or worse, long term. They may also lack expertise or the incentive to control costs, target the best market position for an individual property, maximize a hotel’s market penetration or possess the knowledge to find their way through the myriad of old and new distribution channels.

Given that the average management fees, which are currently around 2.5% of a hotel’s overall gross revenues (including any incentive fees), are significantly below the fees of yesteryear, is it any wonder. Over the last few years, in an attempt

As a hotel owner/investor with perhaps one or two hotel assets, you have invested your hard-earned capital and risked exposure to recourse on your loans in pursuit of a profitable lodging operation. Moreover, given your limited exposure to the hotel industry, you may have selected a professional management firm to operate your hotel. Perhaps a “first-tier” management firm, a company that not only franchises hotels but also provides management services. Alternatively, you may have selected a “second-tier” firm. That is a hotel owner/franchise holder with dozens, maybe even hundreds of hotels who manage their own assets and those of others. Or perhaps you may have chosen a smaller, boutique firm with possibly a hotel or two of their own who are seeking to grow their management portfolio. No matter whom you have selected, your expecting that they will have your best interests at heart with each decision they make. Well that may not exactly be the case.

The goals of lodging property owners and investors are infrequently philosophically or financially fully aligned with the goals their appointed management or at times even their brand. Operators and brands often have competing objectives, which are in direct conflict with maximizing owners’ return. For example, brands have a stake in maintaining brand standards and creating “brand equity” which may not always be in the best economic interests of an individual lodging asset. Sure brands will argue that what’s good for the brand will have some trickle down affect on you, but changing your brand new wallpaper behind the front desk from one shade of beige to a shade the brand wants to install at all of its hotels (which I have been asked to do by a major brand - who shall remain nameless) is really just a poor use of capital that will never impact either revenues or guest satisfaction.

Management companies, on the other hand, have an interest in growing their portfolios and their revenues (usually a percentage of yours) but may not be motivated to assist your lodging operation in achieving its individual peek financial performance in the short, or worse, long term. They may also lack expertise or the incentive to control costs, target the best market position for an individual property, maximize a hotel’s market penetration or possess the knowledge to find their way through the myriad of old and new distribution channels.

Given that the average management fees, which are currently around 2.5% of a hotel’s overall gross revenues (including any incentive fees), are significantly below the fees of yesteryear, is it any wonder. Over the last few years, in an attempt

owner/franchise holder with dozens, maybe even hundreds of hotels who manage their own assets and those of others. Or perhaps you may have chosen a smaller, boutique firm with possibly a hotel or two of their own who are seeking to grow their management portfolio. No matter whom you have selected, your expecting that they will have your best interests at heart with each decision they make. Well that may not exactly be the case.

The goals of lodging property owners and investors are infrequently philosophically or financially fully aligned with the goals their appointed management or at times even their brand. Operators and brands often have competing objectives, which are in direct conflict with maximizing owners’ return. For example, brands have a stake in maintaining brand standards and creating “brand equity” which may not always be in the best economic interests of an individual lodging asset. Sure brands will argue that what’s good for the brand will have some trickle down affect on you, but changing your brand new wallpaper behind the front desk from one shade of beige to a shade the brand wants to install at all of its hotels (which I have been asked to do by a major brand - who shall remain nameless) is really just a poor use of capital that will never impact either revenues or guest satisfaction.

Management companies, on the other hand, have an interest in growing their portfolios and their revenues (usually a percentage of yours) but may not be motivated to assist your lodging operation in achieving its individual peek financial performance in the short, or worse, long term. They may also lack expertise or the incentive to control costs, target the best market position for an individual property, maximize a hotel’s market penetration or possess the knowledge to find their way through the myriad of old and new distribution channels.

Given that the average management fees, which are currently around 2.5% of a hotel’s overall gross revenues (including any incentive fees), are significantly below the fees of yesteryear, is it any wonder. Over the last few years, in an attempt

lly fully aligned with the goals their appointed management or at times even their brand. Operators and brands often have competing objectives, which are in direct conflict with maximizing owners’ return. For example, brands have a stake in maintaining brand standards and creating “brand equity” which may not always be in the best economic interests of an individual lodging asset. Sure brands will argue that what’s good for the brand will have some trickle down affect on you, but changing your brand new wallpaper behind the front desk from one shade of beige to a shade the brand wants to install at all of its hotels (which I have been asked to do by a major brand - who shall remain nameless) is really just a poor use of capital that will never impact either revenues or guest satisfaction.

Management companies, on the other hand, have an interest in growing their portfolios and their revenues (usually a percentage of yours) but may not be motivated to assist your lodging operation in achieving its individual peek financial performance in the short, or worse, long term. They may also lack expertise or the incentive to control costs, target the best market position for an individual property, maximize a hotel’s market penetration or possess the knowledge to find their way through the myriad of old and new distribution channels.

Given that the average management fees, which are currently around 2.5% of a hotel’s overall gross revenues (including any incentive fees), are significantly below the fees of yesteryear, is it any wonder. Over the last few years, in an attempt

nt desk from one shade of beige to a shade the brand wants to install at all of its hotels (which I have been asked to do by a major brand - who shall remain nameless) is really just a poor use of capital that will never impact either revenues or guest satisfaction.

Management companies, on the other hand, have an interest in growing their portfolios and their revenues (usually a percentage of yours) but may not be motivated to assist your lodging operation in achieving its individual peek financial performance in the short, or worse, long term. They may also lack expertise or the incentive to control costs, target the best market position for an individual property, maximize a hotel’s market penetration or possess the knowledge to find their way through the myriad of old and new distribution channels.

Given that the average management fees, which are currently around 2.5% of a hotel’s overall gross revenues (including any incentive fees), are significantly below the fees of yesteryear, is it any wonder. Over the last few years, in an attempt

or worse, long term. They may also lack expertise or the incentive to control costs, target the best market position for an individual property, maximize a hotel’s market penetration or possess the knowledge to find their way through the myriad of old and new distribution channels.

Given that the average management fees, which are currently around 2.5% of a hotel’s overall gross revenues (including any incentive fees), are significantly below the fees of yesteryear, is it any wonder. Over the last few years, in an attempt to grow revenues, management firms are focused on creating incremental revenue by adding properties to their roster at lower fees. Many of these firms are keeping the same amount of personnel and resources in place spreading them over more assets.

Take the following example. At the current rate of fees, an additional $25,000 in hotel revenues represents about $500 in fees. Let’s face it, $500 is not a significant enough return on the additional efforts, staff time and resource allocations that would be required by the management firm to generate that additional $25,000. However, as the owner, it can make the difference between paying your mortgage from cash flow or out of your pocket.

The economic facts just don’t add up. Consider a typical, select-service hotel with 100 guest rooms, an average daily rate of $70 and a 70% annual occupancy. The average fees for this hotel would be around $35,000. With management firms per hotel revenues at this low level, what can an owner truly expect of them? While your hotel may benefit from any buying power, it will also absorb any expenses derived from the management firms related travel, accounting services, co-operative marketing, etc. This is often an area where some revenue lost in the last few years is re-gained by some less scrupulous management firms.

When fees are at this low level, the game becomes volume. It is not my intention to bash any management firm. I was the Chief Operating Officer of three small to mid-size firms operating national brands as well as luxury independent hotels and I currently represent many hotel owners through our consulting practice. I see both sides of the issue. But… there are few business focused on volume sales in any industry that come to mind as being known for outstanding levels of service to its customers.

So what is an owner to do? Become an informed owner who takes charge in monitoring their hotel’s performance (or who hires someone to do so for them). Realize that for $35,000 a year in fees, your services may be restricted to limited oversight of an on property manager; hopefully a go