Jones
Lang LaSalle Hotels
published by Jones Lang LaSalle
Hotels
06/20/2001
Management
Agreement Trends Worldwide
There has been a fundamental shift
worldwide towards providing a better balance of risk and reward in hotel
management agreements. Attempts have been made to align operator and
owner's interests through the increased use of sliding incentive fees and
performance clauses. The new balance of risk and reward in management
agreements is likely to further open the hotel investment market to
institutional investors, who have been absent as significant investors for
most of the nineties in many countries.
On a regional basis, the following trends were noted.
 | Of the three regions, operators in the
Asia Pacific are subject to the most competitive pressures when
negotiating management agreements, followed by American operators. |
| The initial term of management
agreements has fallen over the period of study, except in Europe,
where it has increased. |
| The granting of options to renew the
term of management agreements is common, but the term of the option is
decreasing. Whereas once the operators tended to have the sole right
to exercise options, there is trend towards owners having the right,
or the right being given to either the owner or the operator in other
cases. |
 |
Average Initial Term
|
% Agreements with Options
|
Most
Common
Option Term |
| Asia
Pacific |
12
|
80.0%
|
2
options of 5 yrs |
| Europe |
19
|
55.2%
|
2
options of 5 yrs |
| Americas |
10
|
82.1%
|
Unlimited
options of 5 yrs |
| Source:
Jones Lang LaSalle Hotels; Baker & McKenzie |
| Operator fees have tended to increase
over the last three years. This trend has applied to both base and
incentive fees in all regions other than Asia Pacific. Whilst many
agreements still utilise a fixed percentage of Gross Operating Profit
(GOP) as an incentive fee, increasingly there are variations on this
formulae, such as sliding scales, which provide greater returns to the
operator as the hotel improves its performance. |
|
Average Base Fee
(% of Gross Revenue)
|
Average Incentive Fee
(% of GOP)
|
| Asia
Pacific |
1.5%
|
7.3%
|
| Europe |
1.8%
|
6.9%
|
| Americas |
2.7%
|
3.3%
|
| Source:
Jones Lang LaSalle Hotels; Baker & McKenzie |
| There is a strong trend towards
financial performance criteria with failure to achieve a specified
benchmark resulting in an opportunity to termination of the management
agreement. |
| The majority of management agreements
provide for a specific FF&E contribution and, although more Asia
Pacific contracts provide for an FF&E reserve, they generally
require a lower contribution. |
|
% of Agreements
with Specified FF&E Reserve
|
| Asia
Pacific |
82.0%
|
| Europe |
72.4%
|
| Americas |
57.1%
|
| Source:
Jones Lang LaSalle Hotels; Baker & McKenzie |
| To provide greater flexibility and
possibility to enhance the asset's value on sale, there is an
increasing trend towards providing termination without cause and the
right to terminate the agreement on sale of the property. In most
cases, these provisions are available only with a compensation payment
made to the operator. |
|
% of Agreements with
Termination Without Cause
|
% of Agreements with
Termination on Sale
|
| Asia
Pacific |
36.0%
|
52.0%
|
| Europe |
31.0%
|
41.4%
|
| Americas |
25.0%
|
85.7%
|
| Source:
Source: Jones Lang LaSalle Hotels; Baker & McKenzie |
For further information
please contact:
David Gibson
tel +617 3231 1400
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Contact
Jones Lang LaSalle Hotels is the world's largest and most qualified specialist hotel investment banking services group. Through its 18 dedicated offices and the Jones Lang LaSalle network in more than 100 key markets it provides services in transactions, mergers and acquisitions, financial advice and capital raising, valuation and appraisal, asset management, strategic planning, operator assessment and selection and industry research.
To Visit The Jones Lang LaSalle Hotels Web Site Go To: http://www.joneslanglasallehotels.com
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2000
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