Hotel Travel News points to a rise in hotel management fees by as much as 8.9% in 2005 according to the recently released 2006 edition of Trends in the Hotel Industry published by PKF Hospitality Research. That stands to reason given the industry’s robust growth in revenues.
The more interesting statistic is that 40 percent of the hotels reported payment of an incentive management fee in 2005 did not report one in 2004. Again stands to reason – no NOI no incentive management fee. Mark Woodworth, president of Atlanta-based PKF-HR notes that “the good news for hotel owners is that the incentive fees appear to have been justly earned”. But have they? Jack Kennedy famously noted that a rising tide lifts all boats. With significant nationwide growth, it is easy for management companies to come away smelling like roses. Owners tend to be more forgiving figuring that 10-30% of NOI is money well earned by management companies. Instead, they would do well to consider ceilings. Do management companies really deliver incremental value via operational efficiencies as revenues climb due as the demand curve moves right? At some point in the new equilibrium, they reach a saturation point when onwership ought to be the exclusive beneficiary of the risk-reward continuum.