The shift away from brands to third-party managers

Hotel owners are moving from brand-run operations to independent managers in search of greater efficiency and stronger financial results

More hotel owners are replacing brand management with third-party operators to improve efficiency, drive accountability, and boost profitability. Once dominated by brand-run hotels, the market has evolved toward independent management models that offer owners more flexibility—but also new financial and operational considerations.

Key takeaways

• Industry shift: Only about 20% of hotels are still managed by brands, compared to 50% two decades ago, reflecting a major move toward third-party operators.
• Efficiency gains: Third-party managers often outperform brands in areas like administrative costs, direct sales, and property-level accountability, especially for hotels with 300–700 rooms.
• Revenue upside: Conversions can deliver strong results—one 700-room Palm Springs property saw NOI jump from $19 million to $25 million after moving from brand to third-party management.
• Fee considerations: Owners pay an additional 2–5% in management fees under third-party contracts, which typically run for 10 years or more, though the model can increase property value by improving profitability.
• Key money imbalance: Big hotel brands can offer far larger financial incentives—up to $40–50 million in key money for large assets—compared with just $4–5 million from third-party firms, limiting competitiveness.
• Brand protection: Companies like Hyatt still prefer direct management for high-end, complex hotels (e.g., Park Hyatt or Grand Hyatt) where maintaining luxury standards and brand integrity is crucial.
• Owner sophistication: Investors and REITs increasingly understand the economics of third-party management, using data transparency to assess performance and align operators more closely with owner interests.

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