Top Hotel Management Companies – Rankings + How to Choose
May 20, 2019
If you are a real estate investor looking to buy or build a hotel, you’ll want to explore your management options. In the first place, let’s assume that you are looking for an investment without playing an active management role. In that case, you might want to engage a hotel management company to operate the property on your behalf. However, do not confuse hotel management companies with franchises. Although the two can overlap, a franchise allows owners to flag their properties. They then can run the properties themselves or relegate the task to a third-party management company.
However, you do not need to flag your property to use a third-party management company. In fact, many owners avoid franchises because of the fees and the red tape. So, it really comes down to whether you want to be an on-site, hands-on manager. Or maybe you simply would like to oversee the financials and collect your net earnings. If you choose the latter, you’ll either hire your own staff or use a hotel management company.
Additionally, in this article, we’ll explore what a hotel management entity does and how to pick one that’s right for you. Also, we’ll introduce you to the five top hotel management companies. We’ll finish up by answering some frequently asked questions about hotel management firms.
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What Does a Hotel Management Company Do?
Hotel management companies operate hotels, managing the process on behalf of the owner. The company shares profits with the owner. Typically, the owner buys or builds the hotel property and then turns it over to the hotel management company. If you like, you may read experts explaining how hotel management companies work.
The management company assumes all operational responsibilities, including:
- Running all departments, like maintenance, housekeeping and the front desk.
- Recruiting, training, managing and terminating employees.
- Paying employees, vendors and suppliers.
- Managing revenues. This includes raising or maintaining revenues per available room (RevPAR).
- Managing operational and capital expenses. Operational expenses include orders to vendors and suppliers. Capital expenses include the purchase of furniture and fixtures.
- Reporting financial information.
- Developing and following budgets.
- Compliance with laws, regulations, customs, and if appropriate, brand standards.
- Delivering excellent guest experiences and instilling customer loyalty.
Moreover, the duration of a hotel management contract depends on the nature of the hotel. A non-brand property might contract for a 3-year to 10-year term. Whereas, a branded property might have a contract that extends to 30 years. Clearly, the longer term management contracts with branded hotels stems from the high success rate these hotels experience. Obviously, an independent hotel is a riskier proposition. Therefore, owners will want more flexibility when selecting the best hotel management companies for their purposes.
Criteria for Choosing a Hotel Management Company
Consider the following criteria when selecting among the top hotel management companies and top resort management companies.
What types of hotels does the company manage? Make sure you research this carefully before making a selection. Inevitably, there are many differences between managing an exclusive island resort and an economy motel just off the highway.
Check whether the company performs all the services you require. These might include renovation management, consulting services, asset management, etc. Furthermore, identify the services that the company doesn’t offer, even if you need those services only in the future.
You’ll want a company that understands how to respond to you, hotel guests, vendors, suppliers and all other stakeholders.
Does the management company feel like a good fit? You’ll want a company that emphasizes responsibility and trust. Although this might be a subjective criterion, don’t ignore it. It could lead to future problems.
Check on how the company staffs other properties. Beware of overstaffing, which some companies do to increase their revenues. Alternatively, others might be too cheap and understaff the property. Truthfully, the best hotel management companies staff intelligently so that you aren’t paying for idle or overworked employees.
What operating margins are they providing their other clients? That is, what rate of return can you expect on your investments? Importantly, the best hotel management companies operate efficiently and are not top-heavy with extra layers of management.
How closely does the management company supervise its employees? You probably don’t want a company that lets the property manage itself. Rather, it should be able to execute your ideas for running the hotel.
The best hotel management companies are happy to share their experiences with you. For example, they should be able to show how they improved a hotel’s profits without compromising service or overworking the staff.
Do they welcome your input or give you the cold shoulder? Of course, if you want a completely passive role, the company will probably be happy to accommodate. However, when you want to provide input, the company should accept it and act upon it.
You should receive good reports from other owners who use the management company. The top hotel management companies will receive positive reviews from your peers. On the other hand, if you hear horror stories about a management company, keep looking.
Top 5 Hotel Management Companies Ranked
According to a 2019 survey of the third-party top hotel management companies, the following five are the best hotel management companies. Also, many are the top resort management companies.`
Aimbridge Hospitality is the leader among the third-party top hotel management companies. Also, it’s first among the top resort management companies. Aimbridge operates boutique properties and resorts in the United States and the Caribbean. It earns more than $3 billion in annual revenue and is a preferred status operator for all leading brands. Aimbridge specializes in the following types of properties:
- Upper upscale
As the largest among the best hotel management companies in the U.S., the company prides itself on superior returns. Clearly, it appeals to investors who want to associate themselves with prestige, affluence, and luxury. Specifically, it delivers a portfolio of services, including hotel management, asset management, renovation, development, and consulting services.
Aimbridge suffered data breaches in 2018 resulting from successful email phishing attacks. Also, it was sued in Florida by a former laundry attendant who claimed her personal information was leaked. Furthermore, Aimbridge was sued in 2017 for offering shuttle services that didn’t comply with the Americans with Disabilities Act.
Interstate Hotels & Resorts
Interstate Hotels & Resorts comes in second among top hotel management companies and top resort management companies. It distinguishes itself with superior operating margins, unequaled purchasing power, brand diversity, top IT systems, and depth of resources. They offer support in the following aspects of hotel management:
- Sales and marketing
- Revenue management and e-commerce
- Food & beverage
- Human resources
- Operational excellence
The company boasts more than two decades of global reach and local knowledge. Currently, it offers third-party management for flagged and non-flagged properties. Its proprietary processes depend on real-time, cloud-based business intelligence systems. Importantly, its scope encompasses employee recruitment and development, pre-opening activities, renovations and repositionings.
In 2016, Interstate paid $1.4 million to settle a lawsuit. The suit alleged that Interstate prevented 1,450 employees from getting their required meal and rest breaks. Like Aimbridge, Interstate suffered a class action lawsuit for violating the Americans with Disabilities Act.
Hyatt Hotels is the third-party manager of 372 properties comprising more than 61,000 guestrooms. For example, it offers third-party hotel management services through its Unbound Collection. This is a collection of unique properties located across the planet. It includes a historic property in Paris and a modern hotel near Miami Beach. Moreover, it operates the Jinmao Hotel Lijiang in China, Hotel Martinez in Cannes, the Uruguay’s Carmelo Resort, and more. The Unbound Collection allows Hyatt to apply its profound third-party management experience to the world’s best properties. Chicago’s notorious Pritzker family founded Hyatt in 1957, which now encompasses 13 brands and almost 1800 properties. In 2018, it purchased Two Roads Hospitality, a noted hotel management company.
This year, Hyatt was sued for printing too much credit card information on receipts. More importantly, it was one of six hotel companies sued in 2018 for antitrust activity.
IHG (InterContinental Hotels Group)
IHG manages 965 hotels on behalf of third-party owners. It also franchises 4,615 hotels to independent franchisees. The owners represent their interests through the IHG Owners Association, with more than 4,500 owners and operators. IHG is a British company headquartered in England. Specifically, it has many well-known names in its portfolio, including InterContinental, Holiday Inn, Kimpton, Regent, and Crown Plaza.
In 2014, IHG agreed to end its price-fixing practices. In 2016, it suffered a cyberattack involving more than 1,200 of its properties.
Bringing up the rear among the five top hotel management companies is Highgate. It manages 142 third-party properties comprising 37,307 guestrooms. Highgate fancies itself a premier hospitality management company with more than 25 years of experience. It specializes in key gateway markets, including Boston, Miami, San Francisco, New York and Waikiki. Furthermore, its portfolio includes legacy brands, unique lifestyle properties, and independent hotels. Also, it is expanding operations in Europe. It also prides itself on above-average RevPAR performance. Moreover, it is the largest hotel manager in Manhattan.
In November 2018, Highgate was sued for alleged labor violations.
Choosing the Best Hotel Management Company for You
Your best course of action is to consult with your direct competitors. They might be able to steer you toward an appropriate hotel management company. As you develop a list of candidates, compare their fees and historical results. Ensure they provide all the services you require. Also, check the operating margins their managed properties achieve. Virtually all hotel management companies must deal with multiple lawsuits. Therefore, it’s a good idea to investigate these before signing a contract.
Frequently Asked Questions: Hotel Management Companies
Which services do hotel management companies provide?
They provide a full range of management services. These include operating all departments, managing employees and revenues, dealing with suppliers and vendors, and complying with legal requirements. Importantly, hotel management companies allow owners to take a hands-off approach to their properties.
How do hotel management companies receive payment?
Typically, management contracts specify two types of fees. First, hotel management companies receive a base fee as a percentage of total revenue. Additionally, they receive incentive fees for hitting certain profit thresholds. Normally, management companies earn a combined fee equaling around 3.5% of total revenue.
Do I really need a hotel management company?
You do unless you want to run the hotel yourself. Many franchisees do just that. They hire their own staff and directly operate the hotel or motel. Running a hotel requires a full-time commitment, plenty of knowledge and an outgoing personality. But if you’d rather just earn revenue, you’d be smart to hire a really good management company.
What are the biggest hotel franchises?
The biggest hotel franchiser is Marriott International. It’s followed by InterContinental Hotels Group, Choice Hotels, Hilton Hotels & Resorts, and Wyndham Hotels and Resorts. Each of these chains also owns some of their own hotels and/or offers hotel management services.