Articles Posted in Hotel Management Agreements

Published on:

21 September 2016

Have you noticed the explosion of new brands from hotel companies over the past few years? At JMBM, we do a lot of work with branding through license agreements, management agreements and other arrangements. So we asked my partner Bob Braun to give us some insights on what this is all about and what significance it has.

Here are Bob’s thoughts, along with some practical advice on what owners and developers should do in this situation.

Hotels – Brand Expansion or Brand Explosion?
Bob Braun, Hotel Lawyer

Consumer oriented companies commonly use “brand extension” to launch a new product by using an existing brand name on a new or related product, often in a different category. These companies use brand extension to leverage their existing customer base and brand loyalty to increase profits with a new product offering. CONTINUE READING →

Published on:

13 June 2016

To maintain the confidentiality of hotel data, STR imposes certain restrictions on the hotels for which it will provide competitive set data. The Marriott-Starwood merger is shaking up the world of competitive sets with the result that many owners will need to revise the competitive sets specified in their hotel management agreements.

As Bob Braun explains in the article below, considering the need to identify appropriate hotels for new competitive sets, and negotiation of amendments to hotel management agreements, it would probably be wise to start now on this process.


STR Adopts New Competitive Set Guidelines – Impact on Owners

Bob Braun, Hotel Lawyer and Data Security Advisor

The importance of the competitive set

Many hotel management agreements contain performance test standards allowing an owner to terminate a management agreement if the hotel fails to meet specified guidelines, and most of those tests incorporate a “RevPAR Test” – whether the hotel’s revenue per available room is comparable with a set of competitive hotels, its “competitive set.” The RevPAR test typically allows an owner to terminate a management agreement if the hotel’s RevPAR fails to meet a specified percentage, or index, of the competitive set’s RevPAR. Competitive sets can also be used to determine incentive pay or for other measures of performance, as well as projections of potential performance.

The competitive set data is typically provided by a single source: STR, Inc. STR has established itself as a unique provider of supply, demand, and overall performance data for the hotel industry by collecting financial performance and other information from a vast number of hotels in the United States, and using that information to create anonymized measures of performance. CONTINUE READING →

Published on:

23 November 2015

As the biggest merger in the history of the hospitality industry,  the Marriott-Starwood merger, is grabbing headlines worldwide. Most of the recent press has focused on the sheer size of the potential transaction. But in his article below, my partner and hotel lawyer Bob Braun, considers the practical impact of the merger on hotel owners, franchisees and developers. With the loss of the Starwood family of brands as an independent and significant competitive force in the industry, the merger will bring mixed blessings to stakeholders.


The Marriott-Starwood merger – Is bigger really better?

Impact of the merger on hotel owners, franchisees and developers

Robert E. Braun | Hotel Lawyer

The proposed merger between Marriott and Starwood will, by all accounts, create a behemoth in the hotel industry. If the merger goes through as planned, the combined company will be the world’s largest hotel company, with more than 5,500 hotels under management or franchise, 1.1 million hotel rooms around the world, 30 hotel brands and up to 75 million hotel loyalty members.

While commentators have speculated as to whether the combined entity will benefit consumers, stockholders or frequent guests, little has been said about how it could impact hotel owners, franchisees and developers currently in either of the brand families or looking to them in the future. No one will really know until after the merger (if it is, in fact consummated, and there are a variety of hurdles to closing such a complex transaction), but the JMBM Global Hospitality Group has negotiated many hundreds of franchise agreements, including agreements with virtually every major hotel brand, and we believe hotel owners should consider a few important factors:

Will Owners Have Fewer Choices? The first, and most obvious, impact on any potential owner is that the field has been reduced by a significant player. Thirty brands (31, if we include the new Grand Sheraton brand) may remain, but in fact they will be operated by a single entity, and that entity will decide on what brands will be available in a given market. Moreover, the differences between particular brands in a given price or quality segment are likely to be reduced. How long, for example, will Sheraton or Le Meridien hotels be markedly different from Marriott or Renaissance properties? Where will they be positioned relative to other brands in the new combined family?

Any hotel owner, franchisee or investor should also recognize that the Marriott-Starwood merger might only be the first of its kind. Many analysts predict that other brands will merge to create the size and influence that will allow them better to compete with the largest hotel branding company in the world. If that happens – and transactions like this seem to occur in bunches – owners will have even fewer choices.

Will Owners Have Reduced Leverage? The immediate corollary to fewer choices is reduced leverage. A hotel owner will no longer be able to create a competition between two of the largest players in the business; Marriott/Starwood is unlikely to bid against itself for management or franchise opportunities.

This challenge is likely to extend beyond just the merger of Marriott and Starwood. Other major brands – Intercontinental Hotel Group, Hilton Hotels, Hyatt Hotels to name a few – will have greater bargaining power when negotiating with owners because there will simply be fewer competing companies.

Will Hotel Companies be Less Flexible? A common concern among hotel owners is the desire for their brands to acknowledge the unique qualities of each property. While some franchised or branded businesses can achieve a high degree of uniformity, hotels are special, and hotel owners need brands to recognize that. As much as brands strive to create a consistent experience at all properties operating under the same name, local differences – whether it be location, common amenities, zoning, legal restrictions, competition or otherwise – have to be addressed. But larger companies have greater reasons to increase efficiency and reduce variations between different properties, and hotel owners may have difficulty ensuring that local needs are met.

Will New Players Step Into the Breach? At the same time, it may be possible for new, smaller and more nimble brands to make inroads in this market. If there is less differentiation between different flags, if the larger players are less flexible, the smaller players may find inroads and opportunities that are closed to them now. It’s even possible that Marriott-Starwood may choose to shed some brands, for antitrust or business reasons, giving rise to new competition.

The JMBM Global Hospitality Group® believes that hotel owners should be mindful of these concerns when considering their branding opportunities, and when negotiating with brands. Our practice focuses on leveling the playing field between brands and owners, and creating a lasting, functional relationship between them. While this merger may lead to a new set of rules for the road, we are ready to help our clients understand the new realities navigate the new landscape.


Published on:

23 June 2015

Jack Westergom, Managing Director of Manhattan Hospitality Advisors, discusses hotel operating agreements, asset management, and the RFP process in the video below.

Jack spoke with David Sudeck, a senior partner in the JMBM Global Hospitality Group®, as part of our video interview series on hotel finance and investment opportunities in 2015.

A transcript follows the video.

Jack Westergom discusses hotel operating agreements, asset management and cycles - Meet the Money®

David Sudeck: I’m David Sudeck. I’m a senior attorney with Global Hospitality Group® at Jeffer Mangels Butler & Mitchell. We’re here at the 25th Annual Meet the Money® Conference. I’m here with Jack Westergom, Managing Director of Manhattan Hospitality Advisors. Welcome.

Jack Westergom: Thank you. CONTINUE READING →

Published on:

22 December 2014

Click here for the latest articles on Hotel Management Agreements.

A version of this article first appeared in Hotel Business Review in December 2014, and this article is reprinted with permission from


The shrinking terms of hotel management agreements

Better bargaining position for hotel owners on HMAs


Jim Butler and Mark S. Adams | Hotel Lawyers

The relationship between hotel owners and managers continues to evolve. Hotel management agreements historically were long-term. Fifty to sixty year terms were common. However, in the last few years, hotel owners have successfully negotiated shorter contract durations and other more favorable terms, even from the largest and most sought-after major brands. This trend is likely to continue and expand as brands realize that hotel owners have the power to terminate so-called no cut, long-term hotel management agreements, despite contrary provisions in the contract which courts now routinely ignore as a matter of public policy.

The Separation Of Hotel Ownership From Hotel Operations

Trade, pilgrimage, conquest, and adventure have been the driving forces of travel since ancient times. For more than 5,000 years, accommodations for these travelers were provided by inns or monasteries. These lodging facilities were typically owned and operated by the same persons. That ownership pattern still exists today, particularly among mom-and-pop operations or small chains, but more and more, there is a separation of hotel ownership and hotel management.

This trend first gained traction when Kemmons Wilson started the first hotel franchising of Holiday Inns in the 1950s, and picked up momentum in the next couple of decades when hotel operators decided to move hotel real estate off their balance sheets with sale-leaseback transactions, and when hotel investors bought hotels and elected to lease their hotels to professional hotel operators. The separation of ownership and management continued and became the prevalent structure as hotel management agreements were developed in the 1970s and proliferated in the 1980s, 1990s and 2000s, particularly for larger, higher-end hotel properties.

But in the last ten or 15 years the franchise model has become the dominant one, at least by number of branded rooms, and particularly for the rapidly expanded extended stay and select service segments of the industry. Under this model, ownership is separate from branding, and usually a professional (unbranded) hotel management company is a surrogate for the brand.

Ultimately, the separation of ownership and management brought about by this evolution meant that the traditional hotel companies focused more on finding more owners of hotel real estate that they could brand and manage, and the owners of hotel real estate (lacking hotel brand or management capacity) focused on collecting rents or looking to their brand and operator to optimize profits. In other words, the concept of a hotel being owned by one entity and operated by another became a preferred model, whether under a hotel lease, hotel management agreement or a franchise.

Since the 1990s, when some estimate that 60% of the hotel rooms in the U.S. were unbranded, more owners have elected to brand their hotels to access the professional management, finaceability, marketing power and resources of the brands. Today, unbranded hotel rooms probably comprise less than 20% of the hotel rooms in the U.S. This massive shift to the brands further reinforced the separation of hotel ownership from hotel branding and management.

The separation has been facilitated by the fact that hotel guests do not particularly care who owns the title to the hotel real estate as long as the hotel’s physical facilities and service levels meet their expectations and are predictable, satisfactory, clean and safe. Branding was one way to provide assurances of consistency and meeting minimum brand standards. In this evolving dynamic, brands focused on operations, brand standards, and system expansion.  They were less capital-constrained because owners now provide the bulk of capital to build and maintain hotel real estate and related facilities.

The Hotel Management Agreement (“HMA”)

The HMA is one of the clearest separations of ownership and operation. A branded HMA with one of the traditional hotel management companies is typically a long-term agreement between the owner and operator under which the operator is delegated virtual control over the operations of the hotel. The principal provisions in an HMA are, as follows: CONTINUE READING →

Published on:

18 September 2014

Hotel Lawyer: New Uniform System of Accounts will affect your hotel management and franchise agreements. Are you ready?

Commencing January 1, 2015, the hotel industry will have a new, significantly revised set of guidelines governing accounting for hotels. That is the effective date for the recently published Uniform System of Accounts for the Lodging Industry, 11th Edition (2014) (“11th Edition”). This is just one of the many things that distinguishes hotels and the hotel industry from every other class of real estate. And the new rules will have a significant impact on a number of matters in hotel management agreements.

Here is a summary of the important changes from one of our industry friends who worked on the 11th Edition, Michelle Russo of hotelAVE.

How will the 11th edition of the Uniform System
affect your management agreement?

Michelle Russo, CEO, Hotel Asset Value Enhancement, Inc. (hotelAVE)

The AHLA issued the new 11th edition of the Uniform System of Accounts for the Lodging Industry (USALI) in July 2014.   The process took almost three years and the edition reflects the first time that ownership interests were included in the Financial Management Committee that previously comprised only operators, industry consultants, CPAs and educators.  While there are many changes from the 10th to 11th editions, this article addresses what owners and operators need to evaluate to understand the impact of the 11th edition on manager fees and performance tests.

Recommendations for Evaluating Current Agreements.

The 11th edition includes title and definition changes as well as new schedules.  For example Total Revenue is replaced with a new term called Operating Revenue.  There is also a new schedule that is reported below GOP that includes revenue not generated by the operator (including interest income, other income such as antenna lease income and cost recovery income).  You or your lawyer should determine how these changes affect base fees, incentive fees and performance tests.  Please note that these changes are effective January 1, 2015. CONTINUE READING →

Published on:

25 August 2014

Lately, it seems like everyone wants to buy — or sell — an independent hotel management company. And this may be one of the best times to do so in a long while. Here are some thoughts on this timely subject by two of our hotel lawyers who have just completed a successful sale of an independent operator.

Why this may be the time to buy or sell a hotel management company
A hot trend and five key issues

Guy Maisnik and Joyce Men | Hotel Lawyers

One of the hottest trends right now is buying (or selling) independent hotel management companies. The demand is coming from all directions – existing management companies, investment funds and foreign buyers. Existing management companies are scrambling for market share, economies of scale and strategic markets. Investment funds are looking for the direct control over their hotel investments through a captive management company as well as attractive economic returns that a great independent operator can achieve with limited capital investment and risk compared to hotel investment. And foreign owners share many of these goals, and see the acquisition of a hotel management company as a solid way of entering into the hotel market in the United States.

From the potential seller’s standpoint, the timing may be optimal for a sale at this point in the cycle. A management company’ sale price is typically negotiated as a multiple of earnings. Traditionally, this multiple is four to six times earnings before interest and taxes, after making adjustments for expenses that would not continue to the buyer, and deducting from the price any interest-bearing debt that the buyer assumes. However, in this market, hotel management companies with a proven track record of performance, and a high quality (sustainable) earnings stream  can command a price well in excess of six times earnings before interest and taxes with multiple suitors. The demand is there, but the process is complex.

And here are five key issues or questions you should consider before buying or selling a hotel management company. CONTINUE READING →

Published on:

2 April 2014

There is a new HMA Handbook! Actually, it is the HMA & Franchise Agreement Handbook (3rd edition), which makes some major updates to the “old” HMA Handbook (2nd edition).

A fundamental shift has taken place in the realm of hotel management agreements (HMAs) and we decided we could just not wait any longer to update our popular handbook on this important subject. So, it is with great excitement that my partner and co-author, Bob Braun, and I announce the publication of the 3rd edition of The HMA & Franchise Agreement Handbook.

Like all the handbooks in our We Wrote the Book™ series, it specifically addresses the needs of hotel owners, developers, investors and lenders. The news release below explains what all the commotion is about and will tell you how to get your free copy of The Handbook. As always, we invite you to share your comments and thoughts about the book with us.

Along with all the latest financing sources, and deal technology, we will be talking about HMAs and franchise agreements at the Meet the Money® national hotel finance and investment conference the first week of every May. We hope you can join us there!


Published on:

2 March 2014

Hotel Lawyer with a guest column from an operator of independent hotels

A growing number of hotel owners are facing the question of whether and how to brand their hotels, and who should operate them. The New York Times recently estimated that more than 2,500 hotels were reflagged in a single year, and that does not count the growing wave of new hotels coming on line through the development pipeline.

The hotel lawyers of JMBM’s Global Hospitality Group® think the branding and management decisions faced by anyone reflagging a hotel or developing a new one are among the most important a hotel owner will ever make, and we have written a fair amount to share our experience gained over more than 1,000 hotel management agreements and many hundreds of franchise agreements. [See links at the end of this article.]
After some of our articles were published on this subject, our friends at Benchmark Hospitality International started a dialog with us about their views on this subject. After a robust exchange of emails and a telephone conversation or two with Alex Cabanas, CEO of Benchmark, I don’t know that we have any significantly different approaches, but Benchmark did have a different way of putting it, and some of their terminology may facilitate clearer thinking. In any event, we thought this “voice” should be heard, and accordingly, we offer this guest column for your consideration.


Published on:

23 January 2014

As the economy and the hotel industry fundamentals continue to improve, hotel values have recovered to pre-recession levels in many of the top 35 hotel markets, the number of hotel transactions has jumped and new capital is pouring into hotels. This new capital — whether focused on new, ground-up development, or the purchase of neglected assets with a view to deep renovation and rebranding — is increasingly seeking new brands and management for their hotels. We have not seen this many people looking for a great operator and a fair hotel management agreement in many years!

Veteran hotel owners and developers know that all this good news needs to be tempered with some cold realism about the process they are about to undertake. They know that finding a great operator and negotiating a hotel management agreement they can live with is critical to the success of their investment and the value of their hotel.

In light of the many biased articles about hotel management agreements being written by operators (or by advisors to operators), my partner Bob Braun felt it was time to challenge all the “hay that has gone through the horse” and is being spread around.

The HMA Handbook and the Hotel Law Blog provide important information on this topic. For a more detailed discussion of relevant issues, we suggest you look at the links at the end of this article.