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Hotel Attorney on Hotel Management Agreements. How to get the right hotel operator: part 2

The Hotel RFP Process: How to create value
| Author of www.HotelLawBlog.com
29 April 2008
Keywords:

Hotel Operating Agreement, HOA, Hotel Management Agreement, HMA, Hotel Management Contract, Management Contract. Hotel Operator, Hotel Manager, Hotel Owner. RFP for Hotel Manager. RFP for Hotel Operator, How to get a great hotel operator.

Terminology

Contracts between hotel owners and managers (or operators) controlling the management of a hotel go by various names. They are called hotel management agreements, HMAs, hotel management contracts or hotel operating agreements. For convenient reference, this article will generally use the term “Hotel Management Agreement” or “HMA.” However all these terms can be used interchangeably and mean the same thing, just as with hotel operator or hotel manager.

Whatever they are called, Hotel Management Agreements allocate risk between the hotel manager and the hotel owner. They are critical in determining the profitability and value of a hotel.

Hotel Attorney on Hotel Management Agreements . How to get the right brand and operator for your hotel project . . . and a deal you can live with — The Hotel RFP Process.

Recently, I talked about some important lessons our hotel attorneys in the Global Hospitality Group® have learned about hotel management agreements — lessons learned in the course of working on more than $50 billion of hotel transactions involving more than 1,000 properties all over the world. Specifically, we looked at

* How the terms of your hotel management agreement can easily raise or lower the nominal value of your hotel by 25% or more
* The 5 biggest mistakes owners make in pursuing hotel management agreements (and how to avoid them)

In case you missed our earlier discussion, please see “How to get the right hotel operator – part 1“. You will find it with some other great Hotel Management Agreement resources under the topic by that name at www.HotelLawBlog.com.

One of the keys we discussed to maximize the value (and avoid the common pitfalls) is the Hotel RFP Process. What is it? What are the steps that should be included in every RFP? Where do you get the form or checklist? What kind of assistance do you need? Here are the answers that may save you a lot of money!


What is an RFP? What critical steps should be included in every RFP? How does the process work and what do the documents look like? Isn’t there just some form we can see?

These are the questions many developers and owners ask me when I suggest the Hotel RFP process. I usually spend quite a bit of time making sure they understand how the process works and how it can make a huge difference in the success of their project. (They usually sit up and pay attention, because this is the kind of information that can make them money! )

Here we go…

What is an RFP?

Many government bodies and private companies use an RFP or Request for Proposal to solicit interest in providing goods or services to the party issuing the RFP. It is often a good way to find the best qualified providers of the goods or services at a fair price. But like many other things, the RFP takes its own form when successfully adopted for use in the hospitality industry — particularly in selecting a hotel brand or operator. In fact, it is a much more interactive process with more dialog when used properly for this purpose.

We are sometimes asked by well-meaning friends or clients if we can just give them the RFP form or checklist. That is the tip off that someone needs some more background information to understand what an RFP for a hotel operator really is and how to make it work.

First, the RFP Process is a “process” and involves some important documents. Both the process and the documents should be carefully integrated to address all the relevant business, legal and hotel industry issues. It needs to be customized to your situation. We don’t pull it off the shelf, but after doing more than a hundred of these, the documents are the easiest part of the exercise, once the all-critical business judgments are formed.

The process and documents can look very different from deal to deal, and combine or separate important steps. This is not something a typical lawyer does, but JMBM’s team is known for being more than “just” great lawyers . . . we bring the business, legal and hotel aspects all into focus. We don’t just document the deal, we work to get you the best deal. And the Hotel RFP process is a great strategy for positioning your project to get the best terms possible.

For example . . .

What is the RFP Process? What are the steps?

Let’s begin by talking about what your RFP process might be like, and how we might help you with it. Your RFP can take many forms. It could be a very short letter inviting proposals. More often, it is a longer document that lays out certain important business points or considerations that you hope to accomplish. And in some cases, it may be desirable to prepare a very comprehensive document with numerous exhibits that describes the subject project in considerable detail, includes market and feasibility reports, projections, specifications, and may discuss the desired terms and conditions, or even attach a proposed form of documentation to be used, and require all material requests for changes to the document be submitted as part of the “bid” process.

The RFP can be presented in many different successive steps, such as:

• Soliciting an indication of interest in participating in the RFP or discussions with the owner/developer
• Requesting a confidentiality agreement in order to receive further information
• Providing different levels of information to RFP candidates in two or more stages
• Granting access to a “due diligence room” or providing a “book” of information and exhibits
• Marketing to potential RFP bidders to whet their appetites, create excitement for the project, and show them how much there is to gain if they reach to get the deal
• Collecting, reviewing and analyzing proposals
• Requesting clarifications of proposal deal points
• Running an interview process with selected finalists leading to a “best and final” proposal process
• Ultimately, negotiating and preparing final documentation with a selected candidate or two

5 Factors that determine what your RFP looks like. Is it just a notice to take bids? (NO!)

How the RFP is shaped — i.e. how many steps, how much information is provided when, and whether the party conducting the RFP “sells” the deal first to raise enthusiasm, and other elements — depends on unique considerations in each deal.

In the next installment of this article, I will cover 5 Factors that determine what your RFP looks like, and The 16 Step Program — steps to a successful RFP Process. Hotel developers and owners — and mixed-use developers with hotels in their projects — will not want to miss this valuable information. See, “How to get the right hotel operator, part 3.”

Hotel Management Agreement resources

If you found this article helpful, you may also find of interest these other articles on Hotel Management Agreements and related brand topics on www.HotelLawBlog.com:

Hotel Lawyer: The 5 questions every owner should ask before selecting a hotel brand

How to get a great hotel operator

Hotel Management Agreements 201

How to terminate a hotel management agreement when an operator really deserves it!

Hospitality Lawyer on “LIFESTYLE” hotel mixed-use development. Are Valencia and Miraval the new paradigms for “lifestyle” hotel mixed-use?

Hospitality Lawyer on hotel brands — How far will the pendulum swing? What’s in a name? Just ask Starwood, Hilton . . . Coca-Cola or Procter & Gamble

Hospitality Lawyer Baja Mexico — So what’s a brand? How did Trump get into this conversation?

Hotel bankruptcy trump card. Terminating hotel management agreements without liability — the alchemy of lead to gold for troubled hotels and hotel loans?

Terminating hotel management agreements when things don’t work? Not easy, but not impossible either.

This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We’ve done more than $50 billion of hotel transactions and more than 100 hotel mixed-used deals in the last 5 years alone. Who’s your hotel lawyer?

________________________
Our Perspective. We represent developers, owners and lenders. We have helped our clients as business and legal advisors on more than $50 billion of hotel transactions, involving more than 1,000 properties all over the world. For more information, please contact Jim Butler at jbutler@jmbm.com or 310.201.3526.

Jim Butler is one of the top hotel lawyers in the world. GOOGLE “hotel lawyer” or “hotel mixed-use” or “condo hotel lawyer” and you will see why.

Jim devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders. Jim leads JMBM’s Global Hospitality Group® — a team of 50 seasoned professionals with more than $50 billion of hotel transactional experience, involving more than 1,000 properties located around the globe. In the last 5 years alone, Jim and his team have assisted clients with more than 100 hotel mixed-use projects, all of which have involved at least some residential, and many have also involved significant spa, restaurant, retail, office, sports, and entertainment components — frequently integrated with energizing lifestyle elements.

Jim and his team are more than “just” great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them. They are a major gateway of hotel finance, facilitating the flow of capital with their legal skill, hospitality industry knowledge and ability to find the right “fit” for all parts of the capital stack. Because they are part of the very fabric of the hotel industry, they are able to help clients identify key business goals, assemble the right team, strategize the approach to optimize value and then get the deal done.

Jim is frequently quoted as an expert on hotel issues by national and industry publications such as The New York Times, The Wall Street Journal, Los Angeles Times, Forbes, BusinessWeek, and Hotel Business. A frequent author and speaker, Jim’s books, articles and many expert panel presentations cover topics reflecting his practice, including hotel and hotel-mixed-use investment and development, negotiating, re-negotiating or terminating hotel management agreements, acquisition and sale of hospitality properties, hotel finance, complex joint venture and entity structure matters, workouts, as well as many operating and strategic issues.

Jim Butler is a Founding Partner of Jeffer, Mangels, Butler & Marmaro LLP and he is Chairman of the firm’s Global Hospitality Group®. If you would like to discuss any hospitality or condo hotel matters, Jim would like to hear from you. Contact him at jbutler@jmbm.com or 310.201.3526. For his views on current industry issues, visit www.HotelLawBlog.com.