Hotel Lawyer on the spike in reflagging hotels.
It's often good news for us when the business section of a
major newspaper explains what is going on in the hotel sector. (And
nice, too, when the paper includes a quote by yours truly.)
The topic? How and why hotel owners reflag properties. The
reason for the story: the Great Recession has changed just about
In the New York Times article, Dressing Up for Success, reporter
Amy Zipkin says: "According to statistics from Smith Travel
Research, a research firm in Henderson, Tenn., nearly 2,500 hotels
were reflagged in 2011. While that represents just a 5 percent
sliver of all hotel properties in the United States, it was still a
39 percent increase from 2010."
Brand standards have to mean something.
The reasons that hotel owners reposition hotel properties with a
new flag are not new to us. Repositioning a hotel property is
generally forced by the market: guest preferences and travel
patterns change, owners' expectations are not met, ownership
changes hands, cash flow decreases or mortgages come due, brand
standards change. Hotels are reflagged when it can help solve a
problem or take advantage of an opportunity (or both). Either way,
the Great Recession forced major changes on the hotel industry, and
the market is irrevocably different.
Now, after a long period of restraint, we see brands dropping
hotels from their systems for failure to meet the brand standards.
In most cases, it is not a failure to meet tougher new standards,
but rather a failure to meet the old standards. During the depths
of the recession, most brands looked the other way on brand
standard enforcement, but their patience has run out. And
ultimately the value of the flag and guests the brand brings depend
upon meeting guests' expectations.
Owners have expectations of operators too.
On the flip side, hotel owners seek new management where better
deals are available. They want hotel management agreements that
provide for more flexibility, efficiency and accountability.
Difficult as this is for brands, it is necessary for hotel owners
to set higher standards, as well, due mostly to the post-recession
realities for raising capital.
I was quoted in the New York Times article as saying, "A
property can be very different once a hotel changes flags."
This statement is based on decades of experience in assisting hotel
owners in changing flags. Sometimes the change comes through the
careful exercise of contractual rights. Sometimes it results from
tough negotiations for a management agreement that is fair to the
owner. Sometimes the change is forced through litigation or
Why the spike in hotel repositionings now?
Although more understanding for a while, guests'
expectations for service and amenities have recovered to
pre-recession levels. Brands' expectations for compliance with
their standards are back. And owners' expectations for
profitability are stronger than ever.
As properties change hands and new capital is deployed,
repositioning is often the right step for everyone.
We hope that all our hotel industry friends -- owners, lenders,
brands and advisors -- have their expectations met in 2013!
Happy New Year from all of us at JMBM's Global Hospitality
This week, the U.S. Supreme Court issued a potentially landmark ruling in Spokeo, Inc. v. Robins (No. 13-3339), a case filed under the Fair Credit Reporting Act of 1970 (the "FCRA") but expected to have much wider implications, including for Telephone Consumer Protection Act ("TCPA") lawsuits.
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