Because of its operations-intensive nature, hotel real estate has traditionally been more of a hands-on proposition for investors. Even in times when the national economy is going full steam - with office, retail and apartment owners enjoying the fruits of record high occupancies - hotel investors have a unique set of concerns. These days, much of the concern revolves around recruiting, retaining and training the labor necessary to keep hotels up and running.
The problem with recruiting Finding people is a difficult task in what is generally regarded as a healthy industry. "The hotel business is doing well," says Lynda Schrier Wirth, head of New York-based Schrier Wirth Executive Search. "Even though the stocks are generally down, there is still a lot of new growth and development in the industry, and a lot of demand for qualified managers," she says.
Wirth, whose company has successfully placed people in management positions and at individual properties for White Plains, N.Y.-based Starwood Hotels and Resorts, New York-based Ian Schrager Hotels and Atlanta-based Bass Hotels & Resorts, admits that "Qualified people are increasingly hard to find - and keep."
While some companies may find the difficulty in finding employees unsettling, they should take comfort in the fact that the problem is affecting most companies throughout the industry. "[Finding employees] is a huge problem for our industry," says Robert E. Slater, CHA, chairman of Washington, D.C.-based American Hotel and Motel Association (AH&MA). He is also founder of Oklahoma City-based Southern Hospitality Inc. Slater's company has 15 hotels in 11 states scattered throughout the nation, "and there is not one hotel in this portfolio that isn't having problems finding qualified people to work," he says. "It's a problem that reflects the low unemployment rate you are seeing in almost every market in the country."
When the unemployment rate goes down, unfortunately, companies start to see more pressure on their wages. "What it really comes down to is that there are more jobs than there are people looking for jobs, a situation which is generating a lot of upward pressure on wages," says Arthur Buser, senior vice president of New York-based Jones Lang LaSalle Hotels, speaking from his office in Los Angeles. "Especially with the growth of the high-tech industry, there are a lot more choices for talented people available in the marketplace than there used to be," he says.
At the same time, this is not a problem the hotel industry hasn't faced before, says Buser. "This is a cyclical phenomenon that the industry has gone through every time the national economy booms," he notes. "The hotel industry always suffers labor availability problems during periods of low unemployment," says Buser. "When the economy slows, unemployment increases, and people start getting laid off - then the problem always eases."
In an increasingly diverse national economy, the hotel industry has to compete for employees in ways it hasn't in the past, says Todd Giannoble, vice president of strategic services for Dallas-based Bristol Hotels and Resorts. "If you look at the way the industry operated five to seven years ago, you realize that hotels were really just competing with each other for employees," says Giannoble. "But nowadays, especially with the recent technology boom and unemployment at an all-time low, the hotel industry finds itself competing with a broader range of employers."
This phenomenon has significantly changed the labor environment in which hotels operate. "Whereas we used to make sure we were competitive with our industry peers when it came to wages, benefits, training, employee development and other factors, now, we must make sure we are competitive with companies like Dell Computer Corp.," says Giannoble. "It is increasingly difficult to find and keep good people in the hotel business because there are so many employment options open to people."
The hotel industry is responding to this challenge in a number of ways, adds Slater. "Operators are getting more creative," he says. "They are doing things like offering current employees bonuses for bringing in new people, as well as making more use of headhunters and search firms for management-level personnel."
Finding labor is a particularly high-profile concern in the upper end of the hotel marketplace, says Arthur Adler, managing director in charge of the Lodging and Leisure Group of the New York-based Sonnenblick-Goldman real estate investment-banking firm. "As you move 'upstream' in terms of quality level, into the luxury/first class/full service/resort hotels, you have more employees, so your labor issues are magnified," says Adler. In the limited service and extended stay segment, the number of employees per room are substantially less, Adler notes, which result in fewer problems overall.
An issue for investors Relative to other forms of real estate, the ability to find employees and other labor problems are big issues for hotel investors, adds Adler. "When you are acquiring a hotel, you are in factbuying an operating business where labor is a major factor. It's right up there with marketing, expense controls and everything else associated with the business of putting heads in beds," he says.
Investors who understand the major role labor issues play in hotel operations have a distinct advantage over those who are less enlightened. "Labor is a such a large component of a hotel's expense structure," says Adler, "If you are an investor who aligns with a very strong operator, you can take a property that may have been operationally 'broken,' fix the labor problem and turn a potentially poor investment into a strong one."
Adler cautions against ignoring the nuances of today's labor market. "In many markets that operate in a union environment, wage rates are not really the issue; it is the application of work rules that cover each employee's job function, as well as productivity standards," notes Adler. "If you don't understand these kinds of issues, you could be in for a lot of surprises," he says.
Finding the right people In an economic environment where the nation's unemployment rate fluctuates in the 4% range, finding qualified people is tough in all businesses, says Michael Leven, CEO of Atlanta-based U.S. Franchise Systems. "Labor supply is an issue for everybody," says Leven. "It's a little easier for hotels, because the jobs are usually a little nicer. But it is still difficult to find qualified people to work when unemployment rates are at 4%, especially in areas around cities such as Chicago and Atlanta, where you have a lot of economic growth taking place."
With labor a scarce commodity, hotel operators are having to dig a bit deeper into their pockets to keep their properties staffed. "The cost of hourly employees is going up," says Leven. "You are now talking about paying hourly wages that are hitting $10 per hour - for people you used to pay only $3 or $4."
While the unit cost of labor is going up, the overall need for staff in at least some aspects of hotel operations is less. "The number of people it takes to run a hotel has decreased over time," says Southern Hospitality's Slater. "Technology has enabled us to accomplish a lot of this by allowing us to be more efficient at checking in people at the front desk and making the night audit something that can be accomplished by the touch of a button."
However, there's a lot more to a hotel enterprise than the front desk and the night audit, which leads most hoteliers to invest resources in the systematic process of recruiting talent. For example, Bristol Hotels puts a lot of emphasis on its on-campus recruiting program. "We have a very well-respected, well-established campus recruiting program that we are constantly expanding geographically," says Giannoble.
It is important, he notes, to match the geographical preferences of the student recruits with the labor needs of hotels. "Too often, there have been a lot of large players in our industry that have essentially taken kids off the campuses and 'coerced' them into moving to places they really didn't want to go," explains Giannoble. "In today's environment, you just can't do that. You've got to make sure the individual feels in charge of his or her destiny." he notes.
This is especially true for those recruits just coming off campus and entering the workplace for the first time. "After being at college, the transition from campus to work environment is difficult enough for a new graduate, without transplanting them into an area where they won't be happy," adds Giannoble.
Smart hoteliers are also doing more recruiting via the Internet, says Giannoble. "The companies that will continue to be successful over the next five years will be those that really start to leverage the Internet through 'e-recruiting,' which is absolutely critical as we move forward," he notes.
The basis of e-recruiting is employment-based Websites, such as Monster.com, where employers can post available jobs. "These sites make the recruitment process virtually seamless," says Giannoble. "And if an employer looks at the costs associated with e-recruiting at these sites, they'll find it's possible to have a year's worth of unlimited job postings for the same price it costs to run two or three weekend's worth of newspaper ads. And they'll reach a lot more people in the process."
Retention strategies A tight labor market also means that operators are doing more these days to keep their employees happy, says Michael Leven. "The front desk and the housekeeping positions are the two most difficult positions to fill, and the two hardest ones to keep people in," he notes. To retain these employees, he says, "Manage-ment really has to work hard to develop programs that address their concerns, such as flexible scheduling, split shifts and other modifications in work rules."
In a market where members of the labor force have a wealth of employment options, many hoteliers are focusing on a variety of strategies designed to retain their existing employees.
According to Anand Rao, director of organizational development for the Atlanta-based Ritz-Carlton Hotel Co., the company has significantly reduced its turnover to less than 30%. Rao credits a number of factors for this low level of turnover including fine-tuning its selection process. "We have refined our employee selection processes to make sure we bring in people that truly embrace our philosophies and what we stand for, so they can be highly successful and get personal satisfaction in doing their jobs," says Rao.
Additionally, an in-depth, first-year orientation process makes sure new hires are thoroughly integrated into the Ritz-Carlton way of doing business and treating guests.
While companies such as the Ritz-Carlton are seeing a relatively low turnover rate, it remains a reality that employees will leave. When they do, it can cost a company - both on the personnel side and the financial side. "When employees leave, you are typically going to end up paying a 10% premium or higher to get someone new with a similar skill set - if you can find anyone at all," says Jones Lang LaSalle's Buser. This kind of financial penalty hits hoteliers hard in a lot of markets, he notes.
"Half of the markets in the United States are not going to experience revenue per available room (RevPAR) growth of much more than inflation - somewhere around 3.5% to 4%, this year," says Buser. "But at the same time, I would say that most hotel employees' wage increases are going to be around 4% or better. Anytime you have expenses growing faster than your top line - that is very bad news."
Training angles In addition to finding the right people and making an effort to retain them, hoteliers also have to train their employees to do their jobs correctly and efficiently. Several companies, such as Choice Hotels, have employed creative approaches.
The Silver Springs, Md.-based company has taken advantage of an advertising partnership with consumer goods giant Cincinnati-based Procter & Gamble Co. to provide housekeeping personnel at its Econo Lodge brand with enhanced training. The "Mr. Clean Housekeeping Program," featuring the well-muscled symbol of P&G's flagship cleaning product, was designed as a part of a marketing campaign to promote the cleanliness of Econo Lodge rooms, according to Choice spokesperson Tony Lappas.
"[The campaign] started out as a creative method of co-marketing for Choice and Proctor & Gamble, which is a pretty common strategy these days," says Lappas. In addition to using the Mr. Clean icon, P&G also provided training to the Econo Lodge housekeepers nationwide, "enabling us to advertise that we have both cleaner rooms and certified housekeepers," he says.
All Choice employees receive training at the company's new Learning Center, says Pat Murphy, senior director for instructional design at Choice Hotels. The 13,000 sq.ft. learning facility is used for owners, licensees and general managers. "We orient them toward all the services that Choice provides for them, and we familiarize them with our consistency standards for all our brands," says Murphy.
Choice also runs a variety of training courses for employees and licensees on an on-site basis, or in one of several regional facilities. For licensees, the company offers a course known as Choice Operations Revenue Enhancement (CORE). The company also offers training courses for on-site employees in areas such as housekeeping, maintenance, and customer service, on an as-requested basis.
Marriott International is starting its recruiting and training efforts early on. In the company's hometown of Washington, D.C., high school students interested in the hospitality industry can take advantage of training offered at the Marriott Hospitality High School, the nation's first four-year public high school dedicated to the hospitality industry.
Named for and partially funded by the J. Willard and Alice S. Marriott Corp., the school is open to local residents of high school age and is tuition-free. Students are placed in internships in restaurants, hotels and other hospitality settings in the 11th and 12th grades in addition to their classroom work. The school guarantees all students who successfully graduate either a job or scholarship assistance.
Whether it's recruiting a competent workforce, retaining existing employees or offering incentives to stay with a company, it is clear hotels have their work cut out for them. Those companies that adopt today's methods are the ones that will stand out in the crowd.