Hotel management agreements (HMAs) are evolving – and fast. Behind the scenes, many owners are pushing back on long-term commitments, one-size-fits-all cost structures and limited operational pull.
Instead, they’re after performance-driven partnerships with third-party operators who are faster, more flexible and increasingly capable of going head to head with the brands.
But as hotel owners prioritize performance over brand loyalty, choosing the right operating partner has become more important than ever. Claire Wallace, vice president of acquisitions and development at Pyramid Global Hospitality, believes that when the right operator and the right brand align, the result is more than the sum of its parts.
“Generally, the rule of thumb with a good third-party operator is that one plus one equals three,” she says. “You are usually able to punch well above the weight of both firms. You’ve got kind of double the resources on the talent side, on the back side, and so really, it’s a beautiful partnership when it comes together in the right way.”
Flexible terms for real returns
Of course, getting to that beautiful partnership takes more than a handshake and a contract. It takes a deal structure that reflects today’s ownership goals, which often include shorter hold periods, tighter operations, and more control over costs and outcomes. Many of today’s owners are finding that they can achieve this type of flexibility via third-party agreements versus brand-managed deals.
“We're still looking at a standard 3 percent base fee with some sort of incentive layered onto that,” Wallace explains. “But I think where folks find a lot of the flexibility on the management company side is our terms have gone from what used to be a 10-year market standard to something more adaptable – five years, eight years, 10 years.”
She adds that while brands still push for 20- to 25-year lock-ins, third-party operators offer more room to negotiate. This includes termination rights that give owners a clearer exit path.
As with any deal, however, the terms have to be right for both parties. This means the best management companies don’t work with just anyone.
“We’re not looking to be the lowest-cost provider,” Wallace adds. “We're not looking to do 30-day termination at-will contracts.”
So, what are companies like Pyramid looking to be?
“We want to be the best, not the biggest,” she continues. “With that, we're looking to take on partnerships that we feel are going to be for the life of an asset and long-term for our company. And we structure our agreements to reflect that long-term relationship where it's fair and equitable and we can make sure that everybody is happy.”
Ruslan Husry, CEO and owner of Revo Hospitality Group, echoes the need for balance. With more than 300 hotels across Europe and Southeast Asia, Revo usually signs leases with brands, then manages the hotels itself. This creates a blend of ownership and operations within a single setup.
“One part of the management contract is actually participation from the upside,” he says. “More benefit means more fee.”
It’s a structure that hinges on consistent performance, as the better the results, the higher the fee. This means the partnership has to go beyond short-term cost savings and one-sided expectations.
Scale matters (until it doesn’t)
Turning flexible terms into tangible returns requires people, systems and scale. The latter can drive real value for third-party operators by offering enhanced purchasing power, stronger tech platforms and more attractive talent pools across their portfolios.
But here’s where balance comes in: grow too big, and those advantages can start to backfire. It can become difficult for operators to keep tabs on what’s happening on the ground. It can also create a delayed response when things do go sideways (and they always do, at some point).
“There are hundreds of third-party operators out there, but it’s really highly fragmented today,” Wallace notes. “There are one or two players out there that have over 1,000 hotels in their portfolios. Then there’s hundreds of players that have 40 or fewer.”
Wallace notes that the largest operators risk losing oversight and personal attention. The smaller firms, meanwhile, often lack the bargaining power and resources that the big boys bring to the table. With this in mind, she believes the sweet spot for management firms is about 200 to 250 hotels. This allows them to have the scale to compete while still offering focus and accountability.
The problem is that middle ground can be hard to find.
“We’ve seen a dilution of corporate resources,” she adds. “We’ve seen a lack of accountability and focus.”
Husry sees it, too. Revo’s 300-property portfolio gives the company enough leverage to drive better supply chain terms, stronger franchise negotiations and better results at the property level – without losing sight of what’s happening on the ground.
“From supply chain to revenue management, we can give much more benefit to owners by having them as part of our platform,” Husry says. “Even with things like food and beverage or integrated concepts, we look at how much value we can add per square meter of the property.”
Creative thinking from operators – whether it’s reimagining food and beverage, repurposing underutilized space or adding new revenue streams – is quickly becoming an owner expectation, rather than a nice to have. That focus on the property level is also what separates dependable operators from both the mega-firms and the one-offs, Wallace asserts.
“Growth for the sake of growth just doesn’t work,” she adds. “The secret is knowing when to say no.”