Selecting The Right Hotel Operator

1. What financial assistance do brands provide?

   Larry Somma commented that banks aren't lending, especially on the construction side, and that since Hyatt manages and runs hotels, it has balance sheet strength that allows them to offer a variety of different financing solutions--senior and mezz lender, key money, and other options, each addressing the specific project needs

   Rich Musgrove focused on the importance of balanced support, and to ensure that, from an asset management perspective, the tail doesn't wag the dog. Since each deal needs to make sense on its own, financial support should not be the sole criteria or the overwhelming criteria to go in a specific direction for operator.

   Sam Winterbottom pointed out that Owners and buyers are looking for the brand that can get them the most revenue, and any help to get first mortgage money is key, and that financial assistance is key in demonstrating the commitment of the brand.

   Finally, Craig Mance said that out that of 185 deals approved last year, only 8 had key money. Instead, they focus on credit enhancement, although they cannot guarantee loans because of their relationship with Blackstone.

2. What do brands get in return for key money?

   Two key issues came out of this discussion. First each panelist agreed that brands do not change their standards with key money; they expect to have long term agreements, and the key money is simply a means of encouraging owners. At the same time, brands will be more stringent in their terms, and are less willing to give concessions when they have skin in the game - the agreements have longer terms and are more difficult to terminate.

   Second, a majority of panelists agreed that as the market improves, key money and other financial incentives will fall away. Sam Winterbottom emphasized that brands put up key money to drive fee steams and income. An owner might get key money and get the deal done, but it comes with a price.

3. When is a brand going to require that it manage the property?

   Pat Bajdek of Carlson Rezidor said that while they generally will allow a third party manager to operate their branded properties, they assume management of the Radisson Blu flag because of their concern over the control of the product. Similarly, Larry Somma indicated that Hyatt likes to manage its branded properties.

   On the other hand, Craig Mance indicated that it would be difficult to see making a demand that Hilton manage its branded properties, but that because their...