Rethinking the Hotel Management Agreement
By Michael "Woody" Woodward, EVP & Chief Growth Officer
For decades, hotel management agreements have followed a
familiar structure. A base fee, typically tied to revenue, paired with an
incentive fee tied to profitability. It's a model that has worked. But it's
also one that doesn't always fully align the operator and the owner.
As the industry evolves, there's a growing recognition that
a more tailored approach can create better outcomes for everyone involved.
Every hotel has a different story. Some require
repositioning. Others need renovation. Some are short-term holds, while others
are long-term investments. Trying to apply a standard structure to every
scenario can overlook the nuances that ultimately drive success.
A more effective approach starts with a simple question: What
is the strategy for this asset?
From there, the conversation shifts. Instead of fitting the
deal into a predefined structure, the structure is built around the goals of
the investment. That might include different incentive thresholds, phased
approaches to profitability, or creative ways to align performance with exit
timing.
Importantly, this isn't about reducing fees or creating
concessions but rather about creating alignment.
Recently, we had the opportunity to work with an ownership
group that also operated its own management company. After years of
successfully managing their assets internally, they felt they had maximized
what their existing infrastructure could deliver. Given our long-standing
relationship and friendship with the group, we began having candid
conversations about HVMG's platform, the investments we've made in technology,
talent, and operational resources, and how those capabilities could help
elevate the performance of their hotels even further.
Making the decision to transition management is never easy,
particularly for owners who have built strong internal teams and processes. It
requires a tremendous level of trust and confidence that a management partner
can deliver incremental value beyond what is already being achieved. By taking
the time to fully understand the ownership group's vision and long-term
objectives for the assets, HVMG was able to develop a tailored strategy
supported by our depth of resources and experienced leadership team.
Just as important, the hotel teams themselves were excited
about the opportunities that come with being part of a larger organization —
including expanded career growth, enhanced training and development programs,
broader operational support, and stronger employee benefits. Ultimately,
ownership entrusted us with the opportunity to take the hotels to the next
level and unlock new potential across the portfolio.
When operators and owners are working toward the same
clearly defined outcome, the partnership becomes stronger. Decisions are made
with a shared objective in mind, and performance becomes easier to measure in a
meaningful way.
We're seeing more of these customized agreements take shape,
and the results are encouraging. They create clarity, build trust, and often
unlock additional value that a standard approach might miss.
The fundamentals of hotel management haven't changed, but
the way partnerships are structured is evolving in a positive way.
