How third-party management companies are keeping up with owners

In the past five years, there’s been significant consolidation in third-party management companies. Some of the major consolidation has been done through acquisition, such as Aimbridge Hospitality’s purchase of Prism Hotels & Resorts, Raines’ purchase of HP Hotels, and late last year, First Hospitality’s purchase of HostMark Hospitality Group.

Employing a third-party management company to operate a hotel or a portfolio can have advantages, according to Andrea Stokes, hospitality practice lead at J.D. Power. “A professionally-managed hotel has an edge in economies of scale,” she said. “A company can provide software, procurement and other services for a variety of properties. Of course, if the hotel is branded, the management company can already have the franchisee/franchiser relationship with the large hotel chains. That’s another layer of a benefit right to those properties.”

Another benefit that the third-party management companies bring to the table today is the ability to bring in management team members to local properties that may not have that talent locally or the resources to get that talent, said Bruce Ford, senior vice president, director, global business development at Lodging Econometrics. “They can bring trained staff in to upgrade that nimbleness at the property—which is a big reason [why] you hire them.”

Third-party management companies can be a benefit if you are not an experienced franchisee with a particular franchise company and you'd like to own some of those hotels, partnering with a third-party management company can get you there quicker, Ford said. “So in other words, if you've never owned a Marriott [property] before and you want to, working with a third-party management company can make that a reality.”

As more hotel companies reveal intentions for new conversion brands, Stokes believes third-party management companies will have new opportunities to help convert independent properties to those new brands. “The idea is that you're bringing more independent hotels into the fold and that automatically [creates] an opportunity for third-party hotel management companies to come in and say, 'Okay, well, if you're going to be part of this brand, it's better to be third-party managed,'” she continued.

While each engagement is different, IHG Hotels & Resorts prioritizes and seeks out management companies with whom the company believes can maintain effective and mutually beneficial long-term relationships, said Natasha Scott, VP of operations performance and strategy, IHG Hotels & Resorts. “We first evaluate a company’s track record along several criteria, including the performance and brand standard adherence of its hotels, management experience within specific brand categories and whether it has the talent, infrastructure and resources to deliver on key initiatives.

“We also work with our owners to outline expectations and clearly identify needs and definitions of success to find the best management company pairing. Some of our leading management company collaborations also involve a dedicated IHG brand champion who can navigate potential questions and challenges and carry through those key initiatives, such as loyalty program growth.”

While third-party management companies are not as common in Asia and Europe as they are in the U.S., they likely will be a trend to keep an eye on going forward, according to Ford.

One of the reasons that these third-party management companies succeed is that they're able to create a clustering effect of running a number of hotels within a certain mile radius of each other, Ford continued. “That creates a clustering of staff, a clustering of management expertise, the clustering of shared services—which makes a lot of sense in the way an owner would build a portfolio of, say, 50 miles around his location. Management companies do the same thing.”

To view Hotel Management's list of third-party management companies, visit our February/March digital edition.