So I've got a group of LP's and we are talking to a GP who also owns a management business.
Their prior bread and butter is in residential short-term rentals, like airbnb type bookings. They have a great platform no doubt, and drive great results.
However, they are moving into Hotel deals as they offer a scaling-up and efficiency of time and effort, but the management % they are proposing for a real estate deal is 20%...
Their answer to me when I stated that a normal hotel management fee is 3% is "Those 3% rates don't include the opex of running the hotel like sales, marketing, etc. Our fee is all inclusive." An additional 17% for those functions? Is that reasonable? What would one actually generally pay to a company to handle marketing and sales for a property? Would it be a % of revenue, or some type of negotiated-fee?
In my research I found that hotels spend an average of 8% on marketing/sales. That's 11% combined. And I am not sure yet whether this management co is saying that all the marketing spend comes out of their end (included in their 20%) or whether they would charge the business for any advertising buys, etc., further adding to the marketing and sales %.
How would you generally handle, as a GP, finding and negotiating with a firm to do the marketing and sales? Because this 20% all-inclusive seems like a huge percentage that isn't properly broken down the way it should be.
In my 18 years of running hotels, I would say 20% is most certainly bloated.
For the most part, and if you have a branded property (think Marriott, Hilton, etc), you'll have 7-8% paid to the franchise. Some brands have additional charges, often $xxx per room per month for marketing. Then, you'll need a 3rd party management company. The franchise isn't going to let you use their name without knowing there is a high quality operator in place. On average, a management company charges about 3%. There are also situations where an asset manager is in place on top of the management company. This can be another 1.5%. The fee can be worked out with the management company to kick back half of their fee to the asset manager if the asset manager handles the operation of the property. This essentially means the management company is merely a bridge for the owner to have access to a franchise as well as added benefits and resources (this can be HR, accounting, purchasing, etc.)
I am not familiar with the deal you have on your desk, but I would approach with caution.