Selling is by no means the only option available to a hotel owner. Management or operating contracts for a hotel, under which a chain manages the property, are an alternative for the owner, but they involve a series of steps that require detailed advice to choose the best option for our future hotel project.
The agreement between the hotel owner and the company—usually a hotel management firm—that will be responsible for managing the property is a business model that has become widespread in recent years. An owner who is unwilling or unable to assume the risks of operating their tourist establishment, but who also does not want to part with it, will find that management offers a solution tailored to both needs.
For its part, in exchange for the opportunity to manage the hotel under one of the various management models we will discuss below, the hotel chain provides a brand with a guaranteed market position, which, from a business perspective, benefits both parties.
But when it comes time to close the deal, what is the hotel owner looking for?
- Financial return: One of the key objectives will be to achieve a return on our initial investment. The fact that we are giving up direct management of our hotel does not mean we lose our profitability. The hotel owner also views everything related to increasing the hotel’s appeal to tourists—including potential changes to both the hotel itself and its surroundings—as an asset.
- Upgrade in classification: Of course, the hotel owner will also view the fact that his or her property has been upgraded in classification as a benefit, which will obviously affect its value.
Regardless of whether we transfer the operation of the business, signing a contract with a hotel company to manage our establishment offers a number of advantages, which are listed below:
The terms set by both parties and the economic factors in the industry determine the types of hotel management contracts. There are three main types:
- Operation or lease. Under the hotel operation or lease model, the owner retains ownership of the establishment—not only the real estate but also its facilities. This is the model par excellence in Spain during periods of economic stability. There are two general options for the lease fee received by the owner. It can be a fixed payment or a variable amount based on an operating margin.
- Active management. The hotel chain plays a much less significant role in this type of management, as it will only serve as the property’s manager. The business risk will be borne by the owner, although in this type of management model, the property will also adopt the chain’s brand, and the chain will commit to professional management of the business.
- Hybrid model. A combination of the lease agreement and the management agreement. It involves a more balanced distribution of profits and risks between the two parties.
When choosing our management model, it will be crucial to know who will be in charge of it. In this process, we’ll need comprehensive professional consulting services, which is why at International Hotel Consulting Services we can help you here in this article on management of your hotel project. First and foremost, it will be essential to analyze the project and then choose a work plan that leads to its successful launch.
Table of Contents
Which hotel management company is right for me to manage my hotel?
We must start from the premise that both the hotel owner and the hotel chain that will manage it share common goals aimed at ensuring profitability in hotel management. The contract between the two parties will establish a series of rights and obligations that will be agreed upon for the benefit of the new hotel project at hand.
Some of the steps a hotel owner can take to choose the most suitable hotel operator include:
Market Position
It is important for a hotel chain to have a name that is well-known and prestigious among customers. The recognition the hotel will gain by being associated with the hotel chain’s name is a significant competitive advantage.
Revenue Stability
A well-known brand with a good reputation will also enhance other aspects of the establishment’s management and marketing, such as greater revenue stability or an improved product offering. Management or lease agreements are typically long-term, starting at 10 years, which ensures stable and sustainable revenue.
Improved Business Management
This is another advantage of outsourcing management to a hotel management company. A hotel chain will have more leeway than an individual owner to negotiate with tour operators, securing better rates and even gaining greater independence from OTAs and tour operators. This will result in lower commissions for the hotel, better rates, and, ultimately, higher revenue.
Sharing of Business Risk
The owner will share the risk of their business with a company that has extensive experience in the sector. This aspect must be reflected in the contract template signed by both parties.
At IHCS, we encourage you to contact us. As experienced investment managers, we will provide you with all the details regarding hotel investments and help you make the best decisions for your future.
