Entrusting your hotel to a management company requires very thorough due
diligence during the selection process. Picking the right operator
could mean the difference between owning a financially successful
lodging facility or one that could take you into bankruptcy. To put this
decision into perspective, I have reviewed the operations of more than
8,000 hotels during the past 30 years and found fewer than 2,000 that
were run with a high level of competency. Most hotel management
companies lack the ability to maximize long-term revenues and minimize
long-term expenses.
I find most hotel owners will select a management company based almost entirely on a recognizable brand name. While a strong brand is important, there are many other issues that need to be considered during the selection process.
Over the years, I have developed a numeric rating system to evaluate the strengths and weaknesses of hotel management companies so owners can compare the attributes of several operators. Each question has a rating ranging from -4 to +10. Simply total up the numeric ratings for each the management companies you are considering and the result will provide a better idea of which one to select.
1. Comparing the size of the hotels managed by the operator to your property, most are:
- Larger -1
- The Same size 0
- Smaller -1
2. Comparing the chain affiliations of the hotels managed by the operator, most are:
- Same affiliations +1
- Similar affiliations 0
- Dissimilar or no affiliation -1
3. If the operator manages other hotels in the same market area, are these considered to be:
- Directly competitive -4
- Somewhat competitive -2
- Non-competitive +1
4. Experience of the management company:
- New company, limited experience -1
- Moderate experience 0
- Established-extensive experience +2
5. Management company's financial resources(ability and willingness to invest funds in the property):
- Limited-no investment potential -1
- Moderate-token investment 0
- Strong-meaningful investment +2
6. Operator shows willingness to invest funds in the property as a loan(double amounts if funds are contributedas equity)
- Initial Inventories +1
- Working capital +1
- Pre-opening expenses +2
- FF&E +3
- Debt service, other financial guarantees +3 to +5
7. Management company has extensive experience in one of the following specialized areas that would directly benefit the operation of the hotel:
- Destination Resort operation +2
- Major convention operation +3
- Unique market +1
- Major food and/or beverage operation +2
- Development assistance +2
- Opening new hotel +2
- Distressed property(turnaround) +3
- Bankruptcy +2
- Unions +3
- Operating in secondary cities +1
- Property ownership +2
8. Management company appears to be flexible in accommodating the following needs of the owner:
- Short-term contract +4
- Termination buy-out provition +4
9. Management company's ability to generate profits(based on actual verified financial performance):
- Normal-competent management 0
- Better than average +5
- Exceptional operating ability(profits) +10
10.Management company offers ability to obtain:
- Specialized identification +2
- Financing +4
- Feeder city representation +2
- Track record of success +2
11.Management company has exceptional expertise or offers specialized services in the following areas:
- Central reservation system +2
- Centralized sales and marketing +1
- Regional sales offices +1
- Convention and group sales +1
- Frequent traveler program +2
- National advertising program +1
- Top-level personnel +2
- Financial systems and controls +1
- Other specialized services +1
- Group purchasing +2
- Interior design +1
- Personnel recruiting(Web based) +2
- Development capability +1
12.If management company is a first tier operator, does:
- Name have wide-spread identity +2
- Identity have positive value +1
13.Management company has the following deficiencies:
- Poor references -4
- Loss contracts(deduct for each loss) -1
- Limited home office structure -1
- High management turnover -2
- No growth plans -1
- Excessive growth plans -1
- Will not subordinate incentive fee -3
- Unwilling to provide restrictive covenant -4
- Fee based entirely on % of total revenue -3
- Can you get along with this company: -3 to +3
I wonder how many hotel owners can even answer all these questions about their management company? If you can, you have probably selected the right one.
By : Stephen Rushmore, MAI, CHA, CRE, president and founder of HVS International, a global hotel consulting firm with offices in New York, Miami, Denver, San Francisco, Vancouver, Mexico City, London, New Delhi, Singapore, Sao Paolo and Toronto.
I find most hotel owners will select a management company based almost entirely on a recognizable brand name. While a strong brand is important, there are many other issues that need to be considered during the selection process.
Over the years, I have developed a numeric rating system to evaluate the strengths and weaknesses of hotel management companies so owners can compare the attributes of several operators. Each question has a rating ranging from -4 to +10. Simply total up the numeric ratings for each the management companies you are considering and the result will provide a better idea of which one to select.
1. Comparing the size of the hotels managed by the operator to your property, most are:
- Larger -1
- The Same size 0
- Smaller -1
2. Comparing the chain affiliations of the hotels managed by the operator, most are:
- Same affiliations +1
- Similar affiliations 0
- Dissimilar or no affiliation -1
3. If the operator manages other hotels in the same market area, are these considered to be:
- Directly competitive -4
- Somewhat competitive -2
- Non-competitive +1
4. Experience of the management company:
- New company, limited experience -1
- Moderate experience 0
- Established-extensive experience +2
5. Management company's financial resources(ability and willingness to invest funds in the property):
- Limited-no investment potential -1
- Moderate-token investment 0
- Strong-meaningful investment +2
6. Operator shows willingness to invest funds in the property as a loan(double amounts if funds are contributedas equity)
- Initial Inventories +1
- Working capital +1
- Pre-opening expenses +2
- FF&E +3
- Debt service, other financial guarantees +3 to +5
7. Management company has extensive experience in one of the following specialized areas that would directly benefit the operation of the hotel:
- Destination Resort operation +2
- Major convention operation +3
- Unique market +1
- Major food and/or beverage operation +2
- Development assistance +2
- Opening new hotel +2
- Distressed property(turnaround) +3
- Bankruptcy +2
- Unions +3
- Operating in secondary cities +1
- Property ownership +2
8. Management company appears to be flexible in accommodating the following needs of the owner:
- Short-term contract +4
- Termination buy-out provition +4
9. Management company's ability to generate profits(based on actual verified financial performance):
- Normal-competent management 0
- Better than average +5
- Exceptional operating ability(profits) +10
10.Management company offers ability to obtain:
- Specialized identification +2
- Financing +4
- Feeder city representation +2
- Track record of success +2
11.Management company has exceptional expertise or offers specialized services in the following areas:
- Central reservation system +2
- Centralized sales and marketing +1
- Regional sales offices +1
- Convention and group sales +1
- Frequent traveler program +2
- National advertising program +1
- Top-level personnel +2
- Financial systems and controls +1
- Other specialized services +1
- Group purchasing +2
- Interior design +1
- Personnel recruiting(Web based) +2
- Development capability +1
12.If management company is a first tier operator, does:
- Name have wide-spread identity +2
- Identity have positive value +1
13.Management company has the following deficiencies:
- Poor references -4
- Loss contracts(deduct for each loss) -1
- Limited home office structure -1
- High management turnover -2
- No growth plans -1
- Excessive growth plans -1
- Will not subordinate incentive fee -3
- Unwilling to provide restrictive covenant -4
- Fee based entirely on % of total revenue -3
- Can you get along with this company: -3 to +3
I wonder how many hotel owners can even answer all these questions about their management company? If you can, you have probably selected the right one.
By : Stephen Rushmore, MAI, CHA, CRE, president and founder of HVS International, a global hotel consulting firm with offices in New York, Miami, Denver, San Francisco, Vancouver, Mexico City, London, New Delhi, Singapore, Sao Paolo and Toronto.
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