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Experts share key management selection tips - March 23, 2012 - by Stephanie Wharton, Reporter


ATLANTA — Choosing a management company, negotiating a contract and living with it can be a daunting task for a hotel owner, with many not having the slightest idea of where to begin.

In a session titled "Management Companies" at the 2012 Hunter Hotel Investment Conference, operators and consultants outlined what owners need to know before, during and after executing a contract.

Choosing a management company
There are several elements to look for in a management company before an owner signs on the dotted line, said Richard Pastorino, principal of Revpar International, a full-service hospitality advisory and asset management firm.

The financial strength of the company, average length of executed contracts it currently has in house, portfolio-wide guest satisfaction scores and top-line and bottom-line performance of its portfolio are all quantitative factors that are important for an owner to consider.

"We also look at the difficulty of changing out the management company. We don't like to focus on the downside, but if things aren't working out for any reason, we don't want a totally encumbered process where it's difficult … to leave," Pastorino said.

When dealing with a management company that describes itself as full service, its quantitative and qualitative factors need to be evaluated from an operational standpoint, said Jeffrey Kolessar, senior VP of development at GF Management.

A company that handles its own accounting, IT services, sales and marketing support, revenue management and HR, among other functions, rather than outsourcing them to a third party are what owners should look for from a full-service team.

"Can the company handle everything internally here or are they outsourcing certain functions?" is a question owners need to ask themselves, Kolessar said.

Although there are successful management companies that cover the entire U.S., size and location of the company need to be considered by owners, said Paul Breslin, managing partner of Panther Hospitality.

First and foremost, owners need to list personal objectives and why they decided to select a management company. In doing so, it will become clear if location and size are important. For example, if the owner is looking for a strong sales force, staffing size of the company significantly comes into play, Breslin said.

As far as location, it is often important to be in close proximity so the management company can view the property when needed, understand demographics and know demand generators in the region.

"If there's a plan to address and really grow there and they're putting a regional person there … on their dime, it can be really strategic," Breslin said.

A management company's track record of profit-loss statements is helpful to an owner trying to gauge the company's success, said Ben Seidel, president and CEO of Real Hospitality Group.

The best question owners ask Seidel is "what is the percent change from when you took over?" he said.

Companies in rapid growth cycles might not always be the best choice, however, Pastorino said.

Those who are performing well will often get new business through word of mouth, Pastorino said. But there is one thing to be wary of: "Depending on where you are in the line of picking up that management company or deciding on that management company as an owner, you need to be careful. If they're taking on too much too quickly … there's an effort you're going to have to put in to help manage their growth," he said.

Most successful management companies would be proud to show an owner financial statements and tell their success stories, Breslin said. These are good ways to measure how a company is performing.

Negotiating a management contract
Before an owner accepts a 2% base fee from a management company, he or she needs to go through the contract and determine if there are additional costs to determine if that 2% is a good deal, Pastorino said.

"A lot of management companies will charge an accounting fee," he said. Owners need to find out whether or not this is something they can opt out of.

Telling the management company about the expectations of the town the property is located in also is critical during the negotiating process, Breslin said. There might be a deeper culture if the company believes in a more expensive health plan or spending an extra $10,000 to hire a quality GM or director of sales.

Living with a management company
Within the first 90 days, the hotel should be fully staffed, fully marketed and fully engaged with the brand unless the property was taken over in an emergency situation, Breslin said. "There's no second chance to get the best start. That first impression is critical," he said.

Management companies should provide various reports to the properties, Pastorino said. Some are able to provide owners with daily reports on performance, but STAR reports, bank statements, brand scores and reservation reports are the reports traditionally expected.