Hotels are probably one of the
most complex and challenging forms of property ownership…and
potentially one of the most financially rewarding. In addition
to their unique operating aspects - renting fractions of the property
on a nightly basis (rather than the rental of part or whole of
the property on a multi-year basis as with traditional leases)
- hotels typically are entrusted to third parties to brand the
asset and manage the business.
Whilst all parties have a vested
interest in the hotel business maximising revenues and generating
profit, the goals of hotel owners/investors are rarely philosophically
or financially fully aligned with the goals of the brand and the
hotel management company.
Operators and brands often have
other goals, which can be in direct conflict with maximising the
owner’s return. For example, the brand has a vested interest
in maintaining “the brand standards” that may not always
be in the best economic interests of the owner.
In one recent renovation, to comply
with new brand standards, the replacement of all TV’s with
TFT monitors was required. Whilst in itself a perhaps modern competition
beating move, the cancellation of the existing TV rental contract
– at the owners expense - together with the capital investment
required in new technology, made brand standards compliance totally
uneconomic. We define this conflict as brand equity versus owners’
equity. The question becomes, how does a hotel property owner/investor
balance these interests and ensure that its own investment comes
first with every decision made about the asset?
The answer is simple: Active Ownership.