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Results of its global hotel management contract survey.
Thursday, 21st August 2014
Source : HVS
HVS released the results of its extensive Hotel Management Contract Survey that collates and compares the key terms and clauses of management contracts across the United States of America, Europe and the Asia Pacific region.

Why does this Survey add to our Understanding of the Hotel Industry?

Never has there been a more diverse set of hotel management agreements in use. Management agreements were originally born of a desire to allow financial or passive owners to participate in the ownership of hotel real estate while contracting with branded managers to operate the hotel on the owners' behalf.

This desire has evolved into a very sophisticated market in which owners of the real property contract with owners of intellectual capital over the use, branding, and long-term control of hotel assets. It is clear that two fundamental forces drive management contract negotiation: the experience gained from the recent economic stresses applied to the entire industry, and matters specific to a given hotel in a given location. The current and next generation of contracts must anticipate both forces.

Today's hotel owners include real estate investment trusts (REITs), real estate hedge funds, real estate private equity funds, sovereign wealth funds, life insurance companies, pension funds and private wealth clients. Operators include global corporations with multiple brands for each market, global single-brand companies, and regional operators (both with and without brands).

While the relative strengths of the parties have a great influence on contract negotiations, it is not necessarily the case that the party with the greatest market capitalisation has the greatest power in any given hotel at any given time. With so many potential outcomes, how can one see the "big picture" and understand a contract's strategic levers?

Fortunately, a work like the "HVS Hotel Management Contract Survey" by Manav Thadani and Juie Mobar provides an excellent and invaluable survey that helps us understand the terms and language in contemporary hotel management agreements (HMAs). Theirs is the first survey with a truly global perspective on the structure of management contracts.

The authors present and address the unique features of HMAs in a direct and candid way providing owners, investors and lenders with a unique perspective that only comes from hands-on experience in the hotel sector over a long period of time. This depth of knowledge comes from a consulting and advisory team that works solely on hospitality assets. 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.

The authors' objective of providing insight into contemporary HMA practice is fully realised in this important work. In addition, by making this available for purchase via the HVS Bookstore, they have committed to educating a broad audience with relevant and current practice. I commend Thadani and Mobar for their excellent and invaluable survey.

Jan A. deRoos
Ithaca, New York, July 28, 2014


Jan A. deRoos is the HVS Professor of Hotel Finance and Real Estate at Cornell University's School of Hotel Administration. He is coauthor of The Negotiation and Administration of Hotel Management Contracts, long considered to be the industry's leading reference on hotel management agreements. The current fourth edition (2009), co-authored with James Eyster, is available at: general_books@cornell.edu or (607) 255-2933.

Commenting on the occasion of the international release of the survey report, Steve Rushmore, Founder of HVS says, "It has always been our endeavour to provide superior market intelligence to our clients and the industry as a whole, and the hotel management contract survey is yet another step in that direction. We believe that it will enable hotel owners across the globe to understand management contracts better, in addition to being a credible reference document that presents and distinguishes the key terms and clauses of management contracts across three major regions of the world."
 
Offering a truly global perspective on the structure of management contracts, the survey sample set comprises 236 contracts representing 57,055 hotel rooms, and 38 branded hotel companies (in addition to a few independent operators and several third-party management companies).

The full 35-page report (approx.) offers an insight into six principal sections of a management contract, which are recognised to be critical areas for owner-operator negotiations.

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Manav Thadani, Chairman – Asia Pacific, HVS and the co-author of this pioneering survey report says, "The hotel management contract survey is a global research initiative by HVS. While it has been authored by the New Delhi office of the firm, it would not have been possible without the collaboration of various other HVS offices across the world." He adds, "Having been involved in several hotel management contract negotiations myself, I sincerely believe that both owners and operators will find the survey report very useful and interesting. While it validates some of our pre-conceived notions on key management contact terms and clauses, the survey dismisses a few others throwing up some very remarkable findings. Overall, the survey showcases HVS' unique global repository of data and research abilities."
 
To download excerpts of the HVS Hotel Management Contract Survey Report, please click here.

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