Brands and management contracts under the spotlight

AHC signage
AHC. (Simon Callaghan Photography)

A lively and occasionally contentious debate around the relationships between the various parties working with the hospitality sector kicked off the second day of the Annual Hospitality Conference in Manchester.

Malcolm Kerr, managing director of Horwath HTL UK, moderated the discussion which carried the title ‘Relationship Status: It's Complicated. Realigning the owner, operator and brand.’

The panel addressed how hotel owners, operators and brands are changing now hopes for recovery have become more sustained and business strategies are being re-valuated.

The role of brands came under special scrutiny.  David Kellett, senior director of hotel transactions for the hotel fund management team at Invesco Real Estate (IRE), questioned the very viability of brands in the wake of the pandemic. He suggested that brands were slow to adapt to changing trading patterns and new priorities, particularly regarding ESG (environmental, social and governance) issues.

He pointed to an apparent conflict of interest where owners want increases in asset values while brands want the income from hotel management.

He conceded that some of the smaller brands recognised the challenges and were taking steps to mitigate the problems. But overall, he said, hotels would be better if landlords and operators shared at least some of the ownership. “Co-investment is the right model but it does not suit the brands,” Kellett said. It was necessary, he said, that there were high degrees of “transparency”, “visibility” and “understanding.” 

Kellett has nearly two decades of transaction experience with InterContinental Hotels Group (IHG), JP Morgan and Merrill Lynch.

Luc Boschmans, who oversees the hospitality investments on behalf of Tristan Capital, largely agreed with David though Philip Lassman of Accor defended the strength of the brand-led business model.

Lassman said that brands supported operators in time of need and pointed out that they had done so during the dire periods of recent trading. As an example, he said that Accor’s size meant it was able to provide the accommodation needed by key workers.

He said that brands still brought value in terms of expertise and economies of scale. He said brands had enviable strength attracting custom both directly and via online channels. He said scale gave advantages in the roll out of technology and gave invaluable backup in the fields such as human resources (HR) and employee benefit schemes.

Lassman is Accor’s vice president for development in Northern Europe. He has previously worked in development with some of the biggest hotel brands in the world, focusing on UK and Ireland.

Rustom Vickers, head of development, for Europe, the Middle East and Africa at Choice Hotels, said the pandemic had tested contractual arrangements to the limit and beyond. 

He gave an example involving agreements which obliged hotel to be open for business 24-hours a day, seven days a week. Lockdown measures meant it was simply not possible because it would have been illegal.

He went as far as to predict the end for management contracts of the sort commonly in place prior Covid.