Many owners have learned over the years that operating hotels successfully is far more complicated than they may have originally thought. This can sometimes be a painful and costly lesson, as such dynamics as market performance, dependence on demand generators, and cutthroat competition can all lead to challenges in achieving pre-opening or pre-acquisition pro formas. For owners and prospective owners, it is crucial that there is a deep understanding not only of what has been promised in terms of performance, but the reality of such promises. Before getting too far down the road of acquisition or new construction, owners and investors need to be able to “peel back the onion” to get far deeper into the detail of what is being projected for their asset, what is the reality of such projections, and who is best equipped to deliver those projections.
We all understand the process when considering an acquisition or a new-build; when it comes to brand and/or management company considerations, those interested parties will come to the table with all kinds of data relative to projected asset performance, why their company will do better than another, and why you as the owner should select them to operate your asset. In many cases, owners will then essentially conduct a “beauty contest,” in which each brand’s performance projections are laid next to one another, and an effort is made to determine which one is best suited to operate the hotel.
There is nothing wrong with any of this, of course, as long as the step in the process between presentation of qualifications and selection by owner includes an intense period of review and consideration by that owner. Here’s the point: when those parties interested in branding and/or managing your hotel have made their case to you as to why they are best-qualified to do so, what is your process as the owner to validate (or refute) their claims and projections? This is not an easy question to answer; it is crucial that owners who are considering long-term agreements with brands and/or management companies have the ability and the resources to review, understand, and, if necessary, challenge the projections being provided in order to make the best possible selection for the asset.
Key to this analysis is acceptance of the fact that projections are just that, projections. As such, they are subject to numerous variables which may tilt the projection in a particular direction. It is up to you as the owner to understand just enough about these variables to be able to equip yourself with the means to dig deeper. Whether you have someone on your own staff or have a reliable and proven third-party advisor to rely upon, an in-depth analysis of the projections that you receive for your asset is absolutely essential. A brand or management company presentation for the purpose of trying to win your business is essentially a sales call. Knowing this, your role as the prospective customer in this relationship dictates that you are able to sift through the “sizzle” and get to the “steak” of the presentation in order to truly understand the potential for your project.