Asset management solutions for F&B in unionized hotels
 
Asset management solutions for F&B in unionized hotels
15 MARCH 2016 7:37 AM

There are several options for a hotel owner/asset manager to consider when maximizing F&B margins in a hotel subject to a unionized workforce.

Now more than ever, hotel restaurants play an important role in a property’s overall success.

The changing demographic of guests in the last few years has made vibrant restaurants and catering operations part of a preferred hotel choice, even for certain select-service urban properties. In particular, the boutique hotel segment typically relies on interesting and dynamic restaurants to help develop roomnight demand and achieve above average revenue per available room penetration.

The opportunity for restaurants and their hotels to profit and thrive is challenged in an environment where collective bargaining agreements control the work rules and other employment aspects of hotel—and potentially restaurant—employees.

The food-and-beverage departmental margin is much less important than using the restaurant and catering operations to enhance the hotel’s RevPAR. Asset managers are often able to maximize hotel values through different types of business relationships between hotel owners and third-party or other F&B operators. This value enhancement is achieved by both maximizing departmental profits and enhancing overall guest experience. Coupled with the goal of favorable social media impact, these elements are a means to improving RevPAR and gross operating profit.

There are several options for a hotel owner/asset manager to consider when maximizing F&B margins in a hotel subject to a unionized workforce.

Management operator in control
The easiest option is to have the hotel operator control F&B operations. In many cases, this will offer only limited protection from CBAs and may not permit much loss mitigation. While some brand operators and management companies are more successful at running these departments than others, in many cases the terms of the CBA will dictate how economically successful this option might be.

One critical advantage of this situation is that the hotel operator will typically retain control over the training and staff oversight, ensuring compatibility with hotel service standards and expectations. For some hotels, this is more important than minimizing F&B departmental losses.

Lease carve-out
With proper planning and foresight, a leased restaurant can be carved out of the CBA so that employees of a restaurant tenant can operate it. This typically requires an arm’s-length lease between the hotel owner and a restaurant tenant.

One advantage of this structure is that an exclusive F&B operator tenant can become fully immersed in the F&B department, approaching it with more focus and providing higher results. Another advantage includes the hotel owner’s ability to count on a stable source of cash flow from the rental payments and rely less on cyclical market conditions.

A potential disadvantage of this arrangement is that the tenant can gain significant control of the operation, conflicting with hotel procedures. If the restaurant is unsuccessful, rental payments would cease, taking months or years to evict a non-paying tenant.

Management agreement carve-out
A hybrid of the previous two options is a carve-out of the CBA for a management agreement by a separate operator. This is distinguished from a lease, as the owner stays in control of the restaurant and banqueting areas. A professional operator is then hired under a management agreement and the hotel owner retains rights to control critical aspects of the operation and to profits and losses.

This arrangement disrupts the allocation of profits between the hotel operator and the F&B manager. The asset manager will then play a critical role in coordinating and facilitating a positive relationship between the two. However, this arrangement permits the hotel owner, and potentially the hotel operator, to create the restaurant and banqueting environment they believe will be most beneficial to the overall hotel operation. It also permits the hotel owner to contribute additional capital when necessary. It is significantly more work than the other options but offers the hotel owner/asset manager the most operational and economic flexibility and control.

With a bit of creative thinking and forethought, hotel owners and asset managers can reap a very profitable return from their hotel F&B outlets. While challenges might exist in today’s climate and at this stage of the hotel real estate cycle, there is room for everyone to sup well at the table.

Neal Peskind, SVP of asset management at BetaWest, has over 30 years’ experience in real estate and hospitality from asset management and investment advisory to development, operations, corporate strategy, and finance. Since his arrival at BetaWest in 1998, Neal has been involved in primary asset management for over $1 billion of real estate assets, involving over 30 distinct hotels (flagged by Marriott, Hilton, Ritz Carlton, Kimpton, JDV, Doubletree, and independent hotels) managed by over 10 separate hospitality management companies. He received a BSBA in Finance and Banking from University of Missouri-Columbia and a J.D. from University of Michigan Law School. Neal has been a member of Hospitality Asset Management Association for over 12 years and has been a presenter and speaker at numerous industry events.

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