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Hotel owners are taking over control from the operators

26 May 2005
Hotel owners are taking over control from the operators

The balance of power between hotel owners and operators is beginning to shift, with owners moving to take the upper hand, according to a new report.

New research by property agency Jones Lang LaSalle (JLL) revealed that hotel owners are reasserting control of their assets by making management contracts shorter and more uniform.

JLL global chief executive Arthur de Haast said that while there had been little actual change to owners' powers to date, there was a growing trend for greater uniformity in the length of management agreements - to about 12-15 years, and most renewal options were now five years.

Incentive fees, which reward operators for making profits, still vary significantly, depending on properties and regions. But US- and European-style operator guarantees and performance clauses are now becoming increasingly popular in the Asia Pacific region.

Industry consultant Melvin Gold said it was no surprise that owners should move to secure control over their assets.

"There is no doubt that over the past couple of decades the terms of management contracts have moved progressively in favour of owners," Gold said. "In the past contracts were almost a one-way-street in favour of the management companies and something had to give.

"The pressure is certainly on the management companies to perform. The new breed of owner will definitely demand performance, but it is also entirely consistent that the survey shows owners are more prepared to incentivise their management company partners and share some of the upside with them."

Jonathan Langston, managing director of TRI Consulting, agreed that there had been a more savvy approach from owners of late. "Owners have sought to negotiate management contracts that more accurately reflect their needs. This is shown by the way deals are now being financed and how best value is extracted from the contracts.

"We've also seen greater competition for new developments and developers are now expecting to ‘interview' a number of operators in order to strike the best deal."

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