News for the Hospitality Executive
Checklist for Negotiating Hotel Management
Agreements/Hotel Operating Agreements
The HMA PRO™ Checklist
By Jim Butler and the Global Hospitality Group®,
Author of www.HotelLawBlog.com
November 2, 2010
Comprehensive Checklist for Negotiating a
Hotel Management Agreement. Negotiating a Hotel Management
or HMA is one of the most important things hotel owners will ever do
hotel investment. And getting terms that work well for the owner can be
problematic. That is why JMBM's Global Hospitality Group® developed
for getting the best hotel brand and operator . . . and HMA terms that
Based on more than 20 years experience in
renegotiating, litigating, arbitrating and advising on more than 1,000
management agreements, we call our solution "Hotel Management Agreement
Procedure to Recruit an Operator" or HMA
HMA PRO™ is described in detail in an earlier article about How to get a great hotel operator at: http://hotellaw.jmbm.com/2010/10/hma_pro.html.
PRO™ Checklist is available for
FREE as described below. It is a tool we use at the very beginning of
the HMA PRO™ process before
contact is initiated with hotel
operator candidates. It helps our clients identify and prioritize goals
objectives, so that we can best shape the initial communications to get
right operator and the terms that are most important for each
Here is more information about this
valuable tool, and how
to get your free copy.
50-point Comprehensive HMA PRO™ Checklist!
Don't even start talking to operators until you have sufficient grasp of the 50 points listed in the comprehensive HMA PRO™ Checklist! In almost every case, we find that once we have walked ownership teams through the HMA PRO™ Checklist, they change their minds about the operators they want to approach, see new traps they want to avoid, and find some important deal points that they need to accomplish for financeability, liquidity and protection of their investment. Inevitably, owners make important adjustments to their goals and strategies.
The HMA PRO™ Checklist is a 50-point, detailed list of all the business and legal issues which an owner needs to resolve prior to or during the earliest stages of negotiating the term sheet or letter of intent (LOI) with the operator. All the other matters are more technical items that can be hashed out in the actual negotiation of the hotel management agreement itself, after the term sheet or LOI is finished.
People outside the hotel industry often don't realize that the owner's ability to negotiate for these most critical checklist items will be jeopardized or lost once the back-and-forth of the LOI negotiations have begun. They find themselves drawn into a seductive process of negotiations with proposed operators, thinking no harm can come from getting a "non-binding" term sheet with an operator, and they will have the hotel experts look it over later on.
But once owners give an operator their first requests or comments, even though everything is "non-binding," operators typically will say that the owner is "re-trading" the deal if it tries to raise these issues later on. Operators normally will not discuss the most important of these issues further even though they might have agreed to them if "properly" sequenced. What good does it do to have hotel experts look at the non-binding deal that cannot be changed on any important business or legal terms? You can basically "take it or leave it" on the non-binding deal you struck, but you will likely have lost an operator that would have been the best for your property.
While some operators may cut a little slack in this situation, most do not. And even with the more flexible ones, every deal point will be harder fought and more compromised. It is better to avoid being put in such a position of weakness.
What is HMA PRO™?
Based on our unsurpassed experience with HMAs, we can say categorically that if an owner wants to select the right brand or operator, it must use an intentional, disciplined process that takes into account the owner's needs, operator's capabilities and the terms of their agreement.
We also are convinced that the solution to getting the best hotel operator AND a fair management agreement is HMA PRO™. We developed HMA PRO™ to "fix" some serious shortcomings in the traditional RFP process used by experienced advisors for this purpose.
We found that the traditional RFP did not create a competitive, owner-oriented process. The name itself, RFP or "request for proposal," puts the owner in a passive position and does not encourage the owner to shape the proposals for its maximum benefit. We kept improving on the proprietary RFP process that we used until we finally felt it needed (and deserved) a different name to distinguish it from the traditional RFP used by others.
HMA PRO™ is a different and unique solution. It starts with the HMA PRO™ Checklist for early identification of the owner's key concerns, and then approaches a small handful of pre-selected candidates who are more likely to meet the owner's needs, rather than using a shotgun approach. It does not treat operators like fungible commodities. Rather, it recognizes that each operator brings different strengths and qualities to a management opportunity. We have found that this approach make operators more willing to participate in HMA PRO™ than an RFP. An RFP often makes operators feel like they are wasting time and resources on an auction where they have little chance of success. HMA PRO™ lets each operator know it is special, encourages participation and focuses the parties on critical elements, mutual expectations and terms, rather than platitudes and advertisements.
It is a better and more focused process that uses everyone's
precious time more efficiently. And the HMA PRO™ Checklist is a
tool for efficiently launching this process.
FREE copy of HMA PRO™ Checklist
Click the button below to request your free copy of our HMA
This is Jim
Butler, author of www.HotelLawBlog.com
and hotel lawyer, signing off. We've done more than $60 billion of
transactions and have developed innovative solutions to unlock value
transactions. Who's your hotel lawyer?
Jim Butler is a founding partner of JMBM and Chairman of its Global Hospitality Group®. Jim is one of the top hospitality attorneys in the world. GOOGLE "hotel lawyer" and you will see why. JMBM's troubled asset team has handled more than 1,000 receiverships and many complex insolvency issues. But Jim and his team are more than "just" great hotel lawyers. They are also hospitality consultants and business advisors. For example, they have developed some unique proprietary approaches to unlock value in underwater hotels that can benefit lenders, borrowers and investors. (GOOGLE "JMBM SAVE program".) Whether it is a troubled investment or new transaction, JMBM's Global Hospitality Group® creates legal and business solutions for hotel owners and lenders. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them. For more information, please contact Jim Butler at [email protected]. or 310.201.3526.
Continues for Hotels and Commercial Real Estate: New Data Suggests 8
year Downturn, Dismal Prospects and Increased Foreclosures / Jim
Butler / October 2010
|Atlas 2009 Year End Hotel Survey . . . and What it Means / Jim Butler / February 2010