ANZ and the Pacific experience high levels of Hotel Management Agreements (HMAs). Watson Farley & Williams Asia Pacific Hotel and Hospitality Manager Robert Williams highlights key trends in HMA business locally.
The new HMA business is more active than ever in ANZ and the Pacific – fueled by the two brands that are new to our market (think Ace, Standard, Selina, 25 Hours, Treehouse, Kimpton, Garden Inn) but also by opportunities conversions like those 2000s agreements expire and sale transactions lift vacant property. Each operator must have a conversion mark.
All types of operators are participating – big globals, American and Asian niche brands, as well as local ANZ platforms like Lancemore and Event, across a limited service, from lifestyle to luxury.
There is no doubt that these are exciting times, especially as the upcoming new build product will take ANZ’s hotel supply up a notch, although some markets are feeling the brunt of the new supply for a little moment.
HMAs remain the dominant form of operator/brand engagement in the ANZ market, and while there’s been a lot of commentary around white-label platforms, we just don’t see – at least not yet – this segment get traction in any volume. Leases are still on the table for some deals, with some operators, but this is now a very limited opportunity – and with force majeure inevitably suspending rent obligations, leases are less attractive anyway.
We observe the following trends:
- local developers are dominating the scene and operators are finding that local presence and relationships are more important than ever
- many developers continue to value major brand operators
- interference from converging brands within the same system is a growing concern for many in Sydney and Melbourne
- initial development concerns about feasibility and funding take precedence, often at some cost to the long-term agreement – this is not a new phenomenon
- smallholders who can demonstrate a focus on the bottom line and commitment from senior management get crushed, especially on regional opportunities
- large operators are more rigid about their loyalty, shared services, purchases, etc. — creating fertile ground for turmoil later in the asset’s lifecycle
- financial support is rare – in most cases guarantees are now guarantees, with clawbacks
- key money is offered – although in our opinion this is a pretty brutal tool.
Of course, we respond to calls from owners regarding the termination of HMAs. Any relationship that was struggling before COVID is likely to be more stressed now, and with a vibrant deal market, vacant possession is attractive. We work for both operators and owners, so take advantage of both perspectives. My experience is that it will be a rare set of circumstances that will see an operator walk away from an HMA. But it happens.
For more, check out the April issue of HM, out next week.