This guide was created from interviews I’ve done with leaders and experts in hotel management, including:

  • David Chu, Senior Vice President at GAM Hospitality

  • Mark Keiser, Chief Development Officer at EOS Hospitality 

  • Scott Curran, Chief Operating Officer at Reneson Hotels 

  • Susan Barry, Principal at HIVE

How are hotels managed: the hotel landscape today

Hotel management companies are perhaps best viewed in the context of the broader hotel ecosystem today. Here’s how Susan Barry, Principal at HIVE and a former Starwood Hotels executive, describes it:

  • “Brands are the big signs that you see on the outside of a hotel. They are the IHGs, Best Westerns, Wyndhams, Hiltons, and Marriotts of the world. They license the use of their name and playbook for running a hotel to an ownership group. 

  • “The ownership group is the investor that puts up the money and owns the real estate. They’re running a real estate business, but because hotels are cash-flowing entities, they’re also making money on the day-to-day operations. Brands have a very intricate playbook for how hotels should be operated and usually, if not always, require the owner/investor to hire a professional hotel management company to run that hotel on their behalf. 

  • “Hotel management companies are the operators. They hire the staff, run payroll, and ensure compliance with local, state, and national laws. They do everything required to operate the hotel according to the brand’s playbook because the owners are focused on real estate investing.”

“The way I see it, brands guide the hotels on standards and consistency,” says Scott Curran, COO at Reneson Hotels, which is both a hotel owner and management company.  “It’s our responsibility to make sure we’re representing brands in the right way, make sure that we’re operationally running in the right way, and doing what we need to do to so that guest has so much fun at our property in Napa that when they book a vacation in New York, they’re thinking, ‘I want to stay at Hilton Garden Inn, too.’”

How hotel management companies make money

Hotel management companies typically make money by charging a percentage of the hotel’s revenue as a management fee. “3% of topline revenue is a good rule of thumb to keep in mind,” Susan advised.

Sometimes, it’s based on gross operating income, and David has seen management agreements range from 3-5% of gross operating income, with incentives for performance.

“You often get what you pay for with hotel management companies,” added Mark Keiser, Chief Development Officer at EOS Hospitality. “It is often more important how the contracts are structured to incentivize profitability as well as top-line performance.  A management contract that is structured as 3% of revenue but little incentive on driving profitability might result in lower actual profits to an owner than paying a total fee of 4% or more that is balanced between a percentage of profits and a percentage of operating profit.”

How to choose a hotel management company

Hotel owners looking to find the right hotel management company for their properties should consider the following:

  • Experience with the hotel type, brand, and location you have

  • Track record of performance 

  • Range of services offered (people/HR, marketing, revenue management, technology, etc)

  • Fees and contract structure 

  • Reputation and references

Get to know the team

As with any key business partnership, it’s important to meet with the management companies you’re considering to discuss your goals and expectations. Great management companies will be able to provide you with similar references from other owners and investors whom you can speak with to understand their experience. 

According to David, skipping this step of due diligence is a warning sign to good hotel management companies. “We would never work on a project where an owner didn’t really know who we are and just expect us to get started after signing a contract. We want you to know all about us because we’re going to need to work closely with you to deliver the best results.”

Click here to read complete article at Hotel Operations.

By Josiah Mackenzie