BERLIN—Do owners and brand heads have a love-hate relationship, regarding each other as necessary evils?
Has the United States model, increasingly adopted by Europe, of separating brains from bricks and mortar led to improved revenue at the expense of a diminishing operations skill base for owners? Is there a diminishing amount of property know-how on the part of brand executives?
A frank discussion titled “Professional owners” at the 18th International Hotel Investment Forum, tackled these questions.
The answer is clear to asset-light companies such as Hilton Worldwide Holdings, but more layered for Accor, which is an active buyer after splitting itself into a property company, HotelInvest, and an operating company, HotelServices, in late 2013.
“Amateurs do not engage in this business, which is about getting the right deal with the right partner. Successful deals lead to traction,” said Nick Smart, Hilton’s VP of development.
John Ozinga, COO of Accor’s HotelInvest division, said the company has more than 1,000 owners who are sophisticated, professional and easy to talk to.
“We like to be owners, too, with some 400 of our portfolio under Accor ownership,” Ozinga said. The group’s website said its portfolio comprises more than 3,700 hotels.
The owner’s voice
On the other side of the equation, owners want more so not to be silent partners.
“We are an active investor, and we take that to our partnerships. We bring a lot to the table,” said Keith Evans, VP of hotel acquisitions at Starwood Capital Group. Evans gave such examples of initiatives and skills sets as capital expenditure, revenue management and e-commerce strategy, as well as a long history of “owning, running and rescuing companies.”
“We add value,” Evans said.
The other owner on the panel, Jean-Philippe Chomette, founder and CEO of Algonquin, said participation is a duty to the owners and their co-investors.
“We have to be active within agreement clauses. To own hotels today is to expose ourselves to all the same risk as operators. It will become more of a partnership, not less,” Chomette said.
The panel’s moderator, Clive Hillier, chairman of Vision Hospitality Asset Management, said the evolution of the industry in Europe would see more control placed in the hands of owners as franchising becomes the foremost operating model.
Franchises would proliferate due to their emotional component, Hillier added, although he said there is no body of evidence that suggests franchise contracts added more to the bottom line.
“(Owners) will not be sitting opposite (CFOs) in discussions on properties and will not have a (GM) whose career is in the brand, not in the asset,” Hillier said.
Perfecting partnership
Hilton’s Smart said the more assured the operator, the more it encourages owner involvement, but there is always the possibility of push and pull from both sides.
Ozinga added capital expenditure initiatives remain the litmus test underlying the owner’s skin in the game.
No one on either side disputed the importance of sound partnerships, but the secret is getting the right balance. Both sides must be allowed to do their jobs and add value and operating revenue to the asset.
“Noise, lies, damn lies and statistics. You wonder how much brought up (in discussions between the two sides) is relevant. I’m trying to be diplomatic, but owners can push and push,” Smart said.
Owners want the robustness of joining a club, a brand, Smart said, but “what club would it be if everyone could name their own rules?”
“It is not possible to grow good systems without good partners, but there has to be a good balance between good involvement and outright interference,” Smart added.
“Accountability and partnership are the two fundamentals,” Ozinga added.
The panel’s two owners zeroed in on a partnership’s ability to add to the bottom and top lines.
“It’s so important operators are of a commercial mind. The worst thing is to get involved in a long agreement with no transparency in which you might find yourself with an encumbered asset,” Evans said.
Chomette said the time of the intolerant operator is over. They must be partners.
“They cannot vouloir le beurre et l’argent du beurre,” Chomette said, using a French expression he felt described some operators who “wanted the butter and the money for the butter.”
Owner involvement, at least from the owners’ perspective, includes being involved in key decisions on staffing.
“If (the owner has) doubts about the GM, usually operators share them,” Chomette said.
Revenue manager selection was another key decision Chomette insisted on being part of, while Evans added operator key money and flexibility of termination rights to the list.
“Performance test mechanisms are good, but owners on exit need to realize the full value of the assets,” Evans said.
Evans added that regardless of the excellent intentions of a partnership, finding the right balance between the two sides can be difficult.