Who's The Boss?

A planner conducts a rigorous hotel site inspection, hammers out a contract and signs on the dotted line. A month later, the hotel's ownership changes hands and there's talk of the new company hiring a different management firm.

Can the planner get out of the contract? Is that even advisable, or should the meetings buyer assume the hotel's key officials and service will remain the same? If the hotel is just under consideration but no contract has been signed, should it be dropped from the short list? And can a hotel on the chopping block expect to win much group business?

These questions are under consideration all over the country, with properties being sold from a number of lodging-company portfolios.

"It's a good time for hotel companies to sell," said Bjorn Hanson, global hospitality industry leader at PricewaterhouseCoopers. "The business community believes the hotel industry is doing well and is going to get even better in the next few years, so prices are up."

It's not just individual hotels that are being sold. According to a report issued by PwC in December, in 2004 there were more mergers and acquisitions of hotel companies or brands than any year since 1998, when M&A activity peaked at 25 deals totaling almost $35 billion. Last year, a total of 10 transactions worth about $12 billion took place.

Among those were Hyatt Hotels' purchase of AmeriSuites, CNL Hospitality Properties' acquistion of KSL Recreation Corp., and Blackstone's takeover of three hotel concerns: Extended Stay America, Prime Hospitality and Boca Resorts.

Regarding the sale of individual hotels, owners are not necessarily cutting off under-performers, but rather, Hanson said, less-strategic properties.

"A hotel company isn't going to sell a well-known property with a great reputation that's had a halo effect over the rest of the brand. But the random suburban property? Who cares?"

Adam's Mark Hotels has been casting properties aside left and right over the past couple of years, winnowing its portfolio from 24 to six. The company now has hotels in just Buffalo, Charlotte, Dallas, Denver, Indianapolis and St. Louis.

"Our company owner decided to go in a different direction, to come down to a handful of hotels where we could deliver hands-on service," said Tommie Monroe, vice president of corporate affairs at Adam's Mark. Contrary to what many believe, he said, "We do not plan to get out of the hotel business."

The company's most recent sale was its 966-room Jacksonville, Fla., property, which officially became a Hyatt on March 30.

New York's storied Plaza Hotel changed hands last fall and will close April 30 for about a year-and-a-half before reopening with most of its space becoming condominiums. Hilton is rumored to be selling the legendary Palmer House Hilton in Chicago, and Dolce International last month sold the Dolce Tarrytown House in suburban New York and Dolce Hamilton Park in New Jersey to a real estate investment firm. Oak Brook Hills, near Chicago, which is also a Dolce property, is up for sale too.

A Hilton spokeswoman would neither confirm nor deny that the Palmer House is up for sale, saying only, "We are exploring our options." A Dolce official declined comment.

Plaza Hotel officials are now contacting all groups with future meetings booked, and are helping meeting planners find new venues, said a spokesman for Fairmont Hotels, the property's management company.

Escape Plan

After Kevin Jetton signed a contract with the Adam's Mark Dallas last fall for a 2006 meeting, an announcement came that the hotel company was planning to sell several properties. Jetton made sure that — should the need arise —his group would be able to get out of its obligation.

He got the hotel to agree to add a contract clause addressing his group's rights in the event of a change in the hotel's ownership, management or flag.

Should any such situation arise, his agreement stipulated, "the group shall have the right to cancel this contract without liability," or, if the group wanted to stay, the new party "will be required to honor the [group] contract."

"I thought about the fact that the chain was shrinking, and wondered if I was going to have issues," said Jetton, president of GeniSys Consulting Services in San Antonio. "If the property gets rebranded, maybe menu prices will increase, or there will be service changes."

Plus, he noted, "Meeting attendees have different perceptions of every chain, and if a new brand steps in and it's seen as a cheesy company, that may encourage people to look elsewhere for their housing."

Contract clauses spelling out what will happen if the hotel changes hands are not uncommon among groups with highly experienced planners, but they're far from standard.

"It should be standard," said attorney Jim Seely of Meeting Legal Services in San Francisco. "It's incumbent upon meeting planners to make sure such terms are in their contracts."

Buyers need to be careful about how the clause is worded, according to attorney Tyra Hilliard, assistant professor of event and meeting management at George Washington University.

"The planner needs to make sure the contract doesn't have an 'assignment' clause that allows the hotel to automatically assign the contract to the new owners or management," she said.

That can take away a planner's control over what hotelier the group agrees to do business with, she noted.

And the contract's terms should vary depending on the nature of the sale, said industry attorney John Foster of Atlanta.

"Planners need to decide at the time of contracting what they want to happen if the hotel is sold outright, sold in a bankruptcy proceeding, or just changes management companies," he said, noting that there are different contract terms that make sense for each of those circumstances.

Still, planners who include all this protection needn't automatically cancel when a property comes up for sale, said Christopher Gaia, vice president of marketing at Maritz Travel in Fenton, Mo.

"We look at each situation separately," he said. "In past situations, we've almost always been able to work through any concerns that we, or the client, might have."

Staying Put

Beth Cooper-Zobott, director of conference services at Equity Residential in Chicago, who held a meeting at the Palmer House earlier this year, said a property's impending sale wouldn't necessarily sway her one way or the other during site selection, "unless it was going from, let's say, a Ritz-Carlton to a Marriott Suites or something."

However, she said, meeting planners need to be aware of a hotel's newest owners or managers, and then plan accordingly.

"An ownership change would concern me, and I would conduct due diligence on the new company," she said. "But if I couldn't find any negatives about a new owner, I would probably go to contract. I have enough clauses in my addendum to protect me in case of construction, deterioration of services or similar situations."

Brad Weaber, senior vice president in the Washington-area office of Conferon, the big meetings management firm, agreed.

"The key is to determine if the property is going to be of the same caliber once it's sold, or whether there will be material changes. We have to be astute enough to assess the situation and decide whether to take the risk."

Independent planner Maura Zazenski, based in Littleton, Colo., who described Dolce Hamilton Park as one of her favorite properties, is working largely on trust.

"As long as the property kept its personnel, I'd feel that it'd be just as good as it was before. A leadership change doesn't mean service is going to decline."

In fact, Zazenski —who said she has a customer base that uses only top-notch properties —has such faith in her supplier partners that she purposely does not include in her contract any clause covering ownership or management changes.

"I don't feel that's appropriate for the type of service we look for," she said. "Generally, I want to give them the benefit of the doubt."

That attitude, however, may ultimately hurt a group, said Washington-based attorney Jim Goldberg.

"That's OK until the first time something drastic happens to the property and then the planner is left saying, 'Who do I sue? Do I still have to meet here?' " he said. "If something happens, that planner might wish things had been done differently."

Service Interruption

Some planners make sure their contracts protect them against service declines or general problems that result from a property changing hands.

In fact, said Cooper-Zobott, "I've seen some wording where the changes refer not only to hotel management and flag, but also to a loss in the number of 'stars' that a property is rated."

Others make sure at least to discuss potential issues before coming on site.

"We'd just want to make sure that no major construction or renovation would be taking place during our meeting," said Tracy Chisolm, meetings and conferences specialist at Sysco Corp. in Houston. Chisolm currently has a contract for an October meeting at the Palmer House.

But that doesn't have to be in writing, she added. "The hotel has several ballrooms, so if a problem did arise, we could hopefully talk about that."

Wait&See?

Another tactic is to take a wait-and-see approach, at least until things go wrong. If service fell apart for Kevin Jetton's group, he said he'd use that as a leverage tool while on site.

"Maybe we could get an adjustment on our complimentary room ratio or more upgrades for VIPs," he said. "Or I'd ask for a discount on food and beverage or room rate. But people should be reasonable about it; don't ask for 50 percent, ask for 10."

One person who says planners have nothing to fear from hotels being sold is David Scypinski, senior vice president of industry relations at Starwood Hotels.

"Hotels are bought and sold every day," he said. "The property is not going to fall apart, and chances are the new owner will make it better, not worse. As long as the brand stays the same, the quality and management will be fine."

But if the opposite plays out, and the property's flag changes along with the level of service provided onsite, planners need to have penned good contracts, Scypinski said.

"If you're going to put one thing in a contract, put in something to cover what happens if management changes," he said. "We accept contracts that say a group has the right to pull out if the hotel's management changes hands."

Several other hoteliers contacted by MeetingNews declined to comment on the topic of hotels being sold.

Keep 'Em Coming

A "for sale" sign on a hotel's lawn, or even a rumor of a sale, doesn't have to spell disaster for a hotel's group sales effort. Sometimes there may be more to consider than determining who owns or manages the hotel.

"In a lot of cases hotels are preferred for their location — do many planners care who owns a hotel connected to a convention center?" said Philadelphia-based attorney Josh Grimes. "Others are preferred for their rate. I mean, few planners would refuse to book a Manhattan hotel that offers a great rate as an incentive.

"In today's world, when many, many hotels are rumored to be for sale 'for the right price,' hotels that train their sales staffs to answer questions appropriately shouldn't suffer."

Conferon's Weaber agreed that what's most important is communication.

"Planners need to know how a hotel is going to function during a sale. If the property's restaurant is going to close while the new owner upgrades, that's important information."

He advised hotels, "If you have business on the books, you may want to circle back and ask those planners what they want to hear that would ease their minds. There has to be a clear communication strategy.

"I think that's where there have been some missteps in the past."

Contact Rayna Katz at [email protected]