Hotel & Motel Management - October 20, 2008 - (Page 8) 8 Legal FAQ H&MM October 20, 2008 | HotelMotel.com www.HotelMotel.com/digital_edition Varying issues surface in hotel management agreements often have a one-year term. IN THE details Defining economic issues Length of agreement Investment, fees by manager Standards, incentives By HospitalityLawyer.com H&MM Contributor The economic investment by the manager in a hotel. In most What are the major economic issues in hotel management agreements? Q A third-party management arrangements, the manager is not providing capital to the owner or the hotel. However, a general trend is for the larger management companies and brand managers to contribute 5 percent to 20 percent of the equity or other economic assistance needed by the owner to acquire or renovate a hotel. Fees paid to the manager. A few major issues include: The length of the agreement. The term of a management agreement usually varies from five years to 30 years, with the longer end of the range most often arising when the manager also is a brand owner. Management agreements with receivers, or for hotels pending ownership or product changes, The most typical fees are: A base management fee, which usually is 2 percent to 4 percent of annual gross revenues of the hotel, with the amount depending upon the hotel’s size and the services provided by the manager. Accounting fees, often separate from management fees, which are paid for by centralized and corporate accounting services provided by the manager. Depending on the hotel, such fees range from $1,000 to $5,000 per month, or on a per-room, per-month charge. Incentive fees often are capped so the combined base and incentive fees are not greater than 5 percent of annual hotel revenues. Payment of such fees usually is tied to the hotel first achieving certain financial results and, less frequently, to the hotel achieving certain market penetration goals. Other fees or reimbursements can include centralized service fees, group expense reimbursements and purchasing fees. Performance standards. to terminate a manager if he or she fails to meet certain performance standards after a set period of time. Performance standards provide the owner certain remedies if the manager is underperforming and not meeting financial and revenue goals agreed to previously. The financial goals most often are based upon achievement of agreed upon amounts or percentages of gross operating profit or net operating income, while the revenue benchmarks usually are related to a percentage of revenue per available room penetration by the hotel versus its direct competitors. The effect of a sale on hotel management agreement. ment may not be canceled upon sale, an agreement can be ended with a hotel’s sale, but only if the manager has paid certain agreed upon termination fees. Other critical business issues include whether: The owner can limit the manager’s right to own and/or manage other hotels within a certain geographic radius for a defined period of time. There will be operating standards the manager and/or owner agree to in operating a hotel. The manager will be given a right of first refusal to acquire the hotel from the owner. hmm@questex.com Special thanks to Jerry Herman, counsel with DLA Piper, for the above information. He can be reached at Jerry.Herman@ dlapiper.com. In many management agreements, the owner is given a right After a certain period during which the management agree- Consultant’s Corner Review budget before making cuts for 2009 IN THE details The budget process Challenge corporate guidance Tactical vs. strategic planning Conduct intensive reviews Under Construction Kite Properties LLC broke ground on an 83-room SpringHill Suites by Marriott in Vero Beach, Fla. The property is planned to open in July 2009 and will be managed by Hotel Equities of Atlanta. By Thomas Morone H&MM Columnist t’s time to challenge the 2009 budget assumptions. 2008 has been disappointing and 2009 will be softer. Want to be sure the fat is cut out of the budget in 2009? Here is our advice. 2009 budgets likely will reflect declining optimism by managers. Don’t accept budgets until you go through every assumption. Challenge corporate guidance; it’s instructive, not gospel. Participate in the entire budgeting process and insist on a brainstorming session on revenue enhancement and cost con- I tainment; there are solutions to revenue shortfalls and there is room to cut expenses. Are budget preparers tactical or strategic? Strategic planning establishes the road map for long-term goals. Tactics are needed to deal with market fluctuations and allow you to live to fight another day. Some managers are strictly tactical and can’t think beyond daily operations, some are purely strategic and don’t understand profit motivation, but both need owners’ input. Review the assumptions on pricing, the detailed mix of demand and the sources of business. Review historical room night production from all sources and develop maximization strategies. Review external reports and measurements. Compare your performance and insist on a plan to gain market share or attract more profitable customers. Read online reviews and develop a strategy to improve your reputation if necessary. Ask early and often “Why?” and “Is that really necessary?” Challenge labor and review fixed-variable positions, staffing guides and wage rates. Consolidate positions like administrative assistants and look at outsourcing opportunities. Review marketing plans and test assumptions; is the plan backed with tactics, action steps, costs and a calendar? Review assumptions in the sales and marketing budget, but don’t make cuts unless a position is definitely unnecessary. Review detail on advertising, promotion and public relations; does it drive your occupancy or is it corporate positioning? Review your website and be sure it’s user friendly and optimized; consider a pay-perclick strategy. Review your Internet strategy; there may be an opportunity to add business. If the property is experiencing difficulty, ask the brand to develop a property-specific marketing plan and assist in funding it. Challenge capital expense and labor dollars because of brand standards; minimally tell the brand you’ll do it when all the brand-owned hotels do it. Require return on investment analysis on all capital requests and disapprove anything not absolutely necessary. Review days and hours of operations for revenue departments and verify that management has a plan to adjust operating hours to demand. Challenge the status quo in all departments and assume it may be time for a change in operating philosophy. A budget review is the first step. You need to have procedures in place to compare actual results to budget assumptions. The bottom line is in the challenged year ahead, aggressive budgeting and rigorous follow-up may mean survival and profitability. hmm@questex.com Thomas F. Morone is a member of the International Society of Hospitality Consultants (ishc.com) and principal of Warnick + Co. LLC of Los Angeles. Contact him at tmorone@warnickco.com. A 110-room hotel expansion project by Acquest Development Inc. started at the MeadowView Marriott Conference Resort and Convention Center in Kingsport, Tenn. It will include enhancements to existing rooms with the addition of two five-story wings that will bring the number of guestrooms to 305 when completed in the summer of 2009. US Franchise Systems broke ground on a Microtel Inns & Suites in Woodstock, Ontario in Canada. The 74room hotel is scheduled to open in early 2009. Compiled by Jennifer Kovacs jkovacs@questex.com http://www.HotelMotel.com http://www.HotelMotel.com/digital_edition http://www.HospitalityLawyer.com http://www.HospitalityLawyer.com http://www.ishc.com
Table of Contents Feed for the Digital Edition of Hotel & Motel Management - October 20, 2008 Hotel & Motel Management - October 20, 2008 Contents Event Empowers Property-Level Leaders Boutique Bonanza Perspective Legal FAQ Consultant's Corner AAHOA Update Sales Clinic HotelWorld Update On Finance Trends & Stats Surprise Guests by Predicting Their Needs Transactions Worse Than Most Predicted Electronic Safes Housekeeping Services Marketplace Events Ad/Edit Index Classifieds Checking Out Hotel & Motel Management - October 20, 2008 Hotel & Motel Management - October 20, 2008 - Hotel & Motel Management - October 20, 2008 (Page Cover1) Hotel & Motel Management - October 20, 2008 - Hotel & Motel Management - October 20, 2008 (Page Cover2) Hotel & Motel Management - October 20, 2008 - Hotel & Motel Management - October 20, 2008 (Page 1) Hotel & Motel Management - October 20, 2008 - Hotel & Motel Management - October 20, 2008 (Page 2) Hotel & Motel Management - October 20, 2008 - Contents (Page 3) Hotel & Motel Management - October 20, 2008 - Boutique Bonanza (Page 4) Hotel & Motel Management - October 20, 2008 - Boutique Bonanza (Page 5) Hotel & Motel Management - October 20, 2008 - Perspective (Page 6) Hotel & Motel Management - October 20, 2008 - Perspective (Page 7) Hotel & Motel Management - October 20, 2008 - Consultant's Corner (Page 8) Hotel & Motel Management - October 20, 2008 - Consultant's Corner (Page 9) Hotel & Motel Management - October 20, 2008 - AAHOA Update (Page 10) Hotel & Motel Management - October 20, 2008 - AAHOA Update (Page 11) Hotel & Motel Management - October 20, 2008 - Sales Clinic (Page 12) Hotel & Motel Management - October 20, 2008 - Sales Clinic (Page 13) Hotel & Motel Management - October 20, 2008 - HotelWorld Update (Page 14) Hotel & Motel Management - October 20, 2008 - HotelWorld Update (Page 15) Hotel & Motel Management - October 20, 2008 - On Finance (Page 16) Hotel & Motel Management - October 20, 2008 - On Finance (Page 17) Hotel & Motel Management - October 20, 2008 - Trends & Stats (Page 18) Hotel & Motel Management - October 20, 2008 - Trends & Stats (Page 19) Hotel & Motel Management - October 20, 2008 - Surprise Guests by Predicting Their Needs (Page 20) Hotel & Motel Management - October 20, 2008 - Surprise Guests by Predicting Their Needs (Page 21) Hotel & Motel Management - October 20, 2008 - Transactions Worse Than Most Predicted (Page 22) Hotel & Motel Management - October 20, 2008 - Transactions Worse Than Most Predicted (Page 23) Hotel & Motel Management - October 20, 2008 - Transactions Worse Than Most Predicted (Page 24) Hotel & Motel Management - October 20, 2008 - Transactions Worse Than Most Predicted (Page 25) Hotel & Motel Management - October 20, 2008 - Electronic Safes (Page 26) Hotel & Motel Management - October 20, 2008 - Electronic Safes (Page 27) Hotel & Motel Management - October 20, 2008 - Electronic Safes (Page 28) Hotel & Motel Management - October 20, 2008 - Electronic Safes (Page 29) Hotel & Motel Management - October 20, 2008 - Housekeeping Services (Page 30) Hotel & Motel Management - October 20, 2008 - Housekeeping Services (Page 31) Hotel & Motel Management - October 20, 2008 - Housekeeping Services (Page 32) Hotel & Motel Management - October 20, 2008 - Housekeeping Services (Page 33) Hotel & Motel Management - October 20, 2008 - Housekeeping Services (Page 34) Hotel & Motel Management - October 20, 2008 - Housekeeping Services (Page 35) Hotel & Motel Management - October 20, 2008 - Housekeeping Services (Page 36) Hotel & Motel Management - October 20, 2008 - Housekeeping Services (Page 37) Hotel & Motel Management - October 20, 2008 - Marketplace (Page 38) Hotel & Motel Management - October 20, 2008 - Events (Page 39) Hotel & Motel Management - October 20, 2008 - Ad/Edit Index (Page 40) Hotel & Motel Management - October 20, 2008 - Classifieds (Page 41) Hotel & Motel Management - October 20, 2008 - Classifieds (Page 42) Hotel & Motel Management - October 20, 2008 - Classifieds (Page 43) Hotel & Motel Management - October 20, 2008 - Classifieds (Page 44) Hotel & Motel Management - October 20, 2008 - Classifieds (Page 45) Hotel & Motel Management - October 20, 2008 - Checking Out (Page 46) Hotel & Motel Management - October 20, 2008 - Checking Out (Page Cover3) Hotel & Motel Management - October 20, 2008 - Checking Out (Page Cover4)
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