An in-house management company: how a hotel owner stops depending on an operator
A Russian holding put its hotels under its own management company and then bought a ten-hotel portfolio with about 4,000 rooms from a foreign owner. Why an owner sets up its own operator and what it changes in the asset's value.
Carte Capital · 5 min read
The idea
A hotel is worth what its operations earn, so a hotel owner depends on its operator more than an office owner depends on a tenant. Owners usually hire an international chain under a management or franchise agreement. The alternative is to set up an in-house management company that runs the hotels under its own brand and standards and, where useful, works with an international chain under a franchise.
Structure
- In-house operator. A diversified holding’s hotels are run by its own management company. In 2020 it announced its own chain of 4* business hotels.
- Third-party management. The company manages not only group hotels but also other owners’ properties for a fee based on revenue and profit.
- Portfolio purchase. In 2023 the holding bought from a foreign owner the companies owning ten hotels in St Petersburg, Moscow and other cities. Most had operated under an international chain’s brands.
- Own brand plus franchise. A few months later nine of these hotels moved to the operator’s own brand while keeping a cooperation with the international chain: the owner’s own operator, the chain’s booking and loyalty system.
Parties
| Party | Role |
|---|---|
| Holding | asset owner |
| In-house operator | management and brand |
| Foreign owner | seller of the 10-hotel portfolio |
| International hotel chain | franchise partner after the rebranding |
Numbers
The portfolio purchase: about €200m for ten hotels with roughly 4,000 rooms. After the deal the operator’s portfolio had over 30 hotels with about 9,000 rooms in 19 Russian cities and abroad.
Risks
- Skills: an in-house operator needs sales, revenue management and standards teams. Without scale it costs more than an international operator.
- Distribution: without a major chain’s booking system hotels lose some foreign and corporate guests, hence the in-house operator plus franchise model.
- Valuation: buyers and banks often pay less for an unbranded hotel. The operator’s brand has to prove itself in occupancy and average rate.
Lessons
- An in-house operator makes sense from several hotels up, when the cost of the team and systems is spread across a portfolio.
- It can be combined with an international franchise to get distribution without a management agreement.
- Managing third-party hotels turns the operator from a cost centre into a business.
In our practice
Carte manages a 5* boutique country hotel near Moscow under a management agreement with its owner.