- Verifying and updating the Due Diligence completed pre- acquisition on site. This is an essential activity so that unpleasant surprises can be mitigated and dealt with in a timely manner going forward and is a good way of introducing the ownership team to the challenges and the opportunities of the new asset.
- Brand or Own Brand/Independent. Although this decision may have been made pre-acquisition, it should be revisited on deal completion and the following factors need to be considered: does the Owner require strong central distribution and marketing that a Brand would provide or is the asset, its location, the market and team able to provide acceptable revenue generation without the cost of engaging a Brand.
- Operator/Brand Selection. If it is decided to engage a Brand, there are a number of issues that require in depth consideration to match your Asset with a Brand. These include the property’s Market Positioning you envisage, the Architecture and Interior Design and scale of your product, the location of the property, the Brand’s proven ability to deliver in yours and/or similar locations, the Brand’s existing and planned footprint in your general area and the distance of any geographical exclusion zones you wish to mandate. Finally and most importantly what is the ongoing cost of engaging the Brand and meeting its standards? There are various methods to select the best Brand for your property such as Beauty Contests, Rigorous Analysis and Cost Comparison etc. however, the brand option is essentially a partnership and it would be initially advisable for both you and the Brand to discuss your medium and long term goals for the property to ensure that they are aligned
- Franchise or Management?. In making a decision on the contractual relationship of the chosen Brand, there are the three basic models mentioned in the headline that are prevalent at the present time.
- Franchise, right now, is the most common in Western Europe, due to the general trend of Owners wishing to maintain a higher degree of control over the operation of the Asset whilst enjoying the benefits of the brand assisted by the recent emergence of specialized Asset Management companies. The Franchise agreements are mainly structured on revenue achievement with an a la carte offering in terms of additional services from the Brand/ Operator.
- Management Agreements, although popular in previous decades are on the wane mainly due to the high cost of Base Fees for the Brand, Incentive Fees for Performance and mandatory Centralized Services Costs. These costs coupled with the reduced level of control that the Owner would have over the day to day operation of the Asset have made this a less popular option in recent years. It has to be said that Management Contracts are still popular in the Middle East and Far East and in instances where the Ownership such as Institutions require a more hands-off approach to the operation.
- Although there are many variants of the above contract types including Manchise, where the Owner can decide to select a Management Agreement for an initial period which would then convert to a Franchise Agreement in the future giving the Owner sufficient time and knowledge to take over the operation of the Asset themselves whilst keeping the brand.
In summary there is a full spectrum of options for contracting the Brand to ensure the long term success of your property.