The Emperor Has No Clothes: What We’ve Learned About Hotel Brands During the Pandemic | Pillsbury – Gravel2Gavel Construction and real estate law
Brand hotel managers aren’t bad people, but they are sometimes bad managers if profitability is your goal. If you’ve noticed that operating margins have improved when brand standards have been relaxed during the pandemic and when brands have been forced to reduce corporate charges, you’re not alone. The brands will hint that these were temporary measures reflecting their concern for their owners. But there have been a few important lessons learned during the pandemic — some of which aren’t often talked about at hotel conferences — that shrewd owners and their asset managers shouldn’t soon forget.
Lesson 1: Some brands have overcharged for above-the-property systems and services that don’t generate incremental returns.
If brands can’t demonstrate that programs above the property directly improve hotel profitability, they shouldn’t charge you for them. And when a brand’s corporate program costs reduce net operating income, it must reimburse the owner or face termination. Incurring charges for programs and services that do not generate additional profit is inefficient and constitutes gross negligence.
Lesson 2: Some brands use business fees to run hotels, rather than providing goods and services directly to benefit the owner’s hotel.
They do this by allocating their own costs, including head office facility expenses, to corporate charges that are billed to the hotel. When the brand manager builds a state-of-the-art corporate office tower, for example, it’s only fair to ask who is paying for it. Even if your contract allows for a brand manager’s corporate overhead to be billed to the owner as a hotel operating expense, there are limitations, particularly when the hotel is operating at a loss or at a loss. barely afloat.
Lesson 3: Some brands have asked owners to fund working capital shortfalls to fund their own operating expenses.
When the hotel lays off hotel staff, removes room inventory, and closes food and beverage (F&B) outlets due to insufficient revenue, it is not appropriate for the brand manager to use working capital to finance its payroll and overhead costs. The brand manager was hired to operate the owner’s hotel efficiently, not to keep the hotel open simply as a way to channel the owner’s capital contributions to keep his own lights on.
Lesson 4: Some brands can’t or won’t account for how they spend the owner’s money.
When times are good, there is sometimes a tendency not to put off the brand manager, as operating expenses (and business costs) eat into net operating income. But when times are tough, every nickel counts – and given their obligation to keep books and records reflecting operating expenses (among other things), you’d think brand managers could report in a timely and a comprehensive overview of what the landlord is paying and why. This isn’t often the case with some brand managers, however, which makes it extremely difficult for owners to understand what they’re being charged and what brand manager costs are rolled into that fee. If they can’t validate the fees, owners shouldn’t have to pay them.
Lesson 5: Some brands need to be reminded that furniture, fixtures and equipment (FF&E) reserves are the owner’s funds.
When business dries up, as it has due to the pandemic, brand managers aren’t magnanimous in “relaxing” brand standards and “allowing” owners to use FF&E to fund business shortfalls. operating; that’s what any prudent business leader would do. In the wake of the many changes to market demand and standard operating procedures imposed by the pandemic, not to mention the financial hardship that owners continue to face, any brand manager who does not revise their brand standards and review FF&E budgets is outrageous.
Owners are often reluctant to tell the truth to their brand managers. The need for cooperation and support, the desire to keep open the prospects for doing new business, and the social realities of being hospitable all militate against brutal honesty. But the pandemic has revealed many things about the industry, one of which is that some brand managers are putting their interests ahead of owners, even as it puts the hotel on a death spiral. For owners lucky enough to gain altitude, it would be wise to remember some of the hard lessons learned. Perhaps start by talking openly with the brand manager about what they charge for and why. If your carrier doesn’t give you a clear and complete answer, chances are they won’t do any good.