The owner, asset manager, and management company must synergize their expertise when working toward the ultimate goal of a successful hotel.
The alignment of goals between owners and operators has always been challenging, due to the different perspectives of both parties. Owners primarily care about increasing asset value and the bottom line, while operators tend to focus on daily operations and top-line revenue. To help align these efforts, an asset manager plays a key role in the management company selection process to balance the priorities of both the owner and the management company.
With owners today having higher expectations, the core aspect of selecting the right management company is not solely based on experience, but a mix of interconnecting and collaborative factors, including people, process, product, time, talent, touch, legal, logistics and love.
Breaking down the collaborative factors
The people of the management company should be the top priority of the owner’s evaluation. The operator should possess the personality that fits well with the environment and culture of the hotel. The most important core values of the people involved should be honesty and integrity. Having people willing to speak the truth and go the extra mile to fulfill their promises will determine the success of the hotel from the beginning.
The process is how the management company completes its tasks, and includes the tools and systems used by the management company in completing those tasks. These processes include revenue management, the marketing platform, human resources and other functions, and will give a strong indication of the efficiency and financial performance of the management company.
The product represents the hotel, and a quality product is an indication of meeting guests’ expectations. The management company’s experience in full- or select-service hotels in different chain scales will affect the ultimate performance of the hotel. The asset manager should have the knowledge and relationships needed to align the operator’s past results with the owner’s product.
Time taken in the selection process will benefit hotel performance in the long term. The owner should have an understanding of the amount of time needed to select the ideal operator, and should execute the selection process carefully under the guidance of the asset manager. The right management company will dedicate sufficient time and resources to ensure the hotel is successful.
Talent working in the hotel and the accessibility of the senior executive management will directly affect the operations. Having an effective general manager and director of sales is significant to building the hotel’s reputation and boosting sales on a daily basis. The involvement of the corporate staff will provide additional value on a higher level, such as revenue management and cost control. To make meaningful suggestions, the asset manager should understand the direction of the corporate level.
The touch of the operator must be personalized for each property as each hotel is unique and has a distinctive company culture to match. A management company’s location, size and expertise are the competitive advantages needed to build strategies for the hotel owner. It is important for the asset manager to encourage communication between the brand, operator and owner to customize these strategies.
The legal factor is to ensure that the rights, obligations and limitations of a management agreement are clearly outlined. It is essential to involve legal experts and asset managers who will expedite the process with their experience, better evaluate the contract at the negotiation stage and benefit the owner by maintaining the owner’s control over the management terms. Below are some key control elements that a hotel owner needs to understand and pay close attention to during the management agreement negotiation:
- Term and termination rights
- Hiring and retention of employees
- Financial reporting
- Books and records
- Fees and expenses
- Procurement
- Budget review and approval rights
- Dispute resolution
- Miscellaneous control provisions
The logistics are outlined in the management agreement, and should guide the relationship between the owner, asset manager and operator. It enumerates the responsibilities, timelines and expectations of each party so guidelines can be followed and communication will occur in a timely manner. During the selection process, the asset manager will be able to handle the logistics details and report to the owner.
And finally the love factor ultimately ties people together, with each party holding the fiduciary responsibility to ensure the success of the hotel. Only when the ownership appreciates the value brought by the operator and asset manager, and the operator and asset manager respect the owner and are passionate about the tasks they are given, will all parties be in a great synergy and establish a successful hotel.
Selecting the right management company, with the best talent, time-tested processes, personalized strategies, consistent time commitment, fair legal documents and established common goals with the owner is one of the many essential responsibilities of an asset manager. However, having the right operator is only the first step. There are many opportunities to improve the synergies between the owner, asset manager and operator in the day-to-day operations and throughout the peaks and lows in the hotel industry life cycle.
Paul Breslin is managing director of the Atlanta office of Horwath HTL. Breslin is a 35-year veteran of the hospitality industry, and his background includes extensive experience in hotel operations, development and asset management with major branded hotels as well as independent and smaller luxury hotels. From asset management and operational support, planning and development services, sales, marketing and revenue management, transactional advice and financial restructuring, Breslin has provided consulting services to a global client base.
Julia Zhang is an analyst at the Atlanta office of Horwath HTL. Zhang is currently pursuing her bachelor’s degree in Hotel and Restaurant Management at Cornell University, School of Hotel Administration, with a minor in Real Estate. She joined the Horwath HTL Internship Program in June 2016. Julia has extensive work experience in hotel operations and knowledge of hotel development, market research & analysis.
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