Forms of Ownership in A Hotel Industry

Forms of ownership in a hotel industry
Submitted by: Annie Varghese

MTTM (I year)
Mar Elias College, Kottapady
Submitted to: Miss Bhanupriya B.P

Department of tourism studies
Mar Elias College, Kottapady
Submitted on: 14/11/2022
1
CONTENT PAGE NO :
Introduction 3
Ownership structure 3
Independent ownership 3
Management contract 4
Chains and Franchise agreement 5
Fractional ownership 5
Full ownership strata units 6
Reference 7
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Forms of ownership in a hotel industry
The hotel industry describes a section of the service industry, based around the
provision of temporary guest accommodation and related services. Businesses
within the hotel industry will provide guests with a place to enjoy overnight stays,
on a short-term basis, in exchange for money.
Hotel owners are the individuals or entities that own hotel businesses. Again, this
definition will generally include all business types that fall under the hotel industry
umbrella, including hotels, motels, inns, and guest houses. Ultimately, owners are
responsible for overseeing all issues related to a property, or a property portfolio.
This can include obtaining the necessary business licenses, ensuring the property is
well-maintained, investing in improvements or expansions, and all core hotel
operations. With that being said, owners of large hotels, or hotel chains, will often
delegate responsibility to employees, including hotel managers and management
teams.
OWNERSHIP STRUCTURES
There are several ownership models employed in the sector today, including
independent, management contract, chains and franchise agreements, fractional
ownership, and full ownership strata units.
 INDEPENDENT
An independent hotel is financed by one individual or a small group and is directly

managed by its owners or third-party operators. The term independent refers to a
management system that is free from outside control.
There are a number of very well-established independently branded hotels. These

hotel companies have developed their own standards, support systems, policies and
procedures, and best practices in all areas of the business. Independent hotels have
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the flexibility to customize or adjust their systems to position their property for
success, and the location, product, service, experience, sales and marketing, and
brand are all necessary for that success.
 MANAGEMENT CONTRACT
Another business model is a management contract. This is a service offered by a

management company to manage a hotel or resort for its owners. Owners have two
main options for the structure of a management contract. One is to enter into a
separate franchise agreement to secure a brand and then engage an independent
third-party hotel management company to manage the hotel Silver Birch Hotels is
an example of a hotel management company that manages independent hotels and
hotels operating under different major franchise brands, such as Marriott Hilton,
and Radisson
A slightly different option is for owners to select a single company to provide the
brand and the expertise to manage the property. Four Seasons Hotels and Resorts
and Fairmont Hotels and Resorts are companies that provide this option to owners.
In 2014, the iconic Fairmont Empress hotel was purchased by Vancouver
developer Nat Bosa and his wife kwa, who continued to retain Fairmont as the
management company after the purchase.
Selecting a brand affiliation is one of the most significant decisions hotel owners
must make. The brand aliliation selected will largely determine the cost of hotel
development or conversion of an existing property to meet new brand standards.
The affiliation will also determine a number of things about the ongoing operation
including the level of services and amenities offered, cost of operation, marketing
opportunities or restrictions, and the competitive position in the marketplace. For
these reasons, owners typically consider several branding options before choosing
to operate independently or selecting a brand affiliation.
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 CHAINS AND FRANCHISE AGREEMENTS
Another managerial and ownership structure is franchising. A hotel franchise

enables individuals or investment companies (the franchisee) to build or purchase a
hotel and then buy or lease a brand name to operate a business and become part of
a chain of hotels using the franchisor's hotel brand, image, goodwill procedures,
controls marketing, and reservations systems.
A well known franchise in BC is Coast Hotels. A franchise with Coast Hotels

becomes part of a network of properties that use a central reservations system with
access to electronic distribution channels, regional and national marketing
programme, central purchasing, and brand operating Standards. A franchisee also
receives training, support, and advice from the franchisor and must adhere to
regular inspections, audits, and reporting requirements
Selecting a franchise structure may reduce investment risk by enabling the

franchise to associate with an established hotel company, Franchise fees can be
substantial and a franchisee must be willing to adhere to the contractual obligations
with the franchisor Franchise fees typically include an initial fee paid with the
franchise application, and then continuing fees paid during the term of the
agreement. These fees are sometimes a percentage of revenue but can be set at a
fixed fee. Franchise fees generally range from 45 to 75 of revenue.
 FRACTIONAL OWNERSHIP
In a fractional ownership model developers finance hotel builds by selling units in

one-eighth to one quarter shares. This financing model was very popular in BC
from the late 1990s to 2008. Examples of fractional ownership include the Sun
Peaks Ski Resort in Kamloops and the Penticton Lakeside Resort In this model,
owners can place their unit in a rental pool. The investment return for owners is
based on the terms of the contract they have for their unit, the strata fees, and the
hotel's occupancy Managing fractional ownership can be very time consuming for
hotel owners or management companies as cach hotel unit can have up to eight
owners. If occupancy rates are too low, an owner may not be able to cover the
monthly strata fees. For the hotel management company, attaining occupancy rate
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targets is necessary to ensure that the balance of revenue is sufficient to cover the
hotel's operating expenses Developers now anticipate that fractional ownership
will not be used to finance new hotel builds in the future due to poor performance.
There have been some high-profile collapses for hotel developers in BC, and
between 2002 and 2012 fractional hotel owners experienced asset depreciation. It
is uncertain how the market will perform in the next several years.
 FULL OWNERSHIP STRATA UNITS
In this financing model hotel developers finance a new hotel build with the sale of
full ownership strata units. The sale of the condominium units finances the hotel
development. Examples include the Fairmont Pacific Rim and the Rosewood Hotel
Georgia.
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Reference
Sampson, E. (2018) Hospitality Management: An Introduction. Essex, United Kingdom:
ED-Tech Press.
Revfine.com (2022) Hotel Industry: Everything You Need To Know About Hotels!,
Revfine.com. Available at: https://www.revfine.com/hotel-industry/ (Accessed:
November 13, 2022).

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Forms of ownership in a hotel industry

Submitted by: Annie Varghese

Submitted to: Miss Bhanupriya B.P

Submitted on: 14/11/2022

Chains and Franchise agreement 5

Full ownership strata units 6

An independent hotel is financed by one individual or a small group and is directly

There are a number of very well-established independently branded hotels. These

Another business model is a management contract. This is a service offered by a

Another managerial and ownership structure is franchising. A hotel franchise

A well known franchise in BC is Coast Hotels. A franchise with Coast Hotels

Selecting a franchise structure may reduce investment risk by enabling the

In a fractional ownership model developers finance hotel builds by selling units in

 FULL OWNERSHIP STRATA UNITS

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