Third-party operators help to stop management woes in their tracks
By Cathleen Draper
As hotel portfolios grow more complex, many owners reach a tipping point when doing it all themselves simply no longer works. They’re stretched thin, fighting to keep up with increased costs, evolving brand standards, and tighter margins. On the flip side, they want to focus on new ventures and growth.
That’s when third-party management shifts from an added expense to a strategic advantage.
Choosing to bring on outside management depends on an owner’s needs, goals, and portfolio size. Still, a few common scenarios consistently push owners in that direction.
First: growth. Owners can often manage one hotel, maybe two or three at best. But by four properties, things start falling through the cracks. And by six, owner-operator models become untenable, said Harmeet Mann, CEO of Mehr Consultancy, a third-party management firm and Bronze Industry Partner.
“Even after two hotels, it can get really difficult,” Mann said. If an owner is focused on growth, their time is quickly consumed by development and acquisitions, which require significant due diligence.
“If you’re busy growing the portfolio and getting hotel number three, four, or five, you don’t necessarily have time to focus on the hotels you already have,” Mann said. “You might just be overseeing your GMs, but even that can get overwhelming if you don’t have a team to support you.”
Christie Patterson, vice president of development at InterMountain Hotels, a family company, third-party operator, and Allied Member, sees a similar shift when owners expand into unfamiliar territory – new regions, new brands, or higher-tier assets that require greater expertise.
“Maybe they’ve been in the economy or mid-scale tier hotels, and they are growing and looking to acquire a higher tier of hotels that require a different level of knowledge and experience that they just don’t have today.”
Brand requirements also play a role. In 2024, nearly half of branded hotels were managed by third parties, according to JLL.
Ownership transitions are another trigger. That’s become especially common as first- or even second-generation owners retire, and their successors, who might have pursued careers as doctors, lawyers, or pharmacists, take over and seek to offload operations.
“For one reason or another, they don’t have the bandwidth, capacity, or even interest in taking over the family assets, and if they do have interest in it, they only have the capacity to asset manage and not do operations management,” Mann said.
Patterson sees this as a strategic shift driven by legacy goals. COVID, she said, underscored just how difficult operations are, highlighting the increasing dedication, resources, and attention required as costs rise and labor shortages persist. That’s forced the next generation to rethink their strategies.
“They are more focused on how to grow the business [and] add more hotels,” Patterson said. “They think there are other ways to be effective, and third-party operations… they’ve found to be a good solution so they can focus on where their new interests are.”
Myth Busters
Patterson advises owners to involve management companies early.
“The sooner you start engaging a third-party operator, the better it’s going to be for both parties and the ultimate outcome,” she said.
Still, misconceptions persist – especially around cost.
“Some owners who have been in the industry for a long time, who have self-operated their hotels, may feel like a management company is just an additional expense,” Mann said. “And not only that, sometimes they have to pay the management company, they have to pay the general manager, and they stand to lose profitability.”
While fees are real, operators bring experience, systems, and scale. They can secure portfolio discounts, ensure compliance, reduce legal risk, improve HR practices, manage renovations, and connect owners with lenders or brokers.
“Management companies – if they’re good and they’re relationship-based – are more than just operators,” Mann said. “They’re true partners.”
Another common misconception is that third-party operators don’t have an owner’s best interests at heart. “Some hotel owners have been burned in the past,” said Ashish Lall, president of LMA Hotels, an Allied Member. “Maybe the priority of making money to the bottom line hasn’t been achieved, but top line or guest scores might be there.”
For Lall, it comes down to alignment. Owners must clearly define their goals from the outset – whether it’s driving money to the bottom line, improving guest service, maintaining the property, or all of the above.
Not all third-party managers are the same, he said. “When we go in to manage for owners, we try to – on day one of the conversation – align with what their topmost priorities are so we can fit the mold of what their expectations are.”
Building a Partnership
To best align goals and strategies, owners need to be clear on what they’re trying to achieve, and the management company must be transparent about its strategy and priorities. For example, an owner planning a short-term hold may not align with a company focused on long-term partnerships.
Company culture matters, too. Patterson encourages owners to evaluate values, leadership style, and how companies hire, train, and support their teams. “It’s not just what you ask, it’s what you do,” Patterson said. “Visit the management company’s head offices, spend time with them, meet their leaders. Visit other hotels that they manage and speak with other owners that they manage for.”
On the technical side, owners should scrutinize contract terms, performance benchmarks, and fee structures.
Mann recommends clarity on all costs from the jump. “Is it just a management fee off the top line revenue, or are there additional fees, like accounting or maintenance? It’s good to have all that information up front and not get hit by fees later that were not on your radar.”
Performance matters, too. Review P&Ls, guest satisfaction scores, and comparable assets. Many firms provide case studies to demonstrate results. And accessibility is key. Owners should assess communication, reporting tools, and dedicated support staff.
Above all, ask for references.
“I know a lot of companies that can show a portfolio of hotels, can show a lot of pretty pictures, can show a Rolodex of staff, and all that,” Lall said. “But it just comes down to how happy their other hotel owners are that they’re already managing for.”
In the end, the relationship matters as much as the contract.
“Ultimately, you have to feel comfortable with the management company you are engaging with, that you’re going to be able to work through scenarios that come up,” Patterson said.
The Payoff
While cost can be a concern, the benefits are broad.
“Improvements are on a case-by-case basis,” Patterson said. “Every asset, every scenario, has its own challenges and opportunity areas where you may be able to benefit that particular hotel.”
Owners often see fewer lawsuits, reduced workers’ comp claims, improved guest reviews and response times, more streamlined expenses, and less overtime. General managers benefit from stronger support and less burden. Third-party managers also drive top-line revenue growth while improving training and service standards.
Asset care is another advantage – strong processes can extend renovation timelines and reduce costs.
At its core, the value comes down to performance.
“At the end of the day, it really comes back to profitability,” Patterson said. “Is the team you’re hiring experienced? Are they focusing on forecasting, which drives operational decisions? What are they doing to control expenses, like negotiating vendor contracts across the portfolio? Are they strategically using OTAs and driving business to the brand channels?”
Third-party operators also offer structured support through owner transitions, from refinancing to renovations and conversions, taking on every detail from PIPs to procurement to paint.
When it comes to conversions, outside operators secure the term sheets, determine liquidated damage costs with an attorney, and provide support through the entire process, including data packs and positioning the hotel on OTAs.
“We handle everything,” Mann said. “It’s pretty much a white-glove service.”
If an owner decides to sell, managers can recommend brokers and synthesize the information to underwrite and market the deal, “completely taking the burden off the owner’s shoulders,” she continued.
In the end, owners need to weigh the cost-benefit analysis. While they may be able to scrape by and manage multiple properties themselves, they risk missing out on the expertise and efficiency of a dedicated operator.
“You get benefit of somebody who’s operating in scale,” Lall said. “You get the bench strength of a managed company, because they have multiple properties that they oversee, and they can bring that to bear on a single property.”
5 Signs It’s Time to Consider Third-Party Management
- You’re stretched too thin – day-today operations are consuming all your time and pulling focus from growth.
- Revenue, guest satisfaction, or margins stall – or fall – despite your best efforts.
- Your portfolio is growing fast, and you don’t have the backoffice support, staff, or systems to match.
- Evolving brand standards and compliance are getting harder to maintain.
- You’re planning a major transition, whether it be a renovation, repositioning, conversion, or sale.
Dig Deeper
To ensure a third-party operator is a good fit, ask these key questions:
- What are the terms of your contract?
- What are your fees?
- Do you have designated team members for owner communication?
- What reporting tools and software do you use, and what can I access?
- Can you provide referrals that I can speak to?
- Can you show me case studies or data points of improvements at similar properties?
Image: Africa Studio/stock.adobe.com
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