What is HOFTEL?
Simon: HOFTEL is a network/alliance of hotel owning groups that pay management or franchise fees to the brands. We are global, with our 65 members holding hospitality real estate in over 30 countries. Our members range from large groups like Blackstone, Host hotels and Resorts, SC Capital and Frasers Hospitality Trust, right down to owners of single assets. Any owner which pays third party fees on at least one of its hotels or serviced apartments is eligible to be invited.
What is the inspiration behind Hoftel? Why did you start it ?
Simon: Some years ago, I was the Chief Financial Officer of a dedicated hotel investment platform in Europe, which grew to around US$ 600 million of hotels. All our hotels had third party brands on them and, from time to time, we became concerned about some policies of our partners – whether on (mis)allocation of costs, or recharges, or brand standards, or spending of the FF&E Reserve, or their complete control of the sales function. We looked around for an organization where owners from different brands and different countries could meet to compare notes, share best practices and eventually combine to leverage their unified voices. Nothing like that existed in Europe, nor indeed in Asia. So, a few years later, a group of six hotel owning companies got together and formed HOFTEL as a small self-help club. At that time, our combined hotel asset portfolio was around US$ 2 billion. Today, our members control around US$ 80 billion of hospitality property assets.
As you get more and more members and gain more power to negotiate with hotel management companies, are you afraid of being recognized as a Union or enemy of big cooperates?
Simon: If we’re a union, we’re definitely a capitalist one! I hope, however, that we are constructive in our approach. We are not anti-brand; far from it. To be a member, you have to own some branded properties. We do aim to hold the big operators to account though. If they have a policy of hiding costs or recharges in their MOUs or contracts, or wantonly spending owners’ money, or imposing inappropriate brand standards on investors, then of course we have the policy of opposing that. On the other hand, if a brand introduces innovations that benefit owners, in terms of efficiency or top line or transparency, we’re also happy to applaud that loudly and publicly.
Can you give me of an example of a case/cases that HOFTEL have helped members to win over unfair agreement / dispute with operators?
Simon: It’s a very European example I’ll give here. We had one member with a leased hotel, where the operator paid a % of revenue on rooms and a much lower percentage on food and beverage. Talking to members the owner (who was not an experienced hotelier) realised that when a guest booked a bed-and-breakfast package deal, the operator was allocating a very high amount to the breakfast and really too little on the room side. As a result, the operator was paying too little rent. We reckoned that if the owner could get eight Euros of the package allocated back into the rooms and out of the breakfast, their hotel could be worth a million Euros more. They went back to the operator and did it. A good result!
What is HOFTEL ultimate goal?
Simon: We’d like to keep growing to a point where we become the global voice of the hotel real estate investment community, able to express the concerns of the sector in a unified and coherent way, combining thousands of smaller voices into one powerful movement. At the same time, in a quieter way, we aim to be a resource for our members, somewhere they can seek impartial advice and opinions from their peers. Membership is by invitation only and we only ask in decent people, so members never need to feel they will be scorned for voicing problems or fears. Ultimately, too, we hope to be part of the ongoing process of making hotel investment more institutional and transparent, thus demystifying the sector for the big global real estate investors. If we can do that, and bring more long-term money into the sector from insurance companies and pension funds, we will drive down yields and make the entire sector more valuable.
If I were a hotel owner looking for a hotel management company, what would be your advice for me before signing a paper?
Simon: It’s an old cliché but a management agreement is like a marriage – you have to be compatible, and for the long-term. The cheapest fee doesn’t necessarily make the best contract and the best contract doesn’t necessarily make the best manager. Nor indeed does the highest forecast from the development department of a brand that’s pitching for a deal always result in the highest profits. Owners and developers need to step back and look at the fundamentals – does this operator really understand what I’m looking for? Does its brand work in this market? Can it show me real and tangible (and quantifiable) examples of where it has succeeded? Do I like the people and the culture? And then, finally, can I live with the terms they are offering? It’s not a process to be rushed – getting it wrong can be an error that lasts decades and costs you millions. You can, of course, always sign up to one of the vast number of consultants that are touting advice in this area; but for a fraction of that cost, you can also talk to your fellow owners, who have “been there and done it”. There’s no real substitute for that.
*Ricco de Blank, CEO, Sun Hung Kai Hotels *said “As hotel owners there really is no other organisation that gets us together to discuss similar issues that benefit us all. HOFTEL is the place to be a member of, if you like to benchmark what other owners are doing.”