Our recent Condo Hotel Boot Camp packed a full day’s worth of information into four short hours. In the session titled “Where the Rubber Meets the Road,” four industry professionals distilled into their essential components, answers to the important questions: Who Owns What, Who Controls What, Who Pays for What? I am grateful to JMBM clients and friends Brent Howie, President of Provident Management Corporation and Peter Connolly, President of Palladian Development for sharing their expertise. Together, with my partners Catherine Holmes and Guy Maisnik of JMBM, Brent and Peter provided excellent material for this column. Isabelle Claver of PriceWaterhouseCoopers moderated the panel discussion. 

Part 1: The background and structure of the typical condo hotel 

What to do when the hotel is performing but the condo structure is dragging it down

A significant number of condo hotels came on line as the credit crisis was brewing and now, many of them are facing problems. In many instances, the "hotel" part of the condo hotel is performing reasonably well, but the underlying condo ownership structure is dragging it down. 

In the context of the current credit crisis, many believe the "new" condo hotel structure is a failed concept. However, much of what is written about condo hotel workouts fails to distinguish between a) condo hotels that are failing as a result of hotel performance issues and b) condo hotel failures that are directly attributable to the condominium structure rather than to basic hotel economics. 

According to Jones Lang LaSalle Hotels' recently released Hotel Investor Sentiment Survey (HISS), the majority of hotel investors signalled their intention to hold assets over the next six months, against a backdrop of uncertainty.  With only a limited number of transactions occurring in Australia throughout 2008, it has also become increasingly difficult to call exactly what level pricing has reached.

"Investor sentiment points to a continuation of the softening trend, which has become apparent for initial yields over the last six months," said Mr David Gibson, CEO Asia Pacific, Jones Lang LaSalle Hotels.  He added, "2009 will create good buying opportunities for hotel investors as we go through the bottom of the cycle."

As the sophisticated traveler becomes increasingly demanding in what they expect from a hotel experience, Small Luxury Hotels of the World (SLH) has met this head on with the addition of 66 properties to its already impressive portfolio of hotels. This represents a net growth of 10 percent compared to last year, which in the current economic climate is a notable achievement for the luxury hotel brand.

“Despite the deepening global recession, I believe that travel will continue to be an important part of many people’s lives – if nothing else, to provide an escape from the doom and gloom that surrounds us,” commented Paul Kerr, Chief Executive Officer of Small Luxury Hotels of the World.  “Increasing the geographic spread of the SLH brand is central to our development strategy, and the fact that we now have a presence in more countries and cities than ever before, enables us to meet the needs of our very loyal and well-travelled clientele,” he added.

On average, hotels located on airport properties in major urban markets achieve performance premiums compared to similar-quality hotels located off-site near the same airports. This article attempts to identify/quantify these performance premiums.

The analysis evaluated annual occupancies, average daily rates (ADR), and revenue per available room (RevPAR) at 15 hotels located within major airports. We then compared their performance data to a control group of 15 hotels located off-site near the same airports.

Hotel business is slipping, owner profits are falling and asset values are declining. This is an especially good time to be sure you fully understand how your Management Company's goals may differ from yours and determine how you will work with them to achieve the best possible results, greatest available profits and highest asset value for your hotel.

Hotel investors have long believed that a property that is encumbered with a long-term management agreement is worth about ten percent less at sale than one that is not. But if an owner lacks substantial hotel management experience, most lenders will require a professional manager to be in place before they will commit to financing. Brands with flagship or luxury marquees insist on tight control and most will seldom put their name on a property they do not manage. Many owners prefer to focus on the development and entrepreneurial parts of the business and leave the details to someone else. For these and other reasons, if you have a sizeable property it is likely that a third-party is managing your hotel under a long-term agreement.

Hotel brand proliferation offers more choices and challenges for hotel owners - What are the 5 questions every owner should ask before selecting a hotel brand?

With the battle scars earned as the hotel lawyer and advisor on several hundred hotel management agreements, my partner, Bob Braun, is one of the senior members of JMBM's Global Hospitality Group®. While we have a very "deep bench" of hospitality lawyers experienced in dealing with hotel operators, Bob is one of the real veterans who has seen it all.

Bob and I work together frequently, and we often present practical guidance on many aspects of hotel management agreements at industry conferences and here on the Blog. 

Many of our rich library of resources focus on getting the right hotel operator, and how to get a fair management agreement, but today Bob gives us 5 Questions that every hotel owner needs to ask BEFORE even getting to the hotel management agreement.

Here is Bob Braun's article. . .

By David Sudeck, Hotel & Timeshare Lawyer | JMBM Global Hospitality Group®
October 29, 2008

Vacation Ownership Properties 101 is the first in a series of articles on www.HotelLawBlog.com by Timeshare and Hospitality lawyer David Sudeck, that will discuss Timeshare, Fractional Interest, Private Residence Club, and Vacation Club properties (sometimes collectively known as "Vacation Ownership" or "Shared Vacation Ownership" properties). David recently joined JMBM's Global Hospitality Group® and will focus on the hospitality industry's growing needs in the area of "shared vacation ownership." This article will provide the foundation for the timely articles that will follow, including those that will discuss the critical issues surrounding the development of timeshare properties as well as the workouts for properties that are not yet fully constructed or not yet sold out.

As of January 1, 2008, approximately 4.7 million American households owned
nearly 6.5 million timesharing weeks . . . growing by over 6% annually

By David Jones, Roy Melick, Caroline Ho

Thinking of buying or selling a hotel?  There's a lot of work required to organize or participate in a successful sale process and plenty of thought required as to how you should structure the transaction.  Here are a few lessons we have learned.

Our experience in the buying or selling of hotels, whether it be in Australia or anywhere else in the world that we have done business, is that the same issues recur when making decisions about the sale process and then when drafting and negotiating your transaction documents.  The purpose of this article is to examine some of the key transactional decisions that you need to make when buying or selling a hotel.  Although we draw many issues from our Australian experiences, most of the issues are relevant to any jurisdiction in the world.

By Robert Williams and Caroline Ho

After a relatively quiet 10 months in hotel and resort property deals, Baker & McKenzie's global hotels team is starting to see an upturn in activity.  Whether this new transaction flow reflects balance sheet driven disposals, or opportunistic buyers taking advantage of price reductions (or corrections), it is a certainty that buyers and their lenders operating in the hotel and resort industry will be more cautious in the way they conduct transactions.

But in this environment, buyers need to be able to seize opportunities as they present themselves, and the overly cautious or unprepared will miss out on deals.  Planning is essential in ensuring transaction execution is as efficient as possible, whilst still meeting relevant risk parameters and governance requirements. 

With that in mind, Baker & McKenzie's partners Robert Williams and Caroline Ho share some of their experience in acquiring assets at the more volatile end of the market: island and remotely located resorts.