Transitioning from one management company to another typically costs an owner hundreds of thousands of dollars in disruption and hard costs if not done right. Making the decision to switch management companies isn’t easy for many owners, but sometimes a new perspective is exactly what is needed versus taking the path of least resistance and hoping things will be different.
While owners are less likely to switch from one management company to another when things are going well, the COVID-19 pandemic forced owners to step outside their comfort zones, as revenue plummeted overnight and the need for change became evident. Owners began reassessing their properties and reevaluating their agreements, one of which became front and center among industry executives – the third-party management contract.
Even though third-party operators are known for their flexibility and loyalty to owners, they’re classified as an expense on a property’s P&L, a necessary one in many circumstances; however, finding the right one that understands the ownership side and is willing to structure a contract with an alignment of economic interests is critical to the decision. In other words, possibly a lower fee with shared upside in exceeding revenue and profitability goals typically is a win-win for both owner and management company.
Transitioning to another third-party management company may make sense, but not every third-party management company offers the same services for its fees. For instance, not every third-party management company offers construction and renovation services or branding and rebranding services, so another third-party management company may give you a bigger bang for your buck if you’re in need of those services. But switching can be costly if you don’t ask the right questions. Beware of hidden fees and expect full transparency.
Doing your due diligence before transitioning to another third-party management company is key to cutting transition costs. Don’t leave any stone unturned when vetting a potential partner about transition costs. Understand every step of the transition process and don’t be afraid to push back when something doesn’t add up. Many transition costs are avoidable with the right third-party management company.
For instance, effectively managing a transition team is key to significantly cutting transition costs. You can accomplish this by ensuring there’s an efficient transition process with a well-defined critical path in place before transitioning to another third-party management team.
What does the transition process entail? How long does it take? When’s the best time of week for the transition to take place? What type of impact will the transition have on the property? Will new licenses need to be obtained for the property? What about the technology throughout the property? The property management system (PMS)? The revenue management system (RMS)? Do they need to be swapped out for newer systems? If so, what are the associated costs with that?
The transition team also doesn’t need to be large to prove strength. It doesn’t need have all bells and whistles or a stable of consultants to opine on what is needed. Instead of sending a huge team with undefined roles, have a specific day-by-day list of action items to complete during the transition. Your plan should be specific to the needs of the property at transition and cover what you can remotely that doesn’t have to be completed on property.
Sometimes it’s worth getting out of your comfort zone and taking a risk. What’s important is it’s a calculated one. In a time where labor costs are rising and brand standards are evolving (and at times unpredictable), curbing expenses, including significant costs, is essential to keeping a property afloat. Protect your bottom line by curbing rampant transition costs.
Guest article contributed by Chris Russell to Hotels Magazine on August 18, 2021.