A New Role for Hotel Management Companies

For decades, the role of hospitality management firms has been clearly defined. Revenue management, human resources and property management all fell within the parameters understood by owners and management firms. While performance in these areas certainly continues to be important, many owners are challenging their management companies to look beyond the day-to-day and shorter-term management requirements of a property.

As such, owners are requesting their respective management entities to focus on the real estate aspect of identifying new acquisition opportunities. I firmly believe the alignment of these activities is both prudent and quite frankly a sensible approach to future management growth and relationship building.

The evolution from property management alone to acquisition consulting is a natural one for some firms. The handful of firms that are highly connected in the hospitality industry have an extensive real estate intelligence network. These same firms often have long-standing relationships with the brokerage community that proves most helpful in uncovering attractive opportunities. At the same time, a fundamental understanding of, and relationship with, the lending community is an added enhancement to the transaction process.

A key step in the acquisition program requires the alignment of a given asset with an investment group's criteria relative to size, pricing, location, etc. One size does not fit all and to that end having a keen understanding of the investor profile cannot be underestimated.

As an example, the Doubletree Hotel in South Burlington, VT was recently purchased in conjunction with our investor relationships. The property was identified through market intelligence and an investment group, Rich Burlington Hotel LLC, was assembled to acquire the hotel. Following the acquisition, Richfield was awarded the management contract.

As important as the actual acquisition is the relationship built with the owners of the property during this process. A true partnership is achieved when, as the management firm, we are able to identify, underwrite and assist on the closing of these acquisitions. This provides the management firm with a more comprehensive role versus an approach wherein the management firm transitions the asset following the acquisition.

While this may be the future of growing hospitality firms, this level of service is clearly complex to deliver. Potential investors should look for certain criteria before embarking on this type of investment with a hospitality management firm:

  • The management firm has a comprehensive track record of success in the industry and has a proven history of identifying properties that are appropriately priced and well situated within the competitive market.

  • The management firm has strong relationships with brokers and lenders that will translate into successful acquisitions.

  • The investors' goals and objectives have been outlined and the firm has the capabilities of delivering results based on those criteria.

There will always be a demand for effective hospitality management firms that provide owners with a significant return on their investments, but the opportunities for a greater role through the acquisition process chart a path to a higher level of partnership between the management firm and the owners they represent. In the end we firmly believe this approach results in a potential for greater returns for both parties.

Aik Hong Tan is president of Denver-based Richfield Hospitality, which provides a full complement of successful management services to a broad range of limited-service, full-service and resort hotels. He can be reached at atan@richfield.com. For more information on the recent growth of Richfield and a look at its portfolio of hotels, visit www.Richfield.com. The company is part of Singapore-based City Development Limited group.

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