National Report – It’s a great time to be a third-party hotel management company.
Let’s revise that: It’s a challenging time to be a third-party hotel management company. But with challenges come opportunities, and participants in this year’s Top Third-Party Management Companies survey and special report tell us that over the past few years third-party management companies have evolved into nimble organizations that can contribute to hotel performance at all levels and across all segments. Third-party management companies are prepared to put money behind a deal. They’re able to maximize the efficiency of operations. They’re savvy about the complex relationships between owners and brands and they have developed distinctive cultures that serve to attract and retain critically needed employees.
But they also deal with increasingly complex insurance regulations, pressures from above to raise rates and struggles with ownership and brands over renovations, capital expenditures and more.
This year’s Top Third-Party Management Companies survey ranks nearly 200 companies by the number of guestrooms in their U.S. portfolio. This list has grown consistently by 25 percent year over year since 2010, perhaps reflecting what one of this year’s respondents called “the growing competitive market with more and more new third-party management companies.”
CHOOSING A COMPANY
As more owners choose third-party management companies (and more management companies enter the field), it’s important to consider certain elements when structuring the deal. Hotel Management spoke with management veterans for some insight.
“Due diligence is critical,” said Mary Beth Cutshall, VP of acquisitions and business development for Hospitality Ventures Management Group. “You want a management company large enough to offer robust systems but not so large that the hotel is overlooked. Look at the culture of the organization. Ask for numbers. Ask that the management company be transparent and if they aren’t, question it.”
Sanjeev Misra, senior managing director at Paramount Lodging Advisors, said the management company and ownership group must line up on key goals. “Some owners want daily data. Others want a big picture,” he said. “Either way, ownership and management should align.”
Bill DeForrest, president and CEO of Lane Hospitality, concurred, saying both groups’ goals must line up for success. Beyond that, he said culture is key. “The culture just has to be right, from the leadership level down,” he said.
WHAT ABOUT THE BRANDS?
Brands also factor into the choice for a management company. Several respondents to this year’s survey cited competition with brands for management contracts as a concern heading into 2014.
“You’re better off using third-party managers for smaller hotels in non-gateway locations,” Misra said. “Managers there are in it for the owner’s investment returns, not so much for the brand’s.”
Cutshall agreed, saying brand management tends to work better for big-box hotels in gateway markets. “Third-party managers have to understand their strengths and know where they can be the right fit,” she said.
Daniel Marre, partner at Perkins Coie, gave an analogy: “Major companies are like battle ships—they protect their brands,” he said. “Third-party managers are more than happy to work with you. They don’t have brand concerns so they’re more nimble. They’re like light destroyers—they can work more easily.”
This year’s concerns
1 Affordable Healthcare Act 2 Finding good talent 3 Raising rate 4 Controlling costs
Since third-party management companies operate on the ground level, operations concerns top their list for 2014. Respondents to this year’s survey listed their main challenges heading into 2014 and deciphering the Affordable Care Act is a big concern. Attracting and retaining good employees ranks second among concerns and raising rate comes in third. Controlling costs while making capital expenditures rounds out the list.
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