By providing expertise and services in relation to hotel assets, hotel management companies play an important role in guiding individuals and institutions toward effective investment management. The right hotel management company can enhance the property value, attract and retain high-quality talent, and instill efficient operations, ultimately leading to a positive impact on bottom line. Here are four points to consider when identifying a management company for your hotel asset.
1. Identify Your Asset Type
To determine the appropriate positioning for your hotel asset, conduct a market study to evaluate the location, supply and demand, competitors, and future new supply. This analysis will help you determine the best use of your asset in terms of its competitive product and positioning, and alignment of branding and operator.
2. Understand Your Needs/Objectives
Different owners have varying objectives, such as investment return focus, passion for design and architecture, showcasing the asset for prestige and/or risk management for an asset portfolio. These objectives feed into the selection of an appropriate management company.
- Asset positioning and service level: Determine if you require full-service management, which encompasses everything from monitoring the construction stage, managing day-to-day operations to financial reporting or, if limited service, such as leasing, employee relations, financial management etc.
- Scale: Evaluate the size of your asset and examine the track record of the management company to determine if they can effectively manage the scale of your operations.
- Evaluate your budget and cash flow: How much are you willing to spend on management services and capital expenditures? Balance your budget and cash flow realistically against the level of service and quality of asset you expect. Higher service levels come with higher costs, but may also offer better returns or less risks in the market.
3. Research Potential Companies
When selecting a management company, the owner should clearly define the priorities and evaluate potential management companies based on how well they align with the owner’s objectives. Here are some criteria to consider:
Industry reputation is an important factor when selecting a hotel management company, as it reflects the company’s reliability, performance and the quality of its services. To assess this, consider online reviews and ratings, references from other property owners, as well as the company's evidential track record and experience.
Experience and proven track record in managing the type of hotel you own as this expertise typically results in better handling of industry-specific challenges.
Characteristics and focus of the management company: Select a management company whose business strategy, values and operational focus align with your asset's objectives.
- Investment return focus: If your primary goal is maximizing ROI, choose a company with a strong track record in performance and financial management.
- Design and architecture passion: Select a company that values aesthetics and has experience managing architecturally significant or design-driven properties.
- Prestige and brand positioning: Look for a management company that understands and can enhance the prestige of your asset through its operations and marketing strategies.
- Risk management: Choose a company with a cautious approach that prioritizes stability, risk mitigation, and value preservation.
- Expansion plan and growth focus: If your objective includes scaling your hotel portfolio, select a company with a focus on growth, expansion, and the ability to manage assets across diverse locations.
Financial and operational transparency: It is essential to verify if the management company provides detailed and regular performance and financial reports, such as utilization tracking, income statements, balance sheets, and cash flow statements. These reports should be clear, easy to understand, and delivered on a consistent schedule. Transparency in both financial and operational aspects helps build trust between the hotel owner and the management company, ensuring the owner has a clear understanding of how their hotel is being managed and how their investment is performing.
Company future investment plan: A smaller management company might have an exit strategy involving selling to larger operators, which could lead to changes in their business strategy over time. In contrast, a larger management company typically has a more robust financial plan. However, they might also pursue mergers and acquisitions, potentially integrating smaller brands into their portfolio, which could impact their approach and service offerings.
Legal and Ethical Standing
Verify the company holds all necessary licenses and certifications for property management in your area. This ensures they operate legally and adhere to industry standards.
Ensure the management company has a thorough understanding of local laws, including landlord-tenant regulations, zoning laws, and safety codes. This knowledge is essential to ensure all operations and contracts are compliant and handled correctly.
Brand development strategy: This to ensure whether they focus on creating a sustainable brand with a long-term vision or if they primarily aim to launch new brands to attract more properties in the short term.
Sustainable brand development: A management company with a sustainable brand development strategy will focus on building a strong, reputable brand over time. This includes commitments to quality service, consistency across all properties, and alignment with environmental, social, and governance (ESG) principles. A sustainable brand strategy aims to create long-term value, fostering trust and loyalty among guests, investors, and the community.
New brand launches: Some management companies may frequently launch new brands to quickly attract new properties and market segments. While this can be effective for rapid growth and expansion, it might lack the depth and consistency of a more sustainable approach. Evaluate whether this strategy aligns with your goals, particularly if you value long-term stability and reputation.
4. Shortlist Management Companies and Conduct Interviews
Meet with the leadership and key team members of the management company. Ensure they have the expertise, vision, and management style aligned with your goals. Request critical metrics and review key points, then compare these factors across the shortlisted companies.
- Performance metrics and projection: Request performance metrics such as occupancy rates, achieved ADRs, and estimated revenue and expenses for your project. These metrics will help gauge the management company's capability in managing your hotel effectively.
- Fee structure: Understand the fee structure. Compare it with industry standards to ensure it’s fair and aligned with your financial goals and the benefits generated from the management company’s involvement.
- Financial and operational transparency: Ensure the company provides detailed and transparent financial reports, including income, expenses, and maintenance costs.
- Evaluate customer service and communication: Evaluate how quickly the company responds to inquiries from both owners and guests. A lack of responsiveness can lead to guest dissatisfaction and higher turnover rate
- Technology use: Consider how the company uses technology for property management, including online portals for owners, automated maintenance systems, and other digital tools to streamline operations.
- Cultural fit: Assess whether the company’s values and culture fit well with your own. A good relationship between owner and manager is crucial for long-term success.
- Agreement and length of contract: Review the contract terms and conditions thoroughly to ensure all responsibilities, fees, and termination clauses are clearly outlined.
- Exit strategy: Make sure the contract includes an exit strategy allowing you to part ways without significant penalties if the company fails to meet expectations.
- Stress test assessment: Understand their preparedness and response plans under critical circumstances, such as a pandemic, economic recession, or geopolitical tension. A stress test assessment helps evaluate how well the company can manage and protect your assets during such challenging times.
By following these steps, you can identify a management company that aligns with your asset management goals, ensuring long-term success for your investment.
Teenida Suwankiri is a consultant of Horwath HTL based in the Bangkok office. She has advised both local and international investors in the Thailand hospitality sector.
This article was originally published in the October edition of Hotel Management magazine. Subscribe here.