiring assets and improving their performance, their disposition is a critical strategic decision.

Students of hospitality business should learn as much as they can about these four areas and how they relate to each other. Developing spreadsheet models and becoming increasingly comfortable with numbers is an essential first step. A good investment manager has a strong handle on valuation methods, the profit & loss statement and benchmarking reports.

Barry briefly described the history of Xenia which was of great interest to the students who were just introduced to REITs this semester. More importantly, he also offered some softer advice to students:

• Understanding the Time Value of Money is a key to success.
• Written communication, in particular, is critical. It is extremely important to review and proofread everything before sending it to anyone.
• “Life is a Marathon, Not a Sprint,” and one must not be afraid to take the “road less traveled”.
• Although one is responsible for one’s own career management, it helps to find mentors.

In our lives, we are faced with things that matter and things that we can control. These two sets of “things” have very little in common. We must focus on the intersection of the two.

More about Barry Bloom, PhD at: https://www.xeniareit.com/executive-officers/