Hotel Parking Asset Management: Maximize the Value of Your Real Estate
By Joshua Miller Principal, Niche Advisors | October 28, 2008
As the hotel industry faces increasing supply, rising energy costs, and the resulting impact to national travel behaviors, hotel owners must look to every opportunity to maintain their bottom line. One method for doing so is to retain an Asset Manager - a hotel specialist who can provide the resources and expertise needed to maximize a property's cash flow and hence overall asset value. Such experts review every aspect of financial and operations management to ensure no profit-producing stone goes unturned by the property's management team.
While hotels spend tremendous time and energy looking for strategic ways to make the most of their operation, they often fail to look at the fact that the property sits in the middle of a large parking facility. This facility often takes up as much real estate as the hotel itself, but because parking is outside of the core focus of the industry, hotel parking facilities are rarely strategically managed. Utilizing an asset management approach for parking is equally as effective as it is for rooms income, and can often make a significant improvement to an asset's overall value.
Most hotel companies look at parking as an amenity. Service is the focus, and as long as customers are not complaining, the department is considered a success. It is for this reason that service-oriented line associates are often promoted to Parking Manager. While these associates may be able to ensure a pleasant guest experience, they rarely have financial management training despite being put in charge of what can be a multi-million dollar operation. Those companies which do emphasize financial management usually focus on controlling costs. By managing payroll, overtime, and liability claims, profit margins can be maximized and the management team considers itself successful.
What these properties fail to recognize is that parking revenue needs intensive revenue controls in order to ensure full capture. Consider the following conversation between a General Manager and his Front Office Manager. "Sir, unfortunately 15% of our guests were never charged for their rooms last night. The guest service agents forgot to add the charges at check in and I never caught it. Oh, and by the way, this has been going on since the last Front Office Manager was here. He was better at accounting than I am." This may sound like a far-fetched story for rooms revenue, but for parking it is commonplace. The difference is that the conversation rarely happens in parking because few hotels ever discover the problem. Because multiple players are involved in revenue posting and most of the non-guest revenue is paid in cash, hotels lose money on a daily basis to error and theft. We have seen revenue leakage rates varying from 5% to more than 50% of earned revenue.
In addition to revenue leakage, hotels miss opportunities by failing to use revenue management principals as they do in other areas of the property. Failing to charge for parking (or undercharging) in markets which support doing so is a prime example of this. Non-strategic discounting and "comping" of parking revenue also contributes to this loss. Some hotels have excess parking inventory and make no effort to market it to non-guest interests. Other hotels don't have enough inventory and pick the most convenient off site location rather than the financially beneficial one.
Many hotels realize that parking is outside of their expertise and chose to outsource their operation to a parking management company. In addition to providing financial expertise, an effective operator can bring flexible staffing options, traffic flow management experience, and the transfer of liability claims. For a large or complex operation, the fee charged by an operator is usually more than justified by the impact made over the long run. However, the lack of expertise that leads management to outsourcing often causes them to make poor deals with parking management companies. Many hotels never realize this because the improvements the operator generates over the hotel's prior internal management are so large. Taking an unbiased look at the compensation generated by the operator in a revenue sharing deal, or the corporate overhead "slid" through a management agreement can make the deal less appealing than originally estimated.