What do NOI and sex have in common?

I’m pretty sure all of us, either as parents or as young teens, have experienced that uncomfortable situation when you had to discuss sex. As I’ve gotten into this blog “thing,” I’ve found myself doing more reading of blogs and news articles, and I think I’ve discovered the equivalent of “sex” for the hotel industry: NOI. It’s on everyone’s mind, but no one wants to talk about it.

I made this discovery in a roundabout way. At the ALIS conference in January I talked to a lot of folks and asked them what was the most important factor in running/owning a hotel. I got a lot of great answers, but none mentioned NOI.

That surprised me, so I asked some folks related to the hotel industry but who are not a part of the day-to-day business — lenders and special servicers — what was the most important aspect of a hotel to them? Literally to a person, the comments all revolved around NOI. Lenders consistently said, “I have hotel assets that need a profit improvement strategy attached to them.” Special servicers and receivers responded, “I need to position my hotel assets to maximize recovery for the lender.” 

It would appear those of us in the industry have a problem talking about the most important aspect of our business — NOI — but the people who lend us the money don’t. That’s a real disconnect.

While I’m not sure I will ever be comfortable talking about sex with my kids, you can’t get me to stop talking about NOI with anyone who will listen. The reason is simple: NOI is king when it comes to the value of a hotel. It is the sole purpose for being in the hotel business. 

Over the years, I’ve heard a lot of management companies talk about “thinking like an owner.” If you’re not thinking NOI — and only NOI — you’re not thinking like an owner.

There are hundreds of ways to get to your optimum NOI. Some are common sense, some are tried and true and some — especially those that harness technology — are cutting-edge.

What was a good NOI growth for you this past year? 10%? 20%? 30%? Is there a ceiling on NOI? I don’t think so. We have to constantly re-examine how we run our hotels.

I once did a study of approximately 40 hotels I oversaw to determine the profit improvement potential between 95% and 100% occupancy. On an annualized basis it was US$4 million. 

Our teams at every hotel began focusing on the “fill” at our daily standups, looking at same-day reservation activity, arrivals, departures and the subsequent two days’ occupancy. Then the teams set out throughout the day to manage the fill. The entire team focused on the fill, including the 3-11 shift front office and the night auditors. In short order, our “fill score” had improved by 70%. 

Achieving that result involved taking some risks, including possibly overbooking, being more aggressive in managing the remaining inventory and adjusting rate up or down throughout the day. We realized a few more occupied rooms wouldn’t put so much as a blip in the overhead, but selling those last few rooms delivered real profit direct to the NOI. 

In the next blog, I will talk about how we improved a hotel’s NOI 36% last year, and we’ve only scratched the surface.  

What have you done to improve your NOI? I would love to hear from you.