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one more management contract or one more franchise onto an existing system is minimal ; therefore , hotel companies can offer key money and still enjoy a profitable arrangement ,” Hennessey said .
Sonesta International Hotels , which both manages and franchises some 1,100 hotels across 13 brands and eight countries , has selectively used key money as a growth vehicle . As Brian Quinn , chief development officer , attests , key money is a carrot used to motivate an owner : If two companies or brands are similar , all things being equal , an owner may elect to select the one that is willing to deploy key money .
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Sonesta Hotel Houston IAH Airport is seven miles from the airport . |
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[ KEY MONEY ] IS PARTICULARLY IMPORTANT TO HELP SECURE NEW UNIT GROWTH
– SEAN HENNESSEY , FOUNDER ,
LODGING ADVISORS
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In his estimation , the swell of key money was borne out of the pandemic and has now carried over through the last 24 months or so . “ Demand for lodging is raging , but the cost to build new is high ,” he said , citing supplychain issues and inflation and the ensuing interest-rate hikes by the Federal Reserve to try and tamp everything down . “ One way to smooth some of that out is with the brand or the operator providing key money . It ’ s basically an investment in lieu of fees ,” Quinn said . “ You write a check at the start of the process of the contract , then you amortize it over the term of the contract , and you ’ re basically earning less than you would each year as the key money sort of burns off , but it ’ s fresh capital to get put into the project that accelerates the |
property improvement plan or reduces the debt or equity component .”
FAST AND FURIOUS It ’ s a bricks-and-sticks race and global brands are now the main competitors vying to win the favor of owners . This is especially true as supply growth has remained restrained and brands home in on hotels that are either up for relicensing or have changed hands .
“ The competition for conversions has become very frothy ,” Quinn said . And though distinguishing a brand promise through systems , messaging , positioning and standards matters , key money doesn ’ t hurt .
Sonesta isn ’ t the only brand house leveraging key money for growth ; in fact , the bulk of
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lodging companies are . On a recent earnings call , Marriott International CFO and EVP of Development Leeny Oberg said that key money is involved in some form or fashion in around a third of Marriott deals . “ Over a number of years , we ’ ve seen a bit more key money across more tiers ,” she said . In similar fashion , during Hyatt Hotels Corp .’ s Q3 earnings call , CEO Mark Hoplamazian made mention that on some deals , “ we will deploy key money or invest in the capital stack of the hotel .”
A Baird Equity Research note put out last summer indicated the rise in key money being put out by the brands , specifically : “ The deal environment is competitive , and the global hotel brands are spending more money to win new contracts or maintain existing ones .”
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Mar / Apr 2025 hotelsmag . com 9 |