INDUSTRY INSIGHTS

Rod Clough, President – Americas, interviewed Tanya Pierson, Senior Managing Director, Minneapolis and Justin Westad, Vice President, Minneapolis overseeing the Upper Midwest region, on March 23, 2021, to discuss the current market dynamics and the outlook for recovery.

Extended-stay hotels have long been the industry's answer to those seeking accommodations similar to an apartment, but without the need to sign a long-term lease. Stays can be as short as one overnight or as long as years, in rare cases, but generally trend from two weeks to a couple of months.

Rod Clough, President – Americas, interviewed Dan McCoy, Managing Director and Senior Partner overseeing the U.S. Heartland region, on February 17, 2021, to discuss the current market dynamics and the outlook for recovery.

Rod Clough, President – Americas, interviewed Kasia Russell, Managing Director and Senior Partner overseeing the U.S. Pacific Northwest region, on February 3, 2021, to discuss the current market dynamics and the outlook for recovery.

HVS and The Lodging Conference hosted a free, live webinar, where leading hospitality executives shared their expert insights on what you can expect during 2021 and beyond.

The COVID-19 pandemic and resulting restrictions on domestic and international travel, economic activity, and individual movement are having an unprecedented impact on the lodging and tourism industry in Latin America. While government authorities across the region work to manage restrictions and phased reopening plans, uncertainty prevails over the duration of the global pandemic.

HVS compiled the Q3 2020 performance statistics of brands reported by public companies. The data reflect the gains made during the post-lockdown summer months versus a very low Q2; however, with leisure travel slowing in the current and coming quarter, coupled with the increasing COVID-related restrictions, this trend may be short lived.

Since mid-summer, we have re-appraised 140 hotels that we valued in the years and months leading up to the onslaught of the COVID-19 pandemic in March 2020. Not every hotel has lost value, but value declines have predominantly fallen in the range of 15% to 30%.

Why is this guide more relevant that ever?

Among all the many peculiarities of the hotel industry, the hotel management contract is likely the most unique. A binding contract between owners and operators which has evolved over almost six decades. In fact, the first hotel management contract was signed for the Hong Kong Hilton, which opened in 1963.

The management contract structure allowed hotel companies to expand rapidly and become what is nowadays known as “asset light”. Of course, hotel owners stand to benefit in that they can bring in sound management expertise to their property and partake in the financial upside, unlike a traditional lease model which preceded it. Leveraging their management expertise, operators pushed for the hotel management contract to rapidly become the norm in the industry as a ‘take it or leave it’ proposition to owners.

Over time, the hotel management contract has become an intricate web of terms and clauses that defines the relation between owner and operator. The balance of power in this relationship needs to be carefully established, which was, and unfortunately still is, not always a given. Owners need to be on their toes and bring in expert advice from consultants and lawyers to navigate the complexities of an agreement which can bind them for decades to come.

As the role of the hotel asset manager stands to become more prevalent around the globe and the COVID-19 pandemic ushers in a new era, this is a space that needs to be closely watched. These testing times will cast a shadow on management contracts and call for change on multiple provisions. As we have observed in numerous instances, a strong property that is appealing to operators can secure significantly more favorable terms than a “standard” hotel. After all, gaining market share to impress investors may be more important to some operators than securing strong contracts.

This year’s HVS Guide to Hotel Management Contracts by Daniel J Voellm and Eunice Wong gives insights into prevalent terms and how contracts have evolved in the last six years. This guide provides a global reference for owners to understand the language of hotel management contracts while demonstrating our extensive hands-on experience. The authors provide insight into the five principal sections of a management contract: term and renewals, operator management fees, performance test, budget and expenditures, and termination of the contract by owner. Key money and indemnification are also addressed.

We hope this guide can serve the industry as a reference to make better decisions, effecting better and more balanced relations between owners and operators.

 

VIEW EXCERPTS | HVS GUIDE TO HOTEL MANAGEMENT CONTRACTS

 

• The full guide and survey report comprising around 100 pages can be purchased for US$2,000.

All reports are available in PDF (soft copy) only. A personalized copy of the report will be sent.

For more information, please contact Rod Clough, MAI at rclough@hvs.com.

Each year, HVS researches and compiles development costs from our database of actual hotel construction budgets. This source provides the basis for our illustrated total development costs per room/per product type.