How to select a Management Company ( operator)?

If you have decided to simply own a hotel, but not run it, you have two first choices: branded or non-branded? We are assuming here the choice of a brand, due to advantages for distribution. Here are some of the key considerations to take into account whilst choosing a branded operator to manage your hotel:

  • How many hotels does the company currently operate?
  • Does the management company operate competing hotels in the same zone?
  • Length of agreement?
  • Procedures for extending or terminating contract?
  • Contract terms in event of the hotel’s sale?
  • Base fee to be applied?
  • Incentive fees earned or penalties assessed relating to operating performance?
  • Reporting relationships and requirements?
  • Break-off clause

Furthermore, is it a first tier or second tier company? First tier refers to management companies that operate hotels for owners using the management company’s trade name as the hotel brand. Hyatt, Hilton, Sheraton are examples. Second tier is management companies that operate hotels for owners who have entered into an agreement to use one of a franchiser’s flags as the hotel brand. Tiering does NOT refer to the quality of the management operating the property. It can be worthwhile to talk to other owners, and look at some of the key issues they have had to deal with. When it comes to management agreements, brands have a lot of power to unilaterally impose changes in standards that all system hotels must meet. These include such things as computer systems and software, new signage and logos, loyalty programmes, design requirements, promotions and centralise services. For some owners, the cost of these brand-imposed standards may simply not be worth it. The question then has to be asked as to whether the standard benefit the brand or the hotel… Is the brand growing too fast? In recent times, some issues have arisen due to the fact that some brands and operators expanded so fast that they lacked the adequate expertise, procedures, systems and personnel to manage properly.

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