Owner-operator conflicts uncovered

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21/10/2015 - Hospitality

The challenges posed by hotel owner-operator relationships have long been debated with recent events such as Hotelier Middle East’s ‘Great GM Debate’ casting a spotlight on the subject.

In an era where ‘asset light’ strategies are common, it is imperative to employ a knowledgeable asset management firm to handle the common conflicts that arise between the two parties.

TFG Asset Management’s recently launched ‘Hotel Pre-Opening Strategies’ whitepaper revealed the common conflicts pertaining to the Hotel Management Contract (HMC) can be grouped into four main categories:

1.Level of control and influence: Despite working towards a mutual goal, owners and operators tend to differ in their approach, which can blur the lines as to who has control and authority. It is therefore important to define the roles of each party. With the number of hotel management companies entering the marketing increasing, the bargaining power has swung in favour of hotel owners. In general, owners have more authority and influence during the pre-opening and opening phases. They approve, provide and monitor all budgets covering most aspects of the business, from staff recruitment to procuring Small Operating Equipment (SOE). The hotel operator tends to have more control over hotel operations post hand-over. Conflicts usually arise when the two parties disagree on a particular matter and strongly believe they should be the final decision makers. This presses the importance of employing an asset manager with hotel management expertise who can represent the hotel owner and help resolve conflicts with the hotel operator.

2.Brand standards: The owner’s perspective is limited to property level whereas the hotel operator tends to adopt corporate-level strategies to ensure global brand standards are met. The challenge is to find an equilibrium point between the operator’s wish to achieve uniformity and the owner’s desire the adapt to the local market.

3.Budgeting process: The owner’s interest is to minimise the overall financial requirements without compromising the property’s appeal in order to generate higher guest spend. It is the task of the designated asset manager to suggest a justified budget based on the hotel operator’s original proposal.

4.Pre-opening budget: Hotel operators tend to over-budget expenditure during the pre-opening phase causing friction with the hotel owner who aims to minimise spending. One method of tackling pre-opening expenditure conflicts is to enforce a transparency policy so the hotel operator must update the owner on all ongoing activities in order to justify expenses.

HMC conflicts are inevitable. The challenge is to resolve and manage them effectively without damaging the long-term relationship. The TFG Asset Management ‘Hotel Pre-Opening Strategies whitepaper highlights solutions to tackle these conflicts.

You can find and download our white paper in the TFG Asset Management Library