Cornell Study Highlights Current Status of Hotel Management Contracts

Jun 01, 2016

Contact: Carol Zhe, 607.254.4504, caz9@cornell.edu

FOR IMMEDIATE RELEASE:
Cornell Study Highlights Current Status of Hotel Management Contracts

Ithaca, NY, June 1, 2016 - Despite the addition of many supporting agreements, today's international hotel management contract bears striking resemblance to the first such contract, signed in 1963 for the Hong Kong Hilton. What has changed over the years, however, is the relative balance and bargaining power of managers and owners. These changes, along with typical current contract provisions, are examined in "The International Hotel Management Agreement: Origins, Evolution, and Status," by Michael Evanoff, a well known practitioner who has negotiated scores of management contracts for Hyatt, other hotel management companies, and investors worldwide. The report is available at no charge from the Cornell Center for Hospitality Research and the Cornell Center for Real Estate and Finance, both of which are located at the School of Hotel Administration and are jointly releasing the report.

Developed over fifty years ago as a mechanism to allow hotel operators to expand globally without significant capital investment, management contracts were a more sophisticated tool than the lease agreements originally used by Hilton for its international expansion. Evanoff points out that these original management agreements were strongly weighted toward the operating companies' interests, but today's contracts have achieved a greater balance due to competition and increased owner knowledge.

"Early on in the days of international hotel management, we would joke that if an owner wanted a cup of coffee in the café, he had to pay for it," said Evanoff. "Those days are long gone."

Although most of the financial risk still rests with the owner, operators have considerable incentive to operate as effectively as possible. Not only are their management fees at stake, but being removed from a property is a black mark that most international chains wish to avoid. In consideration of the mutual interests of owners and operators, the specific contract provisions, such as base fee and incentive fee formulas and the length of the agreement, continue to evolve and change according to market forces and the relative bargaining power of the parties.

About the Center for Hospitality Research
The purpose of the Center for Hospitality Research is to enable and conduct research of significance to the global hospitality and related service industries. CHR also works to improve the connections between academe and industry, continuing the School of Hotel Administration's long-standing tradition of service to the hospitality industry. Founded in 1992, CHR remains the industry's foremost creator and distributor of timely research, all of which is posted at no charge for all to use. In addition to its industry advisory board, CHR convenes several industry roundtables each year for the purpose of identifying new issues affecting the hospitality industry.

Center Members: Accenture, Access Point Financial, Inc., Barclaycard US, Cvent, Davis & Gilbert LLP, Deloitte & Touche USA LLP, DerbySoft, Duetto, Four Seasons Hotels and Resorts, Fox Rothschild LLP, Hilton Worldwide, Host Hotels & Resorts, Hyatt Hotels Corporation, IDeaS Revenue Solutions, InterContinental Hotels Group, Jumeirah Group, Marriott International, NTT DATA, Preferred Hotels & Resorts, priceline.com, PwC, The Rainmaker Group, RateGain, ReviewPro, Sabre Hospitality Solutions, STR, Taj Hotels Resorts and Palaces, Tata Consultancy Services, Wipro EcoEnergy, and Wyndham Hotel Group

About the Center for Real Estate and Finance
The Center for Real Estate and Finance, established in 2009, is the foremost clearinghouse for hospitality real estate and finance information. Defined by its intellectual capital, industry experience, and rigorous academics, the center is respected as a leader of real estate and finance. Built on a tradition of quality research in the hospitality industry and a growing real estate and finance faculty, the center is at the forefront of research in all areas of commercial real estate—from studying the behavior of real estate assets in investment portfolios to understanding real estate capital markets and science of hedging real estate risk.

Center Members: Access Point Financial, Inc., Atlantic Pacific Companies, The Buccini/Pollin Group, The Chartres Lodging Group, Clearview Hotel Capital, Crescent Heights, EY, FTI Consulting, Grove International Partners, Hersha Hospitality Trust, HFF, Hilton Worldwide, Hudson's Bay Company, HVS, Hyatt, IHG, Jones Lang LaSalle, LaSalle Hotel Properties, Marriott International, Paramount Lodging Advisors, Proskauer, Prudential Real Estate Investors, Real Capital Analytics, RLJ Lodging Trust, Singerman Real Estate LLC, Starwood Capital Group, Stonebridge Companies, Sunstone Hotel Investors, W Holdings, Watermark Capital Partners, LLC, Westbrook Partners, Wyndham Hotel Group