In the lead up to the 2019 Arabian Hotel Investment Conference (AHIC), we asked a number of industry partners how they synchronise for success.
Hotel agreements now come in many guises but the owner-operator relationship is the cornerstone of any long term hotel agreement. It is based on trust and continuous dialogue between the parties to tackle obstacles and to minimize conflict and misunderstanding. Any operational or financial issues can be resolved, and the hotel management agreement saved, if the relationship is strong and transparent. Indeed, most agreements fall apart because the relationship was not properly handled or where expectations were not managed as they should have been. As much as possible both owner and operator should have a common vision from the outset but also understand that there will be bumps along the way where you may temporarily fall out of love, but always retain the outlook that you are in for the long term.
As the hospitality market continues to evolve so do owner-operator relationships nurtured with careful consideration given to an owner’s specific needs and an understanding of their investment requirements. Today, hotel management agreements need to incorporate some flexibility to reflect the changing landscape and ensure owners’ concerns are being addressed by putting together more reflective and more balanced agreements. For instance, as owners with multiple hotels start insisting on franchising, it is important that operators start incorporating franchising into their strategies for the region and partnering with specific owners who have the infrastructure and expertise to support such an operation, at least with certain brands. Such adaptation to market trends is just one example out of many that we should do in order to optimize the chance of success. But like in any business transaction it is important to highlight to some owners why franchising may not be the right choice for them as it would involve extensive infrastructure and may well be costlier than expected, involving industry expertise and extensive resources. Franchising is just one example of many where hotel agreements need to be tailored to address owners’ concerns and strategies, while still preserving the rights of the hotel operator and brand.
Equally so, new or first-time owners need to seek advice and be realistic when it comes to expectations, investment returns, and over-leveraging. The hotel asset class cannot be compared to residential real estate, for instance. As much as it is the operator that needs to manage such expectations and keep the dialogue, it is important that investors commission third party advisory firms to get an independent opinion throughout the process if necessary. The hotel type and its positioning need to be established given the market, the location and the city. Whether it is to develop a hotel or serviced apartments, whether it is to be positioned in the midscale or upper tier categories, are all factors that should be agreed on from the start given the market dynamics.
As mentioned earlier both owners and operators should have a clear and common vision for the hotel from the onset of the relationship. And it is vital that both parties recognize the market variables and that market demand will continue to evolve. When a traditional source market shuts down due to sanctions or economic conditions, another market needs to be tapped. Such diversity is crucial to reduce any long term risk. For instance, when Dubai had experienced a reduction in the Russian market in recent years, the government’s strategy was to eventually waive visas for Russian nationals which brought back the demand, while at the same time opening up to more visitation from India, China and some African markets. Hotels in turn have to adapt to changing trends and to remain proactive in their strategies by creating and stimulating demand rather than waiting for the business to come from established sources.
So, in summary the key elements to foster harmonious relationships between all stakeholders
may be simply categorized into the following: a shared vision, managing expectations, constant dialogue, transparency and fostering solutions. As an ever-changing industry synchronizing for success
is simply partnering with the right owners, developing the right product, understanding the importance of the owner-operator relationship, adapting to changing owner and consumer trends, and living by these pillars proactively and transparently.
This year will see our continued focus on adding value to our owners and maximizing the value of their real estate assets. The core philosophy will remain to manage a profitable, sustainable hotel operations by maximizing returns for our investors with the right type of agreement, the most appropriate brand and optimal real estate offering.