Consolidation among third-party management companies presents challenges and competition, but also will bring wide-spanning benefits to the industry and space.
It certainly grabbed our attention. Aimbridge Hospitality and Interstate Hotels & Resorts joining forces and creating a mega third-party management entity responsible for more than 1,300 properties comprising more than 180,000 rooms.
While relationships are still the vital glue that holds our industry together, certainly such consolidation is something that has been on our radar as private equity has flowed into property management. This merger further signals the overall strength and investment appeal of the current hospitality industry. It also has many implications going forward for property management firms of all sizes, some of which we discuss in this article.
For starters, the Aimbridge-Interstate merger will likely accelerate the move to drive efficiencies and integration among property management tasks, with a heavy focus on advanced technologies. This development should draw even more quality technology vendors to our hospitality space, including those pioneering areas such as advanced cloud computing, machine learning or forms of artificial intelligence. The net result should be a more efficient property management industry, where all entities can implement the most beneficial asset and property management systems at competitive costs. Outsourcing benefits the smaller property managers perhaps even more than the largest ones, helping level the technology playing field.
We also expect this merger, and possible subsequent ones, to allow the hotel industry to act with a more powerful voice on a wide range of issues. These include commercial ones such as negotiating with the online travel agencies or major credit card vendors on fees, as well as in “pleading our case” with Congress, state legislatures, regulators and the public at large. Our challenge here is to understand these possibilities, pick the issues that matter most to the industry as a whole, and take positive action to accomplish agreed upon goals.
Let the competition begin.
While the merger numbers cited earlier are impressive, they still represent a small percentage of all the hotels in the U.S., or globally, even if we subtract those properties outside the potential orbit of the largest third-party property managers.
Perhaps most importantly, this merger will crystallize for property owners the differences in capabilities, market-specific knowledge, organizational style, and responsiveness and relationship-building among a variety of property management arrangements. As such, mid-sized property and asset management firms will, as noted, be able to access the same leading-edge technologies and property and asset management systems as the largest entities, thus, remaining competitive. Clearly, these entities will continue to cultivate as difference-makers the ability to forge long-standing, personal relationships with owners, as well as have closer lines of communication within an organization.
Some property owners will be more comfortable working with the largest property managers; others will prefer working with smaller ones, where they may be more actively engaged in the running of a hotel—strategically and tactically. Also, new management entities will continue to form as a result of new hotel development, acquisitions and divestitures.
Regardless, all property owners will be interested in pricing. It is too early to say what impact industry consolidation might have in this area. However, we do know that hotel owners are increasingly sensitive to the cafeteria of fees that all properties are subject to these days, both from franchisors and some management companies. These include in such areas as technology, human resources, reservations or sales and marketing costs. This issue bears close watching in the months ahead.
Moreover, we believe the present hospitality industry dynamics will put a premium on transparency with and advocacy for ownership, being able to respond quickly and decisively to market-specific conditions and individual property balance sheets.
This is a good thing, as we welcome the challenges that a dynamic industry, economy and consumer present to us.
Kerry Ranson, a 21-year veteran of the hospitality industry, is chief development officer at HP Hotels.
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