Below is a highly interesting perspective presented by the BLLA’s newly-appointed legal counsel Nelson F. Migdal, Greenberg Traurig LLP:
I hope this will not come as a surprise to you, but in order to deliver the personalized guest facing services that the boutique hotel industry is famous for, the boutique hotel management agreement should be as unique and detailed as the boutique hotel itself. This article will begin a conversation about lessons learned from the recent increase in interest in the boutique hotel and how the boutique hotel management agreement could be the vehicle for the hotel owner and the hotel operator to insure that the boutique hotel guest is provided with the style of personalized guest experience that only a boutique hotel can offer.
We all know that the equity and debt markets are challenging and that some spa/resort and boutique properties are being severely impacted. It is an almost daily struggle to preserve rate, maintain occupancy, and most importantly for the boutique hotel, to maintain the quality of guest facing services and amenities that the boutique hotel guest expects and demands. There can be no denying the elements of the hospitality industry that thrive on the basis of financial engineering. The message for the boutique hotel owner and operator is that they must go beyond financial engineering to the guest experience. Think about it this way. Financial engineering to get the budget right and determine the appropriate equity and debt vehicles for a profitable enterprise will be essential for opening the hotel to the paying public. However, only the well conceived and executed guest experience, from porte cochere onward, will cause the guest to return to the hotel time and time again.
A Boutique & Lifestyle Lodging Association agenda item is to bring greater clarity to the many varieties of “boutique” hotels, and potentially arrive at a common understanding or standard of a boutique hotel. While that process proceeds, boutique hotel owners and operators might want to ask themselves whether or not the hotel management agreement for a boutique hotel should say something more about what the hotel owner expects of the hotel operator. Also, consider what the hotel operator wants to demonstrate to the hotel owner to make it clear that both the hotel owner and the hotel operator have a financial interest in providing a unique and personal guest experience.
The hotel management agreement is the governing document guiding the relationship between the hotel owner and the hotel operator. Terms and conditions typically found in the hotel management agreement include the term, the operator’s compensation, the budget process, performance termination, sale of the hotel and indemnification. Each of those components is important and may be the subject of future conversations. But in addition to those highly deal driven and legalistic subjects, the hotel management agreement should also express that the hotel owner and hotel operator acknowledge that the hotel must distinguish itself by the level of personalized service and individualized care provided to the guest at all services levels, and that the hiring, training and supervision of all of the staff must be driven to a level of quality reflective of the boutique experience. Each place where a hotel guest interacts with hotel staff should be a touch-point for the operator to demonstrate that it possesses the requisite skill and expertise to operate in the boutique environment and for the hotel owner to measure the operator’s performance. Perhaps all of this be incorporated into a performance test in addition to the usual RevPAR or financial tests.
Think for a moment of any satisfactory guest experience you have witnessed or are aware of occurring at a hotel you would consider to be a boutique hotel. Should that experience be simply a matter of good luck or a lucky hire by the operator, or should it be identified and understood in a programmatic way to institutionalize certain behaviors and responses to guest requirements or demands? To the extent the hotel owner and hotel operator can mutually agree that the ideal boutique hotel guest is probably looking for an experience that is highly personalized, within a unique physical environment, and operating on a level that is undisputed to be luxury, the perfect opportunity might exist to build some of those sentiments into the hotel management agreement. For example, the hotel management agreement might include a guest service rider and require the hotel staff to recognize the guest by name, identify, catalogue and retrieve guest preferences, and generally deliver that intimate, personal, unique guest experience that a boutique hotel should be expected to deliver. The boutique hotel operator and its staff should be able to do better than only approximate what it thinks the guest expects of the operator and the staff. Realistically speaking, a true boutique hotel operator should have a pretty good idea of what its guest will expect. This means separating success from failure when it comes to guest facing services is very achievable.
The savvy boutique hotel owner and operator both desire a unique niche from which to achieve significant success in occupancy levels and in supporting a better than market average daily rate. This will not be achieved by financial engineering alone. If we believe that you get the behavior that you incentivize, then the boutique hotel management agreement may need to become a vehicle not just to house fine deal driven and legal terms and concepts, but also to express the patterns of behavior, particularly guest facing behavior, that the hotel owner and operator wish to institutionalize and replicate every day.
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