There has been a seismic shift in hotel ownership the past five years as hotel chains have been selling off their real estate to focus on management.

The major hotel companies made the strategic decision to divest real estate in the 1990s for three reasons, says Patrick Ford, president, Lodging Econometrics, Portsmouth, N.H.: to focus on core competencies, return profits to shareholders, and eliminate the volatility that real estate can have on stock prices.

Most of the transactions have occurred in the past few years to take advantage of the real estate market boom. “Sellers happen to sell near peaks of markets, that's likely why there's been an acceleration of real estate transactions the last few years,” says Ford. The trend is expected to continue until the hotels own next to nothing, he adds.

What does this mean to group customers? Not much, experts say. “Any of the activity between the management company and the new owner ought to be seamless from the meeting planners perspective,” says Ford. Management contracts preclude ownership participation, he says, especially in the big meetings hotels.

“If we manage the property, whatever we decide is OK with owners,” says David Scypinski, senior vice president, Starwood Hotels and Resorts, Washington, D.C . “The issue of ownership is invisible. As long as there is a brand on the wall, it'll be run to brand standards.” If it's a franchise, Starwood mandates that franchisors subscribe to brand performance markers. “If they don't, we're going to get rid of them because we can't afford to degrade our name,” adds Scypinski.

Planners say they aren't concerned with who owns the hotel — just with who runs it.

“Who owns brick and mortar anymore?” asks Cheryl Geib, travel and meeting manager at Grant Thornton, Oakbrook Terrace, Ill.

She is concerned, however, when the flag changes as a result of an ownership change. And given all the ownerships changes, flags are changing more frequently these days. “I don't want my group and my contract assigned to someone I don't know or a hotel that I may have had a bad experience with,” she says. Flag changes can also result in price changes if the hotel upgrades, which is usually the case. So, she puts in her contract that if there is a change in ownership before the meeting, say within six months of the meeting, she has the right to cancel. She also puts a “no construction clause” into the contract, which states that the hotel can't be under construction while her group is meeting.

Drill Down

HOTEL SALES FOR 2006 WERE $35.5 BILLION — THAT'S 68 PERCENT HIGHER THAN 2005 AND THREE TIMES HIGHER THAN 2004.

PRIVATE EQUITY FIRMS WERE THE MOST ACTIVE BUYERS, ACCOUNTING FOR 40 PERCENT OF ALL TRANSACTIONS. REITS (REAL ESTATE INVESTMENT TRUSTS) WERE SECOND, ACCOUNTING FOR 31 PERCENT OF ACQUISITIONS.

Source: Jones Lang LaSalle

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