Why Hospitality Operators are Losing Their Love of Real Estate

By Neale Redington Partner, Deloitte | August 03, 2010

The corporate finance aspects of the transaction may have been enticing, but few operators followed the Host MI model. The operators considered factors such as tax implications of the sale, relatively low prices for the real estate, and the diminished ability to control the real estate after sale. They are, however, now reconsidering this option as a result of the strength of the real estate market, confidence in the hospitality industry, and expansion of real estate acquisition vehicles. The growth of Real Estate Investment Trusts ("REITs") that can pay generous prices for the hotel property and are required by law to hire a hotel management company has been significant.

Hotel operators can also realize other key benefits from an Opco-Propco split:

Real Estate Ownership Structures

Various structures are created to form the Propco entity acquiring the real estate assets. These include the previously described REITs, regular C-Corporations, and limited liability companies or partnerships formed by Private Equity Investors ("PEIs").

REITs

The main benefit of a REIT is that only one level of tax is paid by the owner of REIT stock - the REIT entity itself generally does not pay tax. In return for this favorable tax treatment, however, the REIT must comply with many tax rules and regulations, including a rule that it must distribute 90% of its taxable income to its shareholders.

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Coming up in June 2019...

Sales & Marketing: Selling Experiences

There are innumerable strategies that Hotel Sales and Marketing Directors employ to find, engage and entice guests to their property, and those strategies are constantly evolving. A breakthrough technology, pioneering platform, or even a simple algorithm update can cause new trends to emerge and upend the best laid plans. Sales and marketing departments must remain agile so they can adapt to the ever changing digital landscape. As an example, the popularity of virtual reality is on the rise, as 360 interactive technologies become more mainstream. Chatbots and artificial intelligence are also poised to become the next big things, as they take guest personalization to a whole new level. But one sales and marketing trend that is currently resulting in major benefits for hotels is experiential marketing - the effort to deliver an experience to potential guests. Mainly this is accomplished through the creative use of video and images, and by utilizing what has become known as User Generated Content. By sharing actual personal content (videos and pictures) from satisfied guests who have experienced the delights of a property, prospective guests can more easily imagine themselves having the same experience. Similarly, Hotel Generated Content is equally important. Hotels are more than beds and effective video presentations can tell a compelling story - a story about what makes the hotel appealing and unique. A video walk-through of rooms is essential, as are video tours in different areas of a hotel. The goal is to highlight what makes the property exceptional, but also to show real people having real fun - an experience that prospective guests can have too. The June Hotel Business Review will report on some of these issues and strategies, and examine how some sales and marketing professionals are integrating them into their operations.