Entrepreneurs making their first foray into the hotel or commercial property real estate industry may not necessarily know what they are getting themselves into. Hotels and other commercial properties are more than just the physical brick-and-mortar building. Often, operating these structures also involves managing the hospitality business that comes along with it — an entirely unique realm of a real estate venture that combines the management of both people and property.
Due to the number of working parts involved in a successful hotel or commercial property, many entrepreneurs just starting out may not know where to start or where some of the pitfalls may be. To help you navigate a new hotel or commercial property acquisition, we asked members of Forbes Real Estate Council to explain the one thing people should know about managing such a property before they start. Here’s what they had to say:
Members share a few things hotel and commercial property owners need to know when first starting out.
Photos courtesy of the individual members.
1. Focus On Your Strengths
People new to managing a commercial property should consider outsourcing or employing a proficient management staff. Hiring help can offer numerous advantages, including allowing an investor to focus on their strengths and scaling the business. Properly managing an asset for maximum returns and peak performance is a specialized skill and should be considered prior to acquiring an asset. – Adrian Provost, LEVEL
2. Make Sure You Set Aside Enough Time
Something that many people underestimate is the time it takes to figure out the expenses and who is responsible for them. On a tripple net lease, the tenant will pay everything but the landlord has to figure out their share of all the costs. How the utilities are divided up, how the parking lots are maintained and picked up, who handles exterior maintenance, etc. all need to be figured out. – Mark Ferguson, InvestFourMore
3. Expect The Unexpected
Even when you plan meticulously, the unexpected can occur. One of the most important things new managers should do is account for the unknown. Operationally, this means implementing an impact assessment process to identify potential issues in advance, and then building contingencies into both cost and schedule so that critical budgets and deadlines aren’t jeopardized. – Kimberly Yeh, BENA Capital
4. Have Lots Of Back Up
Running a hotel or commercial property can be quite problematic. Having multiple trades and an auxiliary property manager that you can readily deploy is crucial. The same goes for extra financial resources: Remember these are commercial properties, so the wear and tear on them is tenfold to regular residential wear. Fixing, drywalling and painting will be a weekly routine. – Chris Ryan, BEYOND Properties Group / eXp Realty
5. Know Local Ordinances And Laws
For apartment investors, it is critical that you thoroughly reviewed local, county and state landlord-tenant ordinance or laws. What are the security deposit rules? What are the eviction rules? – Lee Kiser, Kiser Group
6. Analyze, Audit And Compare Expenses
Analyze all the expenses and vendors when you take over management. Gather at least three to five quotes for vendors, as the cost difference can be tremendous. For example, we had one property where our highest quote for the sign repair was $60,000 and the vendor we ended up using offered the same work for close to $15,000. – Catherine Kuo, Elite Homes | Christie’s International Real Estate
7. Have Substantial Capital Reserves
Everything is bound to cost you more than you think, take longer than you think and profit you less than you think. So, have some substantial capital reserves. You need to be able to float daily holding costs and cover emergency expenses, even if your tenants are slow on paying and delivering the cash flow. This can be raised through lines of credit, partners and real estate syndications. – Kent Clothier, Real Estate Worldwide
8. Make Sure Managers Know Who To Call, And When
It is imperative that anyone so honored to manage another’s property know who to call when necessary. You have a nice cozy chair and desk. You are the boss. Now, who do you call when there’s a problem? At what cost? Problems come up; some can be contained, others mean call in the troops. You have to know what warrants action and when. Review vendors lists. – Michael J. Polk, Polk Properties / Matrix Properties
9. Provide A Positive Experience
When managing an apartment building, office building or hotel, providing a unique and positive experience to your residents is key. In an age where differentiating your property is becoming more difficult, residents are seeking positive, enriching experiences from their surroundings. Enabling technology can help, but active place-making is key to unlock value for your community and bottom line. – Benjamin Pleat, Cobu (formerly known as Doorbell Communities)
10. Balance Room Rates And Occupancy
The difference between a hotel and any other type of real estate is the fact that a hotel room has a shelf life of 24 hours. Hotel operators must resell rooms daily. Once a room goes vacant it can never be recaptured. A hotel operator must bring the expertise and knowledge of revenue management. Maintain a balance between occupancy and room rate while maximizing revenue or RevPAR. – Gary Isenberg, LW Hospitality Advisors