From the latimes.com:
A long-running dispute over who would manage the Aviara resort in Carlsbad, Calif., has been settled, with Park Hyatt emerging as the new operator. By summer, it will no longer be known as Four Seasons Resort Aviara.
Last year, real estate investors who own the hotel said Four Seasons, which managed the property on their behalf, was spending too much money keeping up appearances in a depressed market. They wanted to eject the fancy hotelier and bring in another operator. Four Seasons, the owners said, was to blame for financial mismanagement and breach of its fiduciary duties to the owners.
Four Seasons, which has a reputation for luxury, denied the allegations and declined to leave the Aviara. Four Seasons is known for securing elaborate contracts with owners that ensure it will be able to maintain hotels according to its standards.
An arbitration panel found this week that Four Seasons did not breach the management agreement or its fiduciary duties to the owners, led by Broadreach Capital Partners. The panel determined, however, that both parties contributed to the demise of their business relationship and that the management agreement should be terminated, according to a joint statement by Four Seasons and the owners.
Hyatt Hotels Corp. said Tuesday that Broadreach and co-owner Maritz, Wolff & Co. selected Hyatt to manage Aviara as part of its luxury Park Hyatt portfolio. The company expects to assume management of the hotel June 21, when it will become known as the Park Hyatt Aviara Resort.
From the U-T’s version:
The arbitration panel concluded that both sides had “contributed to the demise of the business relationship.” As part of the termination agreement, Broadreach was ordered to pay compensation to Four Seasons. According to previous court documents, Four Seasons signed a 30-year contract in 1995 to manage Aviara and had three 20-year options to renew.
The problem is that the hotel management contracts have no incentive to reduce costs as their compensation (i.e. mgt fee) is a % of the gross revenue…not profits.
Thus, hire everyone to make it perfect and run up expenses so long as revenue grows and your mgt fee grows.
This is the fault of the building owners for accepting this type of ‘gross’ contract and not a share of the net….and overpaying/overleveraging for the property too…
We’re buying a hotel with an equal brand that was last acquired for $150mm and our price is apx $45mm….its all about your basis!!
….its all about your basis!!
I have no idea what that means?
To the point:
No one has a 5 star hotel that’s not on the beach in Carsbad and expects to make a profit. That simple.
Basis = cost to acquire.
The hotel chain signed a 30 year lease. Do you really think they would (every year) back the truck up on expenses? I think they would love to make a profit!
I’d love to know what the occupancy rate has been for the past 5 years. If they were packed in 2006-07 and not turning a profit, somebody was doing something wrong (probably from over leveraging the property). From what I understand, the entire hospitality industry has been contracting heavily since the world started falling apart in 2008. Turning the place into Motel 6 isn’t going to help matters. People paying luxury prices expect certain standards to be adhered to.
Every time we called to book a room for friends visiting from out of town or our once a year weekend get away there, no discounts and corporate meetings kept them booked to the point of no availability at times.
I thought “the quattro” had a great thing going there there and I liked it a lot. I better get over there to use my gift cert. I have QUICKLY!
Bob – note: the article said the 4seasons signed a “30 year contract” NOT a “30 year lease”.
These are management contracts similar to a property manager for a rental house. You pay them a 5% fee regardless of whether you turn a profit on the residence or not.
It is not a lease like you might imagine Target paying a landlord where the owner is guaranteed a predetermined income stream and then tries to keep his own expenses under control and turn a profit.
In the hotel business, the 4seasons, ritz, marriott, etc derive thier revenue from a % of the gross income and some participation in the bottom line…but the vast majority of their revenue is top line…think sale commission to JTR!!!
Thus its easy to spend spend spend and keep rates up and clip 5% of the gross and let the bottom line be damned…
Its a great business for the manager/operator…scarry for the owner.
Our current acquisition is a comparable 300 room facility that would make the Aviara property look like it was designed on a shoestring budget…buying in at 1/4 of the last owners cost allows us much more flexibility as the room rates/occupancy haven’t changed any…but just took the hotel from the red to the black…
From UT article:
“Broadreach wanted to trim costs to make Aviara profitable, but Four Seasons believed it had to maintain certain expenses to uphold its reputation for luxury.”
In other words, Aviara will be going down market now.
It’s a shame, and a big loss for Carlsbad.
La Costa Resort will always seem like a mid-range joint to me, no matter how much they remodel – it’s too old and was let run so far into the ground that us long-timers won’t forget.
The PGA is gone, but maybe the ladies golf and tennis can help build it up?
Anybody feel like paying $255 for a round of golf at the Hyatt links? I didn’t think so.
JTR – They Aviara links are still the best overall golf experience in the County available to the genral public…and the most beautiful course hands down.
Anyone who golfs frequently could chceck out their ‘club’ program which is $1,500/yr up front then just $100/rd (up to 2-foursomes at a time).
much better than paying for the crossings, or ER, and the hassle of tee times and slow play at Torrey Pines.