Articles Posted in Hotel Management Agreements

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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
by
Guy Maisnik | 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 →

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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!

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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.

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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.

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4 December 2013

Hotel Lawyer on the jump in hotel development and investment activity.

These are getting to be pretty exciting times to be in the hotel business. Hotel industry fundamentals have continued to improve since the Great Recession and none of the experts see a particular event or reason that fundamentals will stall. Although occupancy growth rate is slowing in some sectors, ADR growth generally continues to drive greater profits to the bottom line.

All this activity creates “management agreement opportunities”

New development is finally coming back, and 2014 may be a break-out year for long-delayed projects. The volume of purchase and sale transactions continues to grow. And owners or investors are seeking to maximize hotel value by repositioning existing assets.

The confluence of these factors is creating a lot of hotel management agreement opportunities for hotel brands, operators and owner/developers.
The 2 most important things affecting the value of your hotel

In the midst of all this activity, hotel developers and investors should remember that two of the most important things they can do with their hotel asset are to

  1. Choose the “right” brand and operator
  2. Negotiate a management agreement that preserves a reasonable amount of value, control and flexibility

And . . . get practical guidance on these issues from experienced veterans representing your interests (and only your interests) at the earliest possible time in the process.

New White Paper on short term management contracts
In case you missed it, Hotel Management recently published an excellent white paper that is highly relevant to all of these hotel management agreement opportunities. The article is called, “The Evolution of Short-Term Management Contracts“. Click here to download a PDF of the article.

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1 April 2013

Hotel owners: How the appellate decision in Marriott International v Eden Roc can affect your hotel investment (and why you should understand the law behind the court’s decision)

As we reported in our 27 March 2013 blog, a New York Appellate Division court made it possible for the owners of the Eden Roc Renaissance hotel in Miami Beach to oust Marriott as its operator — despite the long-term hotel management contract between the two, which would have lasted another 43 years. (See “Marriott loses appeal in Eden Roc case: Why all long-term hotel management agreements are now terminable.”)

Setting the stage: owner-operator disputes over hotel management agreements

The relationship between a hotel owner and hotel operator is complex. While the owner bears the financial risk of the hotel’s success or failure and its gain or loss in value, the operator has the exclusive right to manage the owner’s business and is paid “off the top” whether the hotel is profitable or not. The contract between the owner and operator — the hotel management agreement — typically transfers control of the hotel’s assets to the operator.

Hotel owners nationwide are keenly aware of both the benefits and impediments of long term hotel management agreements with branded operators (and nearly all such contracts are long term, often running 40 or 50 years). On the upside, the brand can provide stability, consistent standards, a reservation system, marketing expertise and professional staffing. But the downside can be hard for owners to live with — brands can rigidly incur needless expenses, be unresponsive to market conditions and impervious to the owner’s need to run a profitable business and protect its asset.

While the majority of hotel owners and operators work hard to achieve a balance that is a win-win for both parties, it is easy to understand how things can go badly, fast.

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29 March 2013

Hotel Lawyer on branding your hotel or running it as an independent. When should you brand your hotel and when should you leave it unbranded? How do you know when the benefits justify the costs? And if you decide to brand, should you go with brand management or an independent operator? What are the considerations?

Few decisions are more important. Here is hotel lawyer, Robert Braun to share some insights garnered by our Global Hospitality Group®’s experience in helping clients with more than 1,000 hotel management agreements and franchise agreements.


To Brand or Not To Brand
(your hotel)
by
Robert E. Braun | Hotel Lawyer

Why the hotel branding and management decisions are so important

One of the first decisions in the hotel development or acquisition process can have a lasting impact on the success of the project: whether the property should be branded, and whether that brand should manage the property. The hotel’s brand will be a defining part of the profitability, image and value of the hotel, and there may be no other decision which has a greater effect on the future of the property. Similarly, the management of a hotel can enhance the value of the brand, protect the owner, or detract from the value of the hotel — by as much as a 50% swing.

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16 February 2013

Hotel Lawyer on the Pros and Cons of dual-branded hotels

Dual-branding of hotels in a single structure or complex is quite a trend in the hotel industry and has been picked up by the popular press.

The hotel lawyers in JMBM’s Global Hospitality Group® have been working on dual-branded hotels for some time, so we thought we would share some our observations on the pros and cons of this approach.

My partner, Bob Braun, has worked on many hundreds of hotel management agreements and franchise agreements, and has written this article to provide an important update on this subject.

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30 December 2012

Hotel Lawyer on the spike in reflagging hotels. It’s often good news for us when the business section of a major newspaper explains what is going on in the hotel sector. (And nice, too, when the paper includes a quote by yours truly.)

The topic? How and why hotel owners reflag properties. The reason for the story: the Great Recession has changed just about everything.

In the New York Times article, Dressing Up for Success, reporter Amy Zipkin says: “According to statistics from Smith Travel Research, a research firm in Henderson, Tenn., nearly 2,500 hotels were reflagged in 2011. While that represents just a 5 percent sliver of all hotel properties in the United States, it was still a 39 percent increase from 2010.”

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19 September 2012

JMBM’s Global Hospitality Group® releases 2nd Edition of The HMA Handbook,
Hotel Management Agreements for hotel owners, developers, investors and lenders

LOS ANGELES–The Global Hospitality Group® of Jeffer Mangels Butler & Mitchell LLP (JMBM) today announced the publication of the 2nd edition of The HMA Handbook, a practical guide for hotel owners, developers, investors and lenders negotiating, re-negotiating or terminating hotel management agreements (HMAs).

Co-authored by JMBM’s Global Hospitality Group® Chairman, Jim Butler and Partner and Senior Member of the Group, Robert E. Braun, the 1st edition of The HMA Handbook was released in March 2011 to an enthusiastic readership, evidenced by thousands of requests for the electronic book.

Taken from content available on the Hotel Law Blog, the new and expanded 2nd edition of the HMA Handbook adds 5 new chapters of the practical advice readers have come to expect from JMBM’s Global Hospitality Group®, including:

  • 10 tips for negotiating a hotel management agreement
  • An update on HMA litigation and fiduciary duties
  • Case studies on the terminations of the Waikiki Edition and Turnberry Isle hotel management agreements

CONTINUE READING →

Contact Information
Jim Butler, Chairman
Global Hospitality Group®
Jeffer Mangels Butler & Mitchell LLP
(310) 201-3526 • jbutler@jmbm.com
www.HotelLawyer.com

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