By Jim Plautz
July 14, 2010
 Where have all the lenders gone? 2010 is an awkward time
for
the financial industry. It used to be so easy to obtain equipment
leasing, even
for new hotels. Several lenders specialized in offering midsized and
large,
branded hotels all the FF&E leasing they required. Sure, the lease
docs
read like a second mortgage, but the rates were good. It was a great
way to
reduce the owner’s out of pocket cash required for new construction or
renovation. These lenders have disappeared and to make matters worse,
hotels
are now faced with cash demands resulting from new technology and the
need to
keep up with guest expectations. Hoteliers want managed service
agreements for
Cloud Based Computing, but vendors want the money up front. How can
these
requirements be reconciled?
Cloud Based Computing, also known as software as a service,
above property, or web-based software, is the current craze for VoIP
providers;
the number one trend at the Hospitality Industry Technology Exposition
and
Conference (HITEC 2010) in Orlando according to one industry analyst.
Why
invest in clunky hardware and litter the basement with racks of
unsightly
servers when most of your daily operating applications can be hosted
elsewhere
and accessed on the World Wide Internet. Cloud Computing and Triple
Play
services are everywhere, and here to stay.
Let’s take a look at the new challenges offered by Cloud
Based Leasing using a phone system for a 100 room hotel as our example.
The
hotel has decided to purchase a new Cloud Based VoIP Telephone System
that will
interface with existing property management and call accounting
systems. The
hotel will receive a monthly license fee covering the cost of the
services they
use. This begs the following questions that hoteliers must ask
themselves;
1. What can be leased?
Traditionally, the hotel would
lease hardware, software, installation and training expense. Some
leasing
companies also allow you to roll in the cost of the service contract.
Now, it’s
unclear as to what the hotel owns and what they can lease. Certainly
they can
lease the telephones, console and other on-site equipment, but what
about the
rest? On-site equipment might be only 30% of the total system. Will the
vendor
finance the remaining 70% or will hoteliers be required to pay cash?
2. Is vendor financing
competitive? Vendors want to
be paid up front, but some vendors will also offer service contracts
covering
most of Cloud System costs. This helps vendors increase sales, but are
these
service contracts cost-competitive? Hotels will want to compare prices.
3. Are small leases available
for on-premise equipment? Depending
upon what parts of the Cloud System can be leased; it is more likely
now that
the lease size will be smaller. Many lenders have stopped doing leases
under
$50,000; one lender has increased the minimum size to $250,000. Some
lenders
are still doing small leases, but lease rates are often expensive.
4. Who will host the Cloud Based
System? What are
their qualifications? Today, lenders want to know about the vendor. How
long
have they been in the business? Will they be around to provide hardware
and
software support? Lenders will still want to look at the vendor, but
now they
might have an additional party involved, particularly for Hosted
Services. What
are the qualifications of the company hosting the service? Have they
done this
before?
5. What if the central system
crashes, for whatever
reason? Equipment failure, software glitches, storms, virus,
whatever; what
if the system doesn’t work for an extended period of time (as defined
by the
lessee)? This can happen today, but there are more culpable parties
with a
Cloud Based System. Hotels should take a close look at what happens if
the
system goes down. Is there is a backup plan?
6. What happens when the lease
expires? Hotels
currently own their entire phone system and for $1.00, or the Fair
Market Value
if an operating lease, can purchase the system. They are entitled to
service
and maintenance as long as the system is upgraded to current software
levels.
Is this true with Cloud Based System? What about the portion of the
service
contract that covers trunk charges? Who pays for future software
upgrades? Who
owns the Cloud System after the lease expires?
7. What type of lease is
appropriate for Cloud Based
Systems? Most leases today are Capital Leases; 36-60 month $1.00
or 10%
buyout at lease expiration. This means that the asset appears on the
balance
sheet for tax purposes, the lease term is 75% of the equipment life and
the
lessee owns the equipment for tax purposes. Is this still true? If not,
are
Fair Market Leases more appropriate? If so, how does the lessor
calculate
residual value? Hotels will want to take a closer look at FMV leases.
8. May I combine Cloud Computing
and Triple Play into a
single lease? The answer should be yes, particularly if the
components of
the Triple Play are from the same vendor. Lease rates should be
better.
Hotels should request a single, integrated lease.
Conclusion:
The purpose of this article is to identify some of the
issues that must be
addressed if hotels can successfully use equipment leasing to seize the
opportunities created by Cloud Based Computing and Triple Play
services.
Successfully meeting these challenges is important to both the leasing
industry
and growth of Cloud Based Computing. The author is currently working
with major
vendors to develop programs that address these issues as well as the
functional
issues of Cloud Based Computing. These issues are solvable,
particularly if the
vendor’s delivery model is initially established with these issues in
mind.
There is nothing more beautiful than cirrus clouds forming a halo
around the
setting sun. It can be that way for the Hospitality Industry.
 About the Author:
Jim Plautz is owner and president of Gemco Leasing
specializing in leasing telephone and computer systems to the
Hospitality
market, and Greenman Funding, a mortgage brokerage company, also
specializing
in Hospitality. Jim previously owned and managed numerous
telecommunication
systems in “smart office buildings” and hotels; a forerunner to today’s
Cloud
Based Computing. He spent eight years as a consultant with Price
Waterhouse
& Co and five years as Corporate MIS Director for a billion dollar
decentralized company, responsible for integrating computer and
telephone
operations Jim has authored three fiction-suspense novels, each
structured
around a different sports theme; golf, tennis and basketball.
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