The role of a hotel asset manager in securing a management contract

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14/08/2016 - Hospitality

Hotel asset managers play a vital role in helping owners find the right partner to manage their property.

The owner of any hotel project will want to secure a management contract that represents their best interests with the primary goal of generating strong revenue and yielding optimal profit.

When the owner does not have the expertise to select the right partner, the hotel asset manager steps in, providing professional guidance based on their experience and industry contacts.

The hotel asset manager is responsible for securing the most beneficial management contracts. Below are the steps required to approach and secure a management contract.

Step 1: Conduct a feasibility study

In order to ensure the profitability of the hotel once opened, it is imperative to conduct a feasibility study. This study will measure market competitiveness and determine supply and demand in order to make relevant recommendations regarding the hotel’s positioning. A feasibility study will also create a five- to 10-year-forecast on the Profit and Loss. This will then be compared to what other hotel operators are budgeting.

Step 2: Enter a hotel operator search

Based on the scope and forecasts suggested in the feasibility study, the asset manager will select the brands that best suit the hotel’s proposition and market positioning and that can deliver the most lucrative returns based on the criteria. A Request For Proposal (RFP) will be prepared to send out to prospective hotel operators.

Step 3: Negotiation

Having gathered all the RFPs, the asset manager is responsible for reviewing and negotiating the commercial terms. At TFG Asset Management we have negotiated more than 30 management contracts with different hotel operators. It is key to place the right operator into the right property.

Step 4: Memorandum of Understanding (MoU) signed

Once the operator is selected, the asset manager must assure the MoU is successfully signed by both the owner and the operator. The MoU is a formal agreement that ensures the principal commercial terms will be respected during the management contract negotiation.

Step 5: Management contract and technical service agreement (TSA) signed

Signing the management contract is viewed as a long process. Along with the management contract, a TSA proposed by the brand operator is normally signed. The TSA governs the technical relationship between operator and owner. It ensures the hotel is fully functional and operationally efficient. Given the asset manager’s hotel management expertise, they will negotiate the most beneficial arrangement in every clause on behalf of the owner.

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