MADRID — Among the thorniest issues of hotel ownership is bringing on brands and operating companies as partners and negotiating the hotel management agreement.
At this month's Atlantic Ocean Hotel Investors’ Summit, a panel of hoteliers from each of those industry stakeholders weighed whether hotel management agreements are becoming more transparent.
These agreements are becoming more owner-friendly, but this evolution needs to continue, panelists said. Hotel owners are seeking more control and assurances in regard to performance-linked fees, operational flexibility, supply-chain logistics and costs, and reduced contract timelines with clearer exit paths.
Alignment is critical, and hotel owners are seeking creativity around fees, linking them to performance improvements, and pushing back against the use of side letters, documents outside the main hotel management agreement but still an integral part of it.
Such friction points make conversations between hotel owners, operators and brands more strained, panelists said.
“Side letters make exits more difficult,” said Christian Hribar, head of development at Arabella Hospitality SE.
The best strategy in hotel management agreements is to be clear upfront on all aspects of the agreement so all parties understand what they are getting into, said Niall Kelly, Aimbridge Hospitality's head of business development for Europe, the Middle East and Africa. Then it is largely about communication, including how unforeseen challenges will be addressed, he added.
“If I can be mischievous, [a disclosure document] is not fun reading, but there is no doubt it is a document of full transparency. … Guide owners through which pieces pertain to them,” Kelly said. “We work with 85 different brands, and we have a view on all of them. We are there to help the brands work, too.”
Friction
Procurement, distribution and loyalty are all potential friction points in hotel management agreements, panelists said. Hotel owners, operators and brands can all work on being better aligned.
“A lot of [procurement] programs are optional, and the brand should be giving you a good deal. Where it becomes more challenging is with detachable and tangible items,” said Lionel Schauder, vice president of asset management at Propreal Capital Partners.
On occasion, hotel owners have been told which suppliers they should be working with, and sometimes those recommendations reveal established business links between the brand or operator and those preferred suppliers, panelists said.
Paul Rosenberg-Grosjean, Accor's regional vice president development for luxury in France, Southern Europe and North Africa, said as long as all parties are focused on value creation, discussions around alignment should not be difficult ones.
Real-time, key performance indicator-driven technology is available as an excellent source to provide further transparency on costs, Hribar said.
Plus, hotel owners still gain valuable advantages from distribution and loyalty programs, Rosenberg-Grosjean said.
“We do not want a cookie-cutter approach, and I hope I never see a GM being pushed down the throat of an owner,” he said.
Point redemption through a hotel brand's loyalty program is another sore spot for property owners, Schauder said.
“An owner wants to see the net value of those [redemption] bookings,” Schauder said.
He added that this value would also take into account such redemption perks as free breakfast and late checkout.
It's critical for hoteliers to fully understand loyalty redemption and how to revenue manage it, Kelly said. He added brands’ ability to generate higher occupancies and average daily rates are key to owners' and operators' revenue strategy.