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owner / operator relationship . “ Key money ,” he said , “ has strings attached and we want our owners to be in love with our performance and not married to our HMA .”
For this reason , Smith maintains that key money coming from the brand is more
WE WANT OUR OWNERS TO BE IN LOVE WITH OUR PERFORMANCE AND NOT MARRIED TO OUR HMA
– ROB SMITH , CEO & PRESIDENT ,
STONEBRIDGE COMPANIES
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practical than key money coming from a management company . “ It is more advantageous [ for ] owners from the branding perspective ,” he said . They want to have a long-term brand agreement and if funds are needed in the capital stack , it is a great way to monetize the branding strategy .“ |
Of course , it ’ s no free lunch : key money oftentimes comes with not only higher royalties , but less ramping time of fees that allow the property to stabilize and mature .
Hotel brands are in a competitive race for brick-andmortar and what can amount to free money is very often a deciding factor in who wins . For owners , having a strong brand is not only good for business , it assists in getting better traditional lending terms and can be equally good when it ’ s time to sell : Though some buyers like the idea of an unencumbered asset that they can put their imprint on , a strong , cash-flowing encumbered brand can be a
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no-brainer — one less thing to worry over .
Key money aside , Smith pointed out that in the triad relationship of owner , brand and operator , “ The best scenario is to have a long-term agreement with the brand as this provides stabilization and a performancebased relationship with the operator .”
And though key money may be having its moment in the sun , it ’ s not always needed or wanted . “ In my experience , developers and owners will use their negotiating leverage to get hotel companies to compete against each other ,” said Hennessey . “ Some wellcapitalized owners still avoid key money if they can get better contractual terms without it .”
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