Why alignment is key for investor-operator success

“Symbiotic relationships” between investors and operating partners are increasingly crucial for sustained and enhanced returns, according to hospitality experts.

“It’s not just about owners and operators – there’s a need for a full alignment with funding partners as well,” says Sabina Wyss Di Corrado, VP development Europe, Aimbridge Hospitality. “This is something that has changed since Covid. There’s a lot more communication going on making sure it's a win-win for everybody involved, because as we saw during Covid, there's no point for one to squeeze the other, because we are all in it together. These are long-term relationships.”

This kind of thinking demands a more flexible approach, says Maria Zarraluqui, development VP, Meliá Hotels International. “The market has changed and trying to stick to fixed agreements where there’s no flexibility is a no go in my opinion.” She adds: “When you’re working with different kinds of investors, you have to understand their vision – whether it's a value add or core plus investment, if you’re dealing with a family office. We prefer tailor-made deals that incorporate what the client needs in management agreements from the very beginning. We get this because we own hotels as well.”

Martin Creydt, director & SVP, at Pandox, explains one formula that has worked for them. “A range of models work well in the present landscape,” he says. “But for Pandox, there has been a quite a journey since the crisis of the early nineties, when most banks didn’t even want to look at hotels.

“We created a lease model which, together with some other players, was fundamentally the start for lease models in Europe. And that was a minimum guarantee with a variable rent - basically a win-win for operator and investor. It means both can earn money, but the property owner or investor like us has some guarantees at least.”

Negotiating management agreements

Wyss Di Corrado adds: “The way our hotel management agreements (HMAs) are structured always depends on the owner. There are those with a long hold, maybe 10, 15, or 20 years, and then perhaps private equity clients with a hold of five years. We are happy to do a termination clause, based on the asset, but can be more flexible on the fee for long-term holders. Post-Covid, flexibility is really important.”

Speaker from an investor perspective, Anna Cohen, investment manager at France’s Extendam, sees working with white label operators as key “to getting this flexibility”, while conceding that “white labels are actually taking risks alongside investors”. She explains: “We do ask them to invest alongside us, to give this flexibility of management up until exit in order to have unencumbered assets.” She adds that Extendam’s “roots in private equity helping small white label operators” gives them the right skillset for this.

Zarraluqui notes that clarity is important between investors and operators with different timescales in mind. “As an operator, we don’t like short-term agreements. The consolidation of an asset can take three, four years if it’s a leisure property, so if we are out in five, or seven years, it doesn’t make sense. It’s very important to be clear on what are the needs of the parties at the negotiating stage.”

Achieving returns

When it comes to crunching the numbers on an asset, data has become ever-more important for improving transparency, Creydt adds. “It is data driven now. When we have the real picture, with all the numbers, there is some real flesh and blood in the operation, which is the essence of driving cash flow.”

Adds Cohen: “It’s also worth mentioning that if there is no ESG commitment, there is no money”, noting that banks often offer preferable rates for greener assets. “So, there are a lot of ESG targets now in our management contracts that we negotiate with white label operators. We also have a company working across ESG for each hotel to see how improvements track on a yearly basis. “

Concludes Wyss Di Corrado: “It’s so important to make sure that everyone gets to share in the success and that everyone stays motivated as well.

“It has happened that some operators have given up on certain assets just because they didn't make any money and that's not in the owner's interest. So, I'm still surprised when the owner just goes out and signs the cheapest deal with the cheapest brand on the market - it doesn't always give you the best returns.”