Hotel Management October 7, 2015 : Page 1
■ ➔ SUPPLY RISE .. pulse 8.4% 8.4% 7.9% 7.4% 6.2% Greatest supply forecast change 2015 to 2016 The Leading Hospitality News Authority Since 1875 HotelManagement.net Vol. 230, No. 12 | October 7, 2015 A Questex Hospitality Group Publication Pittsburgh Austin, Texas Houston New York Cleveland Source: PKF Hospitality Research SEE PAGE 18 FOR MORE TRENDS & STATS OWNERSHIP & MANAGEMENT Signing on the dotted line Successful, long-term relationships between hotel owners and management companies are built on trust, communication By Elaine Yetzer Simon MANAGING EDITOR Holiday Inn Milwaukee achieved 150-percent RevPAR share after conversion under Chesapeake Hospitality’s management. CHESAPEAKE HOSPITALITY NATIONAL REPORT – To a large extent, the hotel business is all about selling yourself and establishing relationships with guests. When SEE RELATED it relates to back-of-the-house is-STORY: sues, like hiring a management ◾ Sticking points company, both sides need to Page 64 sell the other on their goals and strengths before committing to a decade-long—or longer—contract. e rst step in securing a management contract is deciphering what an owner is looking for in a management company. While this often varies based on an individual hotel’s particular situation, Gary Avigne, VP of acquisitions and development for Waterford Hotel Group, said it’s important to remem-See Management contracts | page 64 Group business segment adjusts to new technology, new trends By Jena Tesse Fox ASSOCIATE EDITOR NATIONAL REPORT – After reaching a low point at This summer, the InterContinental Cleveland Hotel completed a major renovation of its Founders Ballroom and eight meeting rooms. INTERCONTINENTAL HOTELS the end of 2009, global business travel spending has increased 38 percent on a nominal level, according to the Global Business Travel Association’s Business Travel Index. Moreover, this past summer, the GB-TA’s Annual Global Report & Forecast predicted that global business travel spending will hit a record $1.25 trillion in 2015, a growth of 6.5 percent over 2014. e report predicted that growth will remain strong through 2019, with business travel project-See Group business | page 68 ONE – on – ONE Tihany Design’s ADAM D. TIHANY He has designed iconic restaurants and hotels, but he avoids creating a signature style | See page 22 ■ ➔ TRENDS & STATS. Performance forecast inside this issue SPECIAL REPORT. TECHNOLOGY. No complaints Guests and employees are happy with advantages provided by electronic locks. PAGE 38 Top multiunit owners More than 90 companies made this year’s list of multiunit owners and operators. PAGE 26 Increase in supply is expected to lower occupancy in top markets next year. PAGE 18
Ownership & Management
By Elaine Yetzer Simon, Managing Editor
Ownership & management
Signing on the dotted line
Successful, long-term relationships between hotel owners and management companies are built on trust, communication
By Elaine Yetzer Simon
NATIONAL REPORT – To a large extent, the hotel business is all about selling yourself and establishing relationships with guests. When it relates to back-of-the-house issues, like hiring a management company, both sides need to sell the other on their goals and strengths before committing to a decade-long—or longer—contract.
The first step in securing a management contract is deciphering what an owner is looking for in a management company. While this often varies based on an individual hotel’s particular situation, Gary Avigne, VP of acquisitions and development for Waterford Hotel Group, said it’s important to remember that owners are investors, and investors seek financial returns on their investments. Waterford manages 27 properties and 3,587 guestrooms.
“Owners want to know of a management company’s reputation, the operator’s track record of results, the experience and expertise levels within the operator’s organization, and the operator’s ability to work with important stakeholders, such as franchise companies and lenders,” he said. “Owners want management companies to be partners, sometimes legally with sliver equity investments, but always in terms of alignment of interests, shared objectives, and shared values.”
Alex Cabanas, president and CEO of Benchmark Hospitality International, said his company often refers to the three Cs: capability, capacity and character. Another requirement of owners? No surprises, according to Cabanas. “It’s imperative that the owner is aware of what is going on at the property,” he said. Benchmark manages 6,000 guestrooms at 34 properties.
According to Chris Green, SVP of operations and partner at Chesapeake Hospitality, which manages 4,867 rooms at 25 hotels, owners are looking for somebody that they can trust to actually manage and protect their hotel.
“They want managers to have a record, a long record, of strong performance,” he said. “They really want a manager to have the experience with their particular asset class or situation. If it’s a 200-room DoubleTree in a secondary market, they really want somebody who has seen that.”
Another critical requirement of owners is that potential management companies are on top of their game in terms of trends.
“They want a company that stays relevant to rapidly changing trends in the marketplace, whether it’s e-commerce or social media or advanced remarketing efforts,” he said. “They want the company that’s not too staid and too set in its way. They want somebody who’s flexible and is always learning.”
The vetting process goes both ways. Management companies have boxes they want checked off during the process, as well. Cabanas said his company first and foremost looks for alignment of goals and expectations, then respect from the owner.
“Any management can be choosy about what they take on, so just make sure that you have the skills and capabilities to match those goals and expectations,” he said. “Lack of communication creates a lot of anxiety, unnecessarily, so [we look for] a collaborative ownership relationship where everybody gets to take advantage of the intelligence in the room and come up with the best solution, and owners who recognize the talent that we bring to the table.”
Green said Chesapeake is particularly looking for owners that are committed to their asset.
“When I say committed to their asset, they’re willing to get required funds, the capital requirements, that they’re fully committed to operating within the framework of the brand that they’ve selected,” he said. “It doesn’t do any good to become a Marriott Courtyard and try to run it differently. You have to believe in what the brand offers to support the brand vision and be a good brand steward.”
Management companies want to work with owners/investors who are collaborative, transparent, communicative and responsive, according to Avigne.
“An operator wants to succeed for an owner in terms of delivering on the goals and objectives of the owner,” he said. “This is best accomplished when owner and operator work well together, and trust and respect each other.”
A long-range view of performance is something else that’s important to Chesapeake.
“Generally, when there’s either a management change or an asset change, there’s a transitional period,” Green said. “If an owner doesn’t have a longer-range view, it can create a difficult operating environment for the manager. Success doesn’t always come right away.”
Sealing the deal
Each company has its own strengths and advantages, and the key to securing the contract is communicating those positives and building a level of trust.
“Waterford Hotel Group has developed, owned and operated all manner of hotel product styles and segments, so a part of our strength resides in the depth and breadth of this experience,” Avigne said. “This enables us to translate our experience to the particular objectives of a specific owner and specific hotel. We believe in thorough communication with our owners in an effort to assure shared efforts and results, and this has proven to have been both a strength and a part of our value.”
Cabanas said Benchmark frequently talks about putting the owner’s interests first.
“It is their asset. As a management company, we’re not invested in the property,” he said. “They want us to act in the best interest of the individual property first. Making sure that we are nimble and responsive to the needs of the individual asset. Another thing we talk about a lot is sense of urgency, just in a desire to move and move quickly on resolution, on poor performers, and making sure that we have the same sense of urgency as they do.”
Referrals from other owners are what make the owner-management company world go around.
According to Green, many of Chesapeake’s deals are owner referrals. The company manages for 13 different owners currently.
“We are a very transparent company, so when we go to talk about a potential deal with the client, we bring a list of owners. They can call them and ask them anything they want,” he said. “In today’s world of TripAdvisor, they want real factual feedback from owners that we do business with.”
Cabanas agreed that a company’s reputation precedes it through the door.
“There’s no question that part of impressing and winning the deal is how we manage communication, how we manage whatever the response process may be that we’re going through, the information we prepare in advance, the amount of effort we put toward it,” he said. “Most of the time though, it really is the referral we get in advance, the recommendation that people provide saying that we’re good, and that is by far in my opinion the most important piece of evidence of our credibility.” ■HM
See Management contracts | page 64
SEE RELATED STORY:
◾ Sticking points
Holiday Inn Milwaukee achieved 150-percent RevPAR share after conversion under Chesapeake Hospitality’s management.
WATERFORD HOTEL GROUP
Waterford Hotel Group operates both the 409-room Marriott Hartford Downtown and the adjacent Connecticut Convention Center.
Length of term, alignment of interests are often tricky issues
By Elaine Yetzer Simon
As in any relationship, dealings between a management company and owner can have points of friction. And like other relationships, communication is vital to smoothing out those points.
Gary Avigne, VP of acquisitions and development for Waterford Hotel Group, said it is important to resolve issues as early in the process as possible.
“Management contracts are detailed and complex, and must reflect the specific needs of a particular owner and hotel; it cannot be boilerplate,” he said. “If owner and operator have together evaluated an opportunity, there is seldom contention.”
But when there are points of negotiation, Avigne said they often relate to alignment of interests, so items like term, early-termination fees, return on investment for the owner, incentive management fee and performance requirements are all important to work through.
One of the often-contentious issues is length of the management contract, according to Chris Green, SVP of operations and partner at Chesapeake Hospitality. Many management companies offer contracts with 60-day terms, but that’s not the kind of deal Chesapeake is interested in.
“We talk about relationships and having long-term, lasting value and really anybody who does what we do for a living knows that in 60 days you can’t make the kind of differences that really impact the hotel,” Green said. “Normally, you’re taking over a hotel for a reason. You’re going to have to do some deep heavy work to get it turning as the new manager.”
Another issue with short terms is on the people side. “Can you recruit and retain great staff on a super-short leash? Can you make the changes you need to make and to sell the marketing deployment? Can you change revenue strategy?” Green asked. “It’s really not possible, so term is always a concern.”
According to Alex Cabanas, president and CEO of Benchmark Hospitality International, owners and management companies have to learn to work through problems rather than focus on exit strategies.
“You’ve got to really get to know each other through the process and trust that you’re doing business with people where termination clauses are not going to come into play.”
Breaking it off
There comes a time in many negotiations where the most prudent course of action is to walk away. The art is in knowing when that time has come.
“My answer is the moment when it’s determined that alignment cannot be achieved,” Green said. “There’s really no value in it. I can tell you that Chesapeake has walked away from as many as we’ve taken on. It’s not a negative. It’s just right. If you can’t do business together, then why start?”
The relationship between management company and owner is a partnership, according to Avigne.
“This partnership should be based on shared values, vision and goals, and the assurances that the goals for the property will be met,” he said. “There are times when a meeting of the minds cannot be achieved and, in the best interest of all involved, the responsible thing is to walk away from negotiation.”
When problems crop up after a contract is signed, the entire relationship comes down to the trust the parties have built up during their time together.
“The owner/manager relationship has to have enough trust in it to manage through those difficult times,” Cabanas said. “When things are great, it’s really easy for everybody to look good. It’s when tough times come and tough decisions come that you have to manage through it. When that trust is gone, and the alignment is not there, and the communication is not there, that in my mind is the first sign.”
If that trust does not exist, it might be time to move on, according to Cabanas.
“When that trust is lost, I think it’s pretty difficult to get back,” he said. “Trust is the kryptonite to egos, because then people trust each other enough to be honest and to be humble in situations, and truly collaborate in a trusting way as opposed to trying to defend each other’s positions.” ■HM
BENCHMARK HOSPITALITY INTERNATIONAL
The Willows Lodge near Seattle completed a renovation in September. Benchmark Hospitality International manages the property.
Read the full article at http://www.hotelmanagementdigital.com/article/Ownership+%26amp%3B+Management/2280051/273949/article.html.
By Jena Tesse Fox, Associate Editor
Group business segment adjusts
to new technology, new trends
By Jena Tesse Fox
NATIONAL REPORT – After reaching a low point at the end of 2009, global business travel spending has increased 38 percent on a nominal level, according to the Global Business Travel Association’s Business Travel Index. Moreover, this past summer, the GBTA’s Annual Global Report & Forecast predicted that global business travel spending will hit a record $1.25 trillion in 2015, a growth of 6.5 percent over 2014. The report predicted that growth will remain strong through 2019, with business travel projected to grow 6.9 percent in 2016, 6 percent in 2017, 6.4 percent in 2018 and 5.8 percent in 2019.
In the U.S., business travel spending is expected to increase by 4.9 percent throughout 2015 for a total of $302.7 billion. Growth will substantially increase in 2016, with business travel volume growing by 3 percent to 502.8 million person-trips.
But while group travel is improving, the jury is still out on whether the growth will remain consistent, according to Warren Marr, managing director at PwC. “Group business is back, but the spend per group is not,” he said. But Marr said the situation is definitely improving from the worst of the downturn. “Groups would book for smaller times, and ancillary spend for receptions was reduced. It was not as profitable.”
The disparity in business is changing what kinds of hotels are being built, Marr noted. “The number of select- and limited-service hotels as a percentage of the total is much larger,” he said. “There is less in full-service development.”
In general, full-service hotels are the ones with larger meeting spaces, Marr said, but more brands are shifting their focus to smaller, limited-service options that typically cost less to build and operate.
Of course, this may change depending on demand, and Marr predicts that as business travel continues to grow, full-service hotels will become more attractive to developers and investors looking to bring in more groups.
While developers focus on the numbers of business and leisure guests to know what kinds of hotels are needed where, online travel agencies have become a significant disruptor in gathering accurate data. “It’s becoming more difficult for hotels to define when a guest is staying with a group in a hotel,” Marr said. “A person attending a conference can either book through the group site with the hotel or go to an OTA to try and find a better rate.”
Even if they initially book with the group, they may still wait and see if a lower price is advertised closer to the start of the event, cancel the reservation and rebook at the lower fare, which causes them to be listed as transient guests rather than as part of a group. “With larger groups, an increasing percentage of people attending will book outside of the room block, and as such, they are not categorized as group guests,” Marr said.
There is little that hotels can do to prevent this trend, Marr noted, but brands are offering perks—including complimentary breakfasts and free Wi-Fi—to keep guests booking through official channels. “It’s a lower cost for catching customers,” he said, noting that commissions paid to OTAs can negate profits made by having the guest stay at all.
Revenue managers, he added, should monitor and be aware of bookings through the brand site. The issue is that they should be sure that any decisions made to fill the hotel’s last rooms won’t drive a series of mass cancellations and rebookings.
“That’s a learning curve that revenue managers are going through,” he noted. “It’s supply and demand: While pricing should go up in some markets, the opposite is happening.” ■HM
See Group business | page 68
■➔ $302.7 billion
The amount U.S. business travel is expected to total in 2015.
Source: Global Business
This summer, the InterContinental Cleveland Hotel completed a major renovation of its Founders Ballroom and eight meeting rooms.
Read the full article at http://www.hotelmanagementdigital.com/article/Group+Business/2280054/273949/article.html.