Session

The big divide: Management contracts

It has always been a challenge for owners to get the right management partner for their hotel properties. A obvious cause for concern because properties without apt management company often fails to achieve the set targets.

Expressing his opinion on the subject, Raj Singh Gehlot of Ambience Group explained that management contracts are based on a relationship. He said that though negotiating management contracts has complications but with a little understanding, it can go a long way.

Mathew Fry, VP- acquisitions & development, Starwood Hotels & Resorts - Asia Pacific, explained that most upcoming hotel companies prefer the management contract rather than complete ownership. This is so since non-hotel companies are entering the business its not likely to expand one's portfolio significantly without taking the management route.

Sumit Guha, VP - development & projects, spoke about the management tie-ups more based on rapport as against legal issues. "If there is limited budget, it puts strain. In fact problem is in stretching the budget," he expressed. He also expressed that RevPAR is based on informal calculation. "It can't be counted on other issues and is more based on relationship," he added.

Talking about performance test, Neil Shah, president & chief operating officer, Hersha Hospitality said that performance test is what tie-up is based on, other than relationship. "The responsibility is of the relationship manager, if it fails," he added. Fry carried on the issue of brand loyalty. He said that in some association three per cent of the revenue is being shared. "In Asia, management tie-up is based on performance and brand," expressed Fry.

Expressing his views, Jaiwant Daulat Singh, director of Daulatsingh Consulting, said, "In case, when performance fails, it is the relationship issue that matters. But most practical approach is to balance everything." He said that the tie-up is not just based on just one issue. There are five-six parameters to decide it. "Some flexibility needs to be granted to the owner. There should be a buyer clause and the owner sees commitment with operators. Issues of conflict should always be kept at bay. In fact for long term relationship, it should be kept in mind," Singh expressed.

Presenting his opinion on renewal term, Andrew Clough, senior VP- development, Hilton International-MEAP, said that actually the renewal term depends on how relationships are developed and become common necessities.

On the issue of incentive based management contract, Shah opined, "Return of Investment (RoI) is the foremost concern, but striking inducement should also be limited other than from a base fee to protect operators' interests." He said that it has also been observed that management companies are sometimes being able to manage finances and prices.

Clough said, "Developers need to select a perfect business model and should bestow complete independence so that appropriate results emerge."