
Operator Search & Selection Management Contract Negotiation
Finding the most suitable hotel operator for your property within a mutually fair and balanced management contract and the wisdom of their early engagement
Operator Search & Selection, Management Contract Negotiations
Two complementary disciplines, each representing one side of a coin, work in tandem during this process. The first involves identifying the most suitable brand that aligns with your property, while the second focuses on negotiating mutually fair and balanced contract conditions. This comprehensive process may span several months to complete.
Search and Selection of a suitable Operator/Franchisee/Lessee is one of the most critical decisions for any hotel owner to make because the operator practically becomes a long-term business partner who actually takes responsibility of the day-to-day operation and decision-making of the hotel.
Management Contract Negotiation (as well as Franchise/Lease Agreement) – it is important to check all details and fine prints, weigh pros and cons, and examine all possible consequences for any issue that may arise. Most important is that the outcome is balanced and fair to both parties.
What is the importance of a search and selection process?
A hotel operator essentially and legally takes over the control of the operation for the duration of the contract, in many cases as long as twenty years or more. Their direct influence such as management decisions, operational strategies and customer service standards significantly impact key performance indicators such as occupancy rates, revenue generation and profitability.
The relationship between the Owner and Operator involves extensive collaboration, therefore a strong and mutually beneficial partnership cannot be overstated. That is why, it is important that hotel owners carefully evaluate potential operators based on their expertise, reputation, compatibility and ability to drive positive business outcomes
Hotel consultants negotiate dozens of management agreement every year and know the offered rates from most of the brands. Owners who may be tempted to approach a hotel operator directly and without advice from a professional representative may find themselves entering into a disadvantaged side of the agreement as the operators will offer them their “Rack Rates” first realizing the owner’s industry inexperience, therefore the lack of knowledge of threshold for lowest rates the brand would be willing to extend.
What should you be looking for in a Hotel Operator?
Most inexperienced investors start with comparing the offered terms first, which should be really the last criteria to look at! Other criteria are much more important, such as the market penetration, the brand strength and how many bookings the brand can bring to your property. As an example, we know of one hotel where the brand creates around 80% of direct bookings on their website, saving enormous amount on online travel agency (OTA) commissions. Also, asking the right questions to avoid surprises later on, such as: how much is your favored brand’s cost on FF&E and OS&E on a per room basis. These are only few of over 60 questions in our criteria catalog that we ask the operators before reaching the terms.
Why is it wise to have the selected operator early onboard?
Collaboration with a hotel operator at the early stages of any new property being developed is a wise decision because of the following crucial reasons:
Integration of Brand Criteria
It allows for the brand criteria of the chosen operator to be included in the project design and development process, hence ensuring alignment with the brand’s identity, service standards and customer expectations from the outset. This helps achieve a hospitality product that is attractive, meets the demands of the market and matches international standards;
Cost Efficiency
Developers can avoid unnecessary and costly retrofitting or modifications later in the process if the brand criteria are incorporated upfront. It is important to keep in mind that it can be very expensive and time-consuming to adapt the property to meet the brand standards after construction has begun and this can have negative ripple effect on your financial aspect.
Professional Competence
Operators are at the forefront of technical expertise, latest building technologies and sustainable standards minimizing utility loses and other wastages;
Market Relevance
Developers are enabled to tailor the property to the specific needs and preferences of the target market. This helps ensure that the final product is attractive and competitive within its market segment. For example, the Starwood hotel group had around 25 different hotel brands before merging with the Marriott hotel group which also had over 25 hotel brands. This shows the importance of not only the right operator, but also the most fitting brand among the over 600 hotel brands worldwide.
Why seek advice from a hospitality consultant in the search and selection process and the negotiation of a management contract?
Global Hospitality Solutions takes assignments to search for and shortlist competent and most suitable hotel operators or franchise brands for a particular project or for a rebranding of an existing property, all the way to providing commercial support to the negotiation and closing of a well-balanced management contract. GHS is equipped with a worldwide inventory of existing hotel management and franchise brands as well as operators’ strengths and their management terms. With a well-informed choice, owners ensure themselves of a smooth and profitable long-term business partnership.
This assignment comprises:
- Meeting with the investor to understand the parameters and vision;
- Preparation of a professional Operator’s Package which is an information memorandum for the Operators to understand the project;
- Invitation and shortlisting of reputable and suitable operating companies to express their interest to manage;
- Professional review involving the comparison and assessment of the operator’s key terms;
- A thorough check of over 60 relevant criteria to find the perfect owner-operator match;
- Evaluation of the various project proposals;
- Obtaining firm letters of intent from the shortlisted operators;
- Scheduling their introduction and presentation to the Owners;
- Attendance to the scheduled introduction and presentation of the finalists to the Owners;
- Joint evaluation with the Owners after the presentation;
- Final recommendation and selection of operator.