Whether it’s leases, hotel management agreements (HMAs), franchise or a hybrid concept, identifying the right operating agreement for your asset is crucial.
The market is seeing ever-evolving partnership models between owners, operators and brands due to the shift from traditional management agreements to third-party operators and a growing flexibility in lease models, all of which are resulting in innovative approaches that balance control with performance.
How to find the right operating agreement
Katie Goertz, deputy head of operator selection – hotels Europe at CBRE, says all operating agreements remain relevant – the key to choosing the right one lies in the owner’s priorities.
“What is your objective? Do you want to exit? Do you want to maximise cashflow?” she says. “There are various considerations that go into the right contract structure.”
She adds that owners need to do their homework: “The number of parties, brands out there, it’s growing exponentially... you’re spoiled for choice, but that also means you need to do all of the research to know: what is the right product, the right operator fit for me?”
Niall Kelly, head of business development EMEA with Aimbridge Hospitality, agrees that realistic objectives are vital: “You can’t have everything,” he says. Third-party hotel operator Aimbridge announced its new board of managers earlier this year.
Increased flexibility
However, definitions are changing and becoming more flexible. “There are some deals where we have stretched the boundaries of the lease to make it a lot more flexible and performance-driven,” says Capucine Pedrazzini, director, fund management at Invesco. “During Covid, we re-geared a third of our portfolio and it’s a structure that is completely different, it’s a lease that is almost a management contract.”
One of Invesco’s most recent acquisitions was a 327-bed hotel in Gdansk, Poland. Its 25 hotels in western Europe are mostly under hybrid leases. “We think this is the model that fits the core, core plus capital the best,” says Pedrazzini. “We’ve had a lot of success with this, particularly in recent years with the move in valuations”.
Kelly similarly points to Aimbridge’s recently opened Hyatt Place and Hyatt House dual-branded property in Leeds, which he says is “structurally a lease, but if you were being fussy about it, it’s an inverted management agreement,” a structure that he says best met the owner’s requirements.
“You have much more flexibility in terms of terminating agreements, flipping them,” adds Goertz. “Anything is possible these days of course, for the right opportunity and the right ownership that can align with operators.”
The future of hotel operating agreements
Covid-19 fundamentally altered perspectives on performance risk and income security, while the market continues to see the movement of many major operators going asset-light.
“The HMA space has become incredibly busy... through new market entrants, new players emerging through white labels, existing players expanding,” says Goertz. She also highlights the “significant uptick” in franchise activity across Europe, resulting in a change in franchise agreements which she says “used to be incredibly static agreements that hadn’t changed in decades”.
Kelly agrees that franchise in Europe has gathered pace, and he believes the market is heading towards majority franchise, as seen in the United States. “It’s not a question of if, it’s a question of when,” he says.
Still value in simplicity
However, he argues that what is most exciting is the increase in understanding of hotel operating agreements. “Talking about asset management, that takes knowledge and experience,” he says. “The more people who know what they’re doing, the more likely you are to get deals that are perhaps more heavily negotiated, but people know how they’re going to work.”
Pedrazzini agrees: “The owners and operators will become more and more creative in what they do. But that requires owners to step up and to get knowledge and more educated, which they are.” Although, she adds that “there is still value in very simple contracts today”.
All those quoted in this article appeared on stage at IHIF EMEA, held in Berlin, Germany, between 31 March – 2 April 2025, in a session called: Operating agreements: Finding the right fit for performance and flexibility.