03/01/2023
Running a hotel is no easy task, and to do it well, you need a diverse variety of skills and resources. To maximize performance, profitability, and the owner’s preferences, many hotels use various entities to manage different operational aspects. Hotels generally fall into one of four ownership categories:
Privately owned and operated: For the owner, this model requires the most hands-on hotel operational work. At privately owned and operated hotels, the owner takes the lead on all aspects of the business: hiring staff, maintaining the physical asset, running a hotel marketing strategy, and more. The owner could be an individual or an ownership group.
Leased: Unlike at privately owned and operated hotels, the owners of leased hotels lease the physical asset to a different company who handles all aspects of the operation. The owner simply collects rent for the building and has no involvement in the hotel side.
Franchised: Owners who want a more hands-on approach and don’t want to turn their physical asset over to someone else to operate might opt for the franchise model. Franchisors sign agreements with hotel brands for access to benefits (or limitations, depending on how you look at them) like brand standards, marketing power, reservation systems, and design guidelines. Franchisors often run the day-to-day operations themselves, like hiring employees and handling payroll, and they pay a franchise fee to the brand. Popular hotel brand franchises include Hampton, Holiday Inn Express, and Red Roof Inn.
Managed: At a managed hotel, the hotel owner signs a contract with a management company to take operational responsibilities off their plate. Unlike the franchise model, the management company handles everything related to day-to-day operations - even staffing, payroll, and marketing. Some managed hotels are branded, and the management company is then responsible for upholding brand standards. The owner typically signs the contract with the brand, though owners often include their management company in rebranding discussions. These management companies focus on growing RevPAR, NOI and EBITDA as they are paid a % of revenue and often receive bonuses based on hotel profitability. 'Corporate' hoteliers tend to focus on more analytical tasks like SWOT Analysis and setting SMART Goals while 'on property' workers focus on tactics, day-to-day management and service delivery.
Many hotels across the world have separate ownership and management entities in order to maximize the effectiveness of both components. Owners can focus on the real estate piece while management companies focus on the day-to-day operations.
