How to Select the Right Hotel Brand
Ivar Yuste, Partner at PHG, interviews Dimitris Manikis, President EMEA at Wyndham Hotels, on
Dolce by Wyndham, Sitges
Following the economic crisis triggered by Covid, it has once again become apparent — as it did in 2009 — that lease agreements are a tool that does not guarantee absolute security for hotel owners.
Contrary to what the legal definition of a lease might suggest, rental contracts only prove attractive for owners during positive phases of the economic cycle. However, given the inherently cyclical nature of the hotel and tourism sector, these contracts reveal themselves to be significantly inefficient when it comes to meeting the economic expectations of hotel asset owners during the “trough” phases of the cycle.
In 2009, there was a proliferation of legal disputes between owners and operators for this very reason, and we witnessed the same situation again during 2020.
The explanation is straightforward. It makes no business sense to attempt to guarantee linear or growing returns on an asset over time while the national economy is slowing down or contracting.
Hilton Garden Inn, Seville
The gradual increase in institutional investors entering the Spanish hotel market is highlighting the additional returns that management contracts offer compared to lease agreements. Leases erode the owner’s gross operating profit by between 20% and 30% relative to a management contract.
Investors are progressively coming to the conclusion that it makes more economic sense to accept exposure to hotel business risk — alongside a specialist hotel asset manager — than to sacrifice 20% to 30% of returns on an asset. Hotel asset holders such as banks, insurance companies, foundations, family offices and sports clubs are increasingly turning to hotel asset management as a tool to overcome the inefficiencies of lease agreements.
Gran Hotel Isla de La Toja
Finally, the progressive expansion of international hotel brands in Spain under the franchise model is reinforcing the separation between asset management and hotel brand operations.
It is becoming increasingly clear to owners that the most efficient management structure is achieved through a local cost base combined with a powerful global franchised brand. Having a hotel asset manager alongside further prevents costly mistakes, reduces the learning curve, and ensures a dialogue on equal terms between owner and brand.
Hotel Senator Mar Menor
