Why Luxury Hotel Brands are getting into the Vacation Rental Business in 2018
No one can argue with “the numbers” and decreased market share.
With Vacation Rentals continuing to be on rise, hotel executives are taking a long hard look at the Vacation Rental business. Traditional hotels are far from extinction, yet numbers drive executives and solutions need to be found to counter the erosion.
Guests are seeking more privacy, space and themed getaways. The allure of private quarters, porches, gardens, private pools, fire places, having a chef come in or even a having a private fully stocked kitchen (with ingredients prepped and kitchen cleanup that follows) is powerful.
What brands are finding is that private gated communities of Vacation Rental homes, placed adjacent to their hotels, can offer these highly sought after private residences that also provide access to popular hotel amenities and services.
Needless to say, private Vacation Rental Companies and homeowners cannot provide this vast array of amenities at guest doorsteps.
Spas, hair salons, tennis and pickle ball courts, restaurants, golf, clubs and the like can all be within a short walk or golf cart ride away from homes and guests can retreat to private quarters when they want to be by themselves and enjoy absolute seclusion or an added degree of tranquility.
Ownership at a luxury brand increases “home” market value. Those seeking an investment can stay at their properties several times a year with only the cost of a housekeeping fee to be paid and have the hotel rental program keep their residences busy and earning revenues the rest of the year.
Luxury Brand hotels have dabbled in the Condo-Hotel arena in the past. Yet successes have been limited for a number of reasons. Poorly written condo docs and high fees have created a petri dish of lawsuits between condo owners and many developers (or hotel program owners). Distributions also pale in comparison to the Vacation Rental business at 42% to 48% where non-branded Vacation Rentals pay 65% to 75%.
Locked closets or storage areas, in the home, allow homeowners to store nonperishable belongings at their properties and that, of course provides them with the ability to pick up, pack less and have personal belongings waiting for them when they arrive.
Vacation Rental “exchange programs” within the Brand can also be established where if a homeowner wishes to exchange time away by providing their home, on a limited basis, to another homeowner anywhere in the world they can place several weeks in the exchange pool and do this, at a nominal transfer cost. This is a benefit of time sharing that became popular many years ago. Homeowners who prefer to stay at their specific Brands worldwide now have the ability to access these properties (‘homes”) on a global scale.
Added Revenue Types
Adding Vacation Rental Communities is a win-win situation in taking back market share for hotels and selling homes. It addresses the Vacation Rental phenomenon and enables hotels to profit from a very unique stream of “Revenue Types” that hotels are not capturing. Housekeeping fees, refrigerator stocking fees, “resort” fees, credit card fees and the like bring in substantial revenues that are not shared with homeowners in rental programs.
The “homeowner” receives distributions based on a percentage share of gross room revenues only.
Revenue streams from movie rental, entertainment, games and stocking typical locked cabinets remain intact.
Adding Groups, Meetings and Corporate business to the Vacation Rental Revenue Mix
Not only is the traditional hotel able to add the additional “Revenues Types” discussed above, but they can also add groups, corporate getaways and meeting space to the mix. Functions can be held at the main hotel where there is ample space.
Group functions cannot be entertained by private Vacation Rental owners. It’s another powerful inducement to adding “homes” to traditional hotel choices.
Structuring the new Endeavor
Great care need be taken in structuring Vacation Rental add-ons. If hotel developers or management company’s seek to allocate a heavy burden of traditional hotel costs to the Vacation Rental segment, the allure of vacation home ownership at a branded property can be lost.
Needless to say, the hotel cost allocation discussed will certainly increase the traditional hotels bottom line, yet it takes away from homeowner distributions that are enjoyed in Vacation Rentals industry wide. A compromise has to be reached in which costs will be charged and at what amounts. By carefully structuring these add-ons, the allure of Vacation Rental home ownership stays intact.
Less Reliance on Roving Staff and Prompter Service
While Vacation Rental companies depend on roving agents to check in, out and to service guests, the traditional hotel has a staff on hand 24/7. Service or unexpected issues can be quickly handled without managing the logistics of where roving staff is located and how quickly they can get to a guest or a home. All is right there on the property and adjacent to the hotel in case of emergencies.
A Business within a Business
Considerations to add a Vacation Rental community and setting up labor responsibilities also require careful thought. Shared staff with the hotel is often not wise, except perhaps in the wee hours of the night, and a separate management hierarchy should be considered. Vacation Rental management and staff could still report to the hotel properties general manager but it’s important to remember that when adding Vacation Rentals, the hotel is operating “a business within a business”. Like other divisions in traditional hotels (i.e. – restaurant, spa, etc.) duties and oversite of staffing should be assigned to a separate management team that is responsible for not only service but profitability.
Being met at a hotel “home” by a private roving agent, instead of checking in, in a busy lobby offers business executives and “private guests” a hassle free entrance and exit. A private parking space in a garage or driveway means there is no dependence on valets. Still, concierge service, when needed, is furnished from the main property and is a phone call away.
A separate Vacation Rental check-in office could also be a consideration.
New Profit Centers and Reduced Costs
Added benefit from Vacation Rentals comes in additional profit centers and a vast reduction of traditional hotel costs. The Maintenance Department becomes a profit center, capable of reducing overall POM cost from 5% to 1% by having repair and maintenance jobs on homes performed in-house and adding a profit margin on them; 20% to 25% is customary.
Adding profit margins of 20% – 25% still provides the homeowner with a substantial discount on services they can receive from outside 3rd parties.
Homeowners pay property taxes, mortgages, insurance, utilities, Wi-Fi cable TV, the annual cost of towels and linens, pots, pans, kitchenware and for furniture, fixture & equipment replacement when necessary. These costs are absorbed solely by the traditional hotel but no longer exist in Vacation Rentals.
Accounting & Financial Reporting Considerations
A new hotel division or separate business, using a slightly modified version of the Uniform System of Accounts, can be adapted so that the hotel can separate reporting and profitability into meaningful statements that assess the Vacation Rental operation on its own.
With the many added benefits hotels can provide, adding a Vacation Rental community would be a worthwhile consideration. Entrance further provides traditional hotels with the ability to compete in this “new” market place and add new Revenue Sources (i.e. Airbnb, VRBO, Homeaway, etc.) and Types that continue to grow exponentially.