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The Arts Property Analysis

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Submitted By YimeiZhou
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Hotel Asset Management Project
The Arts Property Analysis

Yimei (May) Zhou
Yuxuan (John) Tian
Submission date: 18th April 2016

TABLE OF CONTENT

Executive Summary……………………………………………………………………………………………….3
Introduction………………………………………………………………………………………………………….4
Background of the Arts Property
History………………………………………………………………………………………………….4
Current Status………………………………………………………………………………………5
Current Environment Analysis of the Arts Hotel
The Arts Hotel………………………………………………………………………………………5
Current Market in Barcelona……………………………………………………………..5-6
Management Structure……………………………………………………………………..6-7
Financial Position………………………………………………………………………………7-8
Issues and Strategy Analysis
Owners’ Objective………………………………………………………………………………..9
Strategy on Office Building and Retail Part……………………………………………9
Analysis of Challenging Issues 1. Maximize Value of The Arts Hotel 2.1 Hotel Valuation………………………………………………………………9-10 2.2 Renegotiate with Real Cortez…………………………………………….10 2.3.1 Terms of Hotel Management Agreement…………..11-12 2.3.2 Key Personnel Management…………………………………..12
1.2.3 Renewal Option of the Apartment…………………....12-13 2. Maximise Value the Vacant land plot…………………………….………..13 3.3 Option for Selling the Land ………………………………………..…13-14 3.4 Option for Building A New Hotel……………………………………....14
2.2.1 Hotel Positioning Strategy………………………………………...14
2.2.2 Franchise...…………………………………………..………………15-16
2.2.3 Hotel Operator…………………………………………………….16-17

Recommendations on Strategy……………………………………………………………….……..18-21
Conclusion…………………………………………………………………………………………………………..21
References…………………………………………………………………………………………………………..22

EXECUTIVE SUMMARY
December 2001, the Arts Property was up for sale, Faus assembled few investors and then purchased the Arts Property for €275.9 million. Faus was deeply aware of the new journey of Arts cannot repeat the fates of the previous owners. The new owners are seeking to maximize the internal rate of return, therefore, Faus need to analysis current environment both financially and managerially in which Arts property stays, and find the ways to maximise the value of both the Arts Hotel and the vacant land plot.
To maximise value of the Arts Hotel, Faus needs to renegotiate with Real Cortez on management agreement contract and gain more bargaining power. Real Cortez had cooperated with the Arts for a long-term, Faus is also considering how to maintain the good relationship with Real Cortez, and if renew the Apartment contract that expires soon.
To maximise value of the vacant Land, Faus drafted financial costs for establishing a new hotel on vacant land. But detailed hotel operation such as brand, management team still need to be discussed.
Taking all factors into consideration, there are few recommendations for owners of Arts property. Firstly, renew the apartment contract with Real Cortez. Adjust the current Arts hotel agreement by reducing management incentive fee from 10%to 8% of adjusted GOP, and raise Cap on fees from 6.5% to 7.5%. In return, increase marketing and reservation fee from 1% to 1.5%. Then, extend renewal option from 5 years to 8 years and endow owners’ power on selection of general manager. In terms of vacant land, build up a new 4 star hotel target leisure and business guests and establish Arts brand hotel group by hiring local management group. Finally, carry on refurbishment of Arts hotel once the new hotel is built. However, these analyses and suggestions are based on owners’ interests whether it can be implemented depends on further discussions.

INTRODUCTION
Olympic Games in 1992 had increased the popularity of Barcelona as tourism destination. The intricate environment has caused few changes on ownership of Arts property before it finally settled down in 2001.However, the issues Faus facing is how to maximise hotel value and vacant land to meet investors short-term oriented objective. Faus needs to have a proposal ready for his investors to satisfy them and his own career development.

BACKGROUD OF THE ARTS PROPERTY
History
The project of Arts Property was launched in 1986 as a part of Olympic Village for 1992 Barcelona Summer Olympic Games. In 1989, Clarlie Croker kept complete control and legal governance of the project. The full equity was funded from Sogo and the legal service was supported by Faus’ Law Company. The debts of construction loans was arranged by both Spanish and Japanese bank. The Arts Property started construction at 1990 and proposed to be finished by 1992, which was designed to consist of two 45-story tower building that zoned for an office building and an Arts Hotel respectively. However, the property had to finish only a portion of project due to several internal and external factors that against the Arts Hotel’s timely delivery. With the project impasse, Sogo stopped financing in 1992 and the Arts Property announced into bankruptcy. The entire complex finally ended construction in 1994 in the ‘suspension of payments’ status and the project had escalated total cost to €768 million since 1990. From 1994 to 2001, the Arts Property was owned by Sogo. By 2001, the property was up to sale due to Sogo’s bankruptcy. Eventually, Xavier Faus and his investor consortium purchased the Arts Property for €275.94 million became the new owner. The amended ownership structure was consist of two Dutch holding companies with 50% investment and 50% intercompany loans to minimise distribution tax. By doing that, Faus’ investors were able to save tax on dividend and income.
Current Status
The Arts property, located in waterfront downtown Barcelona, includes hotels and apartments with 485 rooms, an office building around 12,374 m2, retail area of 13,084 m2, a vacant land of 3,611 m2 and 500 parking spaces. As the investor’s consortium was short-term orientated, immediate capitalization rate range was the top priority for Faus when it comes to decision making.

Current Environment Analysis of the Arts Hotel

The Arts Hotel
The five-star Arts Hotel was operated by Real Cortez under a twenty years management contract. As a 44-story tower---tallest building in Barcelona, hotel occupied 33 floors from bottom ground with 455 spacious rooms, two basement level and three garden levels. There were 30 luxury duplex apartment housed on the top 10 floors of the building, which also was managed under contact by Real Cortez that set to expire in 2005.
The Arts Hotel conducted full service with eight F&B facilities, upper scale of conference and banquet rooms (total 2248 square meters) also included a fitness club, an outdoor swimming pool that access to a public beach, and a private marina. The guest composition mainly retained 50% group convention, 30% business and 20% leisure Travelers.
Current Market in Barcelona
With a booming trend of Spain’s economic after 1992 Olympic Games, Barcelona became a popular tourism destination that attracted international tourists generating benefits for hospitality industry. Therefore, a dramatically rise of average hotel occupancy was witnessed from 51% in 1993 to 82% in 2000. And correspondingly, there were a great enhancement in ARR and RevPar over the same period.
With strong hotel performance in Barcelona, construction activity and new hotel development have increased. According to research, at the beginning of 2002, Barcelona had 200 hotels (35% were four and five-star hotels) supplying 17730 rooms (49% contributed by four-star hotels). It is estimated that hotel supply would increase by 9% in 2002, 13% in 2003 and 10% in 2004, and by the end of 2014, Barcelona would have 234 hotels with 24764 rooms in operation. (Segel, 2008) It should be mentioned that local hotel operator seems had more bargaining power than the US chain hotel group in Barcelona. It was therefore none of these existing hotel were owned or operated by the US chain such as Marriott, IHG or Starwood.
The Arts Hotel began stabilized in 2000, Arts Hotel viewed itself as top class hotel category and had achieved a high occupancy and high rate under the Barcelona hotel market. The Arts Hotel selected 10 Hotels that includes 7 five-star and 3 four-star for competitive set, which aims to permanently performance benchmark and assess penetration. Comparing with those assigned competitor hotels, the Arts Hotel held second large quantity of rooms. As figures reported at end of 2001, the Arts Hotel retained 76% occupancy which is 1% higher than average competitive set. Whereas Average daily room rate was reached to €315 turned into the highest. (Source: HVS International)
However, the hospitality industry in Barcelona was suffered by September 11, 2001 tragedy, which directly affected to the Arts Hotels’ operation, 30% of activities and events were cancelled, hence impaired hotel’s income dramatically.

Management Structure
Although there were several ownership changes in Art hotel from 1989 to 2001, during 12 years, it was still managed by The Real Cortez since the Arts Hotel has been established. The Real Cortez signed the management agreement in 1989 and it would terminate at the end of 2018. However, the contract of 30 apartments ends at 2005.
Currently, Faus and his several investors as the new owners of the Arts hotel that still constrained with Real Cortez by management agreement. While back to Croker’s time, Croker was eager to get the funding for the hotel project but the detail of the agreement was neglected. Since the change of ownership, new owners’ vision has changed from short-term orientated profit to maximize its bottom line for sale. Therefore, Faus did not believe that the current agreement is appropriate because incentives were not aligned between hotel and operator. It is obvious to note that employees were not motivated as The Real Cortez management has not changed strategies to satisfy new owners.

Financial Position | 2000 | 2001 | Differences | | Arts hotel | Upscale hotel | Arts hotel | Upscale hotel | Arts hotel | Upscale hotel | Occ% | 81.5 | 78.9 | 76.7 | 73.6 | 4.8%↓ | 5.3%↓ | ADR | 272 | 177.89 | 315 | 191.82 | 15.8%↑ | 7.8%↑ | Revpar | 222 | 140.44 | 242 | 141.15 | 9.0%↑ | 0.5%↑ |
It was a hard year for the hotel and world in 2001 after 9.11 tragedies, tourism and hospitality industry were hit the most by massive cancelation of events. The Real Cortez came up with few strategies to cut expenses such as job reduction. Thus, there was only 1.1% decline of net cash flow in October 30 compared to budget.

Table 1 Comparison of Arts hotel and Luxury & upper upscale hotel in Barcelona between 2000 and 2001

The table 1 demonstrates the occupancy rate, ARD, Revpar between Arts hotel and other upscale hotel in Barcelona from 2000 to 2001. Due to terrorism in 2001, all properties were affected; however the Arts hotel’s performance was above the average luxury upscale classes.
Occupancy in luxury upscale was down to 73.6% in 2001 with 5.3% decay from 2000, whereas Arts hotel only witnessed 4.8% decline in the same period of time. Interestingly, ADR did not drop at all instead it all went up by 7.8% and 15.8% in luxury upscale hotel and Arts hotel, reaching at 191.82 and 315 respectively. Revpar, accordingly, was also increased followed by strong performance in ADR. Revpar in Luxury upscale hotel rose slightly from 140.44 in 2000 to 141.15 in 2001 with only 0.5% growth. On the contrary, Arts hotel was seen a significant soar in Revpar from 222 to 242 between 2000 and 2001, with the 9% expand.
By calculating the Penetration Ratio for benchmarking:

ADR penetration index= property ADR/ market ADR
272/177.89=153% (2000)
315/191.82=164% (2001)

Occupancy index= property occ/market occ 81.5/78.9=103% (2000) 76.7/73.6=104% (2001)

RevPAR index= property RevPAR/market RevPAR 222/140.44=158% (2000) 242/141.15=171% (2001)

It was an extraordinary achievement for Arts hotel to make those happen especially after the terrorist attack. From above ratio, it is obvious to note that performance of Arts hotel surpassed competitive set in the market in both years. ADR was 64% above average competitive set, occupancy rate was 4% higher than average market and RevPAR was 71% over average at the end of 2001.

ISSUES AND STRATEGY ANALYSIS

Owners’ Objective
The new investor’s consortium, which joined forces with Faus in 2001, was short-term oriented, they specifically require to maximize the internal rate of return.
As one of the owner of the Arts Property, Faus aims to increase the value of both the Arts Hotel and vacant land, in order to generate a profitable sale in the short-term that catering owners’ objectives.

Strategy on Office Building and Retail Part:
As Faus knows clearly that the Office Building (12,374 m2) with 95% occupancy that can contribute a value of €29.05 million. Whereas the Retail part including Marina and Casino have 13,084 m2 and with 90% occupancy but only generates €19.54 million for the Arts Property, which has huge spaces to improve by more active measures.
In order to adding value, therefore, Faus is going to bring current contract rents to market at any time suitable for market, lease the vacant spaces for retail, and sell the Office building individually at the most aggressive prices as soon as possible.

Analysis of Challenging Issues

1. Maximize Value of The Arts Hotel

1.1 Hotel Valuation

To come up with the value of hotel, Faus need to appraisal the Arts Hotel, by which hotel valuation is the premise to maximise the hotel value. According to Ms. Mellen, Hotel assets should be monitored during ownership period, “to ensure the property is fairly appraised and assessed for ad valorem tax purpose.” (Mellen, 2012) Faus and other investors need to understand factors that affect the hotel’s value, so they can assess an accurate value of the hotel and make appropriate decisions. There are three primary methods of hotel valuation. Discounted Cash Flow (DFC); Income Capitalisation; Market Comparison. (Hughes J. & Keogh L., 2016)

1.2 Renegotiate with Real Cortez

Objectively Speaking, The Real Cortez has been extraordinary for the last five years in terms of performance. The occupancy rate kept over 80% with the exception of 2001 due to terrorism. As we can see from Arts Hotel Operating Income Statement, during 1997 to 2001, the Total Revenue increased by 89.65% to €65.372 million; GOP rose incredibly by 213.5% that contributed €31 million in 2001. Also, the ADR and RevPAR have shot up by 140% and 114%, reached €315 and €242 respectively at the end of 2001.

However, from Faus’s perspective that the current agreement is not aligned the new owners’ objective to maximise cash flow before debt service and increase the overall value of the hotel. Meanwhile, under the agreement Real Cortez has been acting without owners’ consent for years and owners only have the control over annual operating and capital budget. It diminishes owners’ bargaining power especially when it comes to absolute right that Real Cortez has to transfer key personnel. Hence, from owner’s point of view, it will be beneficial that if the Arts Hotel can renegotiate the management agreement of the Hotel and reconsider the bargaining position that the hotel is standing.
In addition, the contract of the Apartment with Real Cortez is about expire, Faus need evaluate carefully in terms of contract renewal.

1.3.1 Terms of Hotel Management Agreement

The key terms of current hotel management agreement include a one five-year extension; 2% of gross revenue on management base fee; 10% of adjusted GOP on management incentive fee; 6.5% of gross revenue cap fee; 1% marketing/reservation fee and 4% of gross revenue on FF&E; employees are recruited by The Real Cortez under Hovisa’s payroll; and none termination rights upon sale. (Source: Patron Capital)

In general, 2001, the Real Cortez gained 4.8 million from Management Agreement of the Arts hotel. There were €2.97 million (60.4%) from incentives fees, €1.3 million (27.1%) from management base fees and €0.6 (12.5%) from group service fees. In 2001, 16.4% of the operating results went to the Real Cortez, and remaining 83.5%to the owners. The Cap on Fees is capped at 6.5% of Gross Revenue, which means the money Real Cortez earned cannot exceed €4.249 million (6.5% of €65.372).
Nevertheless, the management base fee under the current terms with Real Cortez is 2% of gross revenue, whereas the average EU standardized agreement is 1.8%. Also the current management incentive fee is 10% of adjusted GOP, which is much higher than the average EU contract---6.9% of GOP.
As Faus concerned that previous owner paid less attention on the details in the agreement, so some of the terms cannot satisfied with new owners’ purpose. If Faus reduce the management base fee and incentive fee, Real Cortez might not accept this proposal since they were operating successfully.

It is advised to remain the same management base fee, and reduce the incentive fee as appropriate as providing values or benefits in return for the Real Cortez. For example, giving the part of rights in termination of management contract upon sale, or increasing group service fee on marketing and advertising expenses.

1.3.2 Key Personnel Management

Management agreement links owners’ and operators’ responsibilities together, and gives operators entitlement to act on behalf of the owners. The relationship between owners and hotel operator not only determines the profitability but also secures commitment.

Generally, there are two terms applied in personnel recruitment owner-oriented and operator-oriented. In the most cases, operators are seeking operating staff but owners tend to influence the process of core personnel. Owner-oriented term gives owners’ right to make decision and replace the personnel; on the contrary operator-oriented term provides absolute rights for operators to deal with hiring process and owners’ have no rights to know any information about employees (Davis, 2002). Since Faus has lawyer background and he perceived issues of agreement that previous owners have overlooked. Therefore, he felt that it is essential to have the control over all contracts, particularly on recruiting and transferring core employees.

1.3.3 Renewal Option of the Apartment

In 2001, under the Real Cortez management contract, the Apartment generated 4 million with 70% of GOP for owners with the aid of Real Cortez. However, the contract with Real Cortez is about to end and there are two options for Faus:
Option 1: Continuing the cooperation with Real Cortez and extend the contract.
Option 2: Switching to another management company.
In order to satisfy the owners’ goal of maintaining and increasing the value of Arts property, experienced and professional management team is needed.Real Cortez has the definite advantages in terms of previous experience and performance comparing to other third-party management companies. Moreover, it takes time and money for the new company to familiarize the market, and it is also time-consuming for handover process.
Therefore, extends the contract with Real Cortez is the most desirable choice under the current situation.

As Faus has sensed the conflicts between owners and management team regarding to agreement, it is still a remaining issue for further negotiations. Empirical studies have stated that conflicts are usually on the profit distribution and incentives (Rosenberg & Corgel, 1990). To be more specific, if the agreement does not offer managers incentives to reduce operating costs but penalize benefits on exceeding expenses, it certainly would discourage motivations of management team and finally result in undesirable revenue.

2. Maximize Value of Vacant Land Plot

The vacant land plot located in west side of the Office Building, which occupied 3611 square metres (zoned for up to 15,500 m2 gross), and 500 parking space. The estimated value originally in 2001 was €19.07 million, and parking space was valued €2.47 million if it is 100% occupancy. Faus and other investors need to make an investment decision, in order to capitalize efficiently of these resources.

2.1 Option for Selling the Land

If the owners’ desire for instant gain, the Art Property can sell the vacant land to the market, therefore it can generate €19.54 million of revenue directly. These money can be used for the Arts Property’s further development or on paying debts, by doing that 6% of annual interest can be saved.

However, selling the land to other developer is rather a short-sighted decision. Comparing to the debt borrowed from bank, €19.54 million in 6% of interest is just above one million. Therefore, from investors’ point of view it is not plausible to sell the vacant land and give up a fortune to others.

2.2 Option for Building A New Hotel

As explained above, selling the vacant land can only have temporary benefit. Alternatively, a long-term sustainable strategy indicates Faus and other investors to build a new hotel on the vacant land. Since building a new hotel have more possibility to make profit and maximise the value of the vacant land plot.

2.3.1 Hotel Positioning Strategy
Presently, Barcelona has 200 hotels and 49% of them are 4 star category. As Arts hotel is positioned as upscale hotel and had outstanding performance for the last five years. The new hotel should not be placed at the same segment to avoid overlapping. Based on case study, 3 &4 star hotels (10%) have higher capitalization rates than 5 star hotels (8%). From market point of view, therefore, 4 star category is more favourable in the current circumstance.
For target group, the new hotel should be focusing on leisure customers and business to differentiate from Arts hotel. In order to achieve that, facilities such as dining room, SPA, kids club etc. need to be in the place. In terms of marketing, liaise with travel agency around the world and spread out the package for leisure guests are essential.

2.3.2 Franchise | Advantages | Disadvantages | International Chain Brand | 1. Pervasive brand-based culture2. Gain market shares3.charge premium prices4. attracting best employees5. customer loyalty & repeat business6. differentiation from competitors7. corporate culture to reinforce brand promise8. brand is an asset9. brand vison10 creat emotional values11. brand image12. Brand characteristics (sincerity, excitement, competence, sophistication, ruggedness) | 1. Cost(initial, royalty, marketing, reservation )Marketing budget control2.Overlap in competitive market3. Restrictions(product, service)4. image concern5. conflicts among brands (same chain different brand) | Local Brand(The Arts Brand) | 1. Independence2. Deploy local resources3. Develop local networking4. Quicker implementation of strategies5. Flexibility (strategies, rate control)6. Explore strengths, USP | 1. Hard to build up a brand (money, energy, marketing)2. Brand is not recognised3. Disturbance from competitors4. Limited exposure opportunities5. Less product differentiations |

Currently, there are no “flag” hotel in Barcelona, it is an opportunity for this new hotel to be the market pioneer. Once western brand is in place, brand image, recognition can help new hotel gain market shares and premium price. Also, brand’s vision and culture serve as a tool to differentiate from other competitors. Chain hotels usually have clear mission of statement, objectives, market position that guides direction.
However, there are high franchise fee (such as initial investment, sponsorship and marketing) and on-going expenses under the international chain brand umbrella. In addition, franchised hotel might cause conflicts due to restriction that not align with owners’ objectives.
On the other hand, instead of franchising under the international hotel group, building up own brand and expand market can be a desirable option for Faus. It allows owners and operators have more independent rights to make decisions and enjoy the pros of stand-alone hotel. It should be mentioned that in this case, local brand seems have more competitive advantage than international hotel group, in spite of the powerful influence of chain Brand.

2.3.3 Hotel Operator | Advantages | Disadvantages | International operator | 1. Pride2. Brand-oriented career track3. Expatriate assignment4. Standardize SOP5. Supported by headquarters and COE | 1. Costs are higher2. No local operating experience3. Takes time to assimilate to local culture | Local Operator | 1.Better understanding of market, rules and culture2.Reliability3.Cost-effective4.Geographical focus5.Marketing strategy can be tailored6.Pricing can fit the trend | 1.Lack of Standardize SOP2.Not reputable as international team3.Lack of strategic advantages |
The advantages of hiring local management team are obvious. Locals are more sensitive to market, rules, culture etc. Then, management expenses on local operators are relatively less than international. Moreover, as local operator have better resources and networking, locals tend to pay more attention on local communities, they have more knowledge of the market and people’s expectations. Therefore a better tailored marketing strategy would be implemented to guide directions.
Yet, lack of systemic approach of operation guidelines can cause operating activities neglected. Also, local operators do not have as much reputation as international management group. This can be a potential uncertainty for hotels’ performance.

RECOMMENDATIONS ON STRATEGY
Based on the situation that Faus is facing, here are some recommendation for him and other investors, the fundamental strategy is: to maintain the increasing trend and unlock the value of the Arts Hotel (to maximise value of the Arts Hotel); to invest in vacant land plot and maximise the capitalization (to maximise value of the vacant land plot).Faus may hire an Asset Manager that working for the Arts Property (for Faus, which mean for owners), to protect the value of the asset and optimize the value based on the owner’s objectives. (Beckley B. 2016)

To Maximise Value of the Arts Hotel 1. Renew the Apartment Contract with Real Cortez.
Keep cooperating and extend management contract of the 30 Apartment with Real Cortez. Real Cortez will retain a high GOP by expertly manage experience and adequate motivation.

2. Renegotiate key terms of Hotel management agreement by reducing management incentive fee from 10%to 8% of adjusted GOP, and rise Cap on fees from 6.5% to 7.5%.
This adjustment on the hotel management agreement is based on the currently hotel’s well-managed performance. Under current clauses, even if Real Cortez generates incredible revenue and profits hence earn more amount of base fee and incentive fee, which may exceed cap on fees, Real Cortez can only take 6.5% of Gross Revenue.
For example, based on estimate income statement of 2002, Real Cortez would earn totally €4.832 million of base fee (2%) and incentive fee (4.7%), which exceeds the cap on fees (6.7% > 6.5%), however, those are capped at 6.5% of Gross Revenue, and Real Cortez will have €4.705 million of base fee and incentive fee.
As a consequence, Real Cortez might not put much effort as they can since they know they have reached the maximum benefit.
While, if the owner remain base fee, reduce incentive fee and rise cap on fees, there will be more space that allow Real Cortez making money. It provides an improving area for Real Cortez to make more profits. The more ambitions Real Cortez has, the more profits they get, the more value of the Arts Hotel.

2002 (€,000) estimate Gross Revenue :72,386GOP:35,289 | UNDER CURRENT TERMS | REVISED | Management Base Fee | 1,448 | 1,448 | Management Incentive fee | 3,384 | 2,707 | Fees Real Cortez Earns | 4,832 | 4,155 | Cap on Fee | 4,705 | 5,429 | Gap | 127 (Overflow) | 1,274 (Shortfall) |

Through measuring on incentive fee and cap on fees, would efficiently motivate Real Cortez to maximise hotel’s bottom line on sale, maximise cash flow before debt service, and therefore maximise the overall value of the hotel.

3. In return, it is advised that increase 50% on marketing and reservation fee from 1% to 1.5%.
It seems that above adjustment is reducing incentive fee, but the total money that Real Cortez earns not only base fee and incentive fee, but also group service fee. The group service fee is allocated to general marketing and advertising expenses. Therefore, increasing group service fee not only cheering up Real Cortez, but also providing money to let Real Cortez making more contribution, therefore maximise value of the Arts Hotel.

4. Extend one Five-year renewal option to one eight-year extension.
A longer contract provides stability for both owner and operator (Denton, Raleigh, & Singh, 2009). As an independence hotel operator, Real Cortez had already cooperated with Arts Hotel for 12 years which is quite long-term relationship. Extending to eight-year would secure Real Cortez even realize a return of up-front cost and fully effort.

5. Owner have the right to approve the General Manager’s selection.
Since the two types of personnel orientation causes the conflicts between each party. Comprise can made by allowing owners’ decision on general manager selection only.

6. Refurbishment after the new hotel’s construction completed.
The renovation cycle of a hotel is normally around 12 to 15 years. The purpose of renovation is to add value of the property. The renovation in Arts Hotel can take place when the new hotel is about to open, it is a further investment of adding value for the Arts hotel, it also gives new hotel opportunities to growth, which aligns the owners objectives that maximise value of both Arts Hotel and Land.

To Maximise Value of the Vacant Land 1. Build up a new hotel instead of selling the land
After comparing the two options, selling the land is not recommended since it only generates 19 million instantly. For long term run build up another hotel would generate more profits for Faus and his investors.

2. A 4 star hotel targets on leisure and business
To avoid overlapping the Arts market, it is advised to have the new hotel in 4 star categories. Also, 4 star hotel have higher return rate than 5 star hotel. By targeting leisure and corporate market, facilities and services are differentiated from Arts hotel to avoid potential competition.

3. Further develop the Arts brand
From both owners’ and operator’s perspectives, establish own brand is a win-win situation. Unlike franchised brand, independent brand allows more flexibility for owners and operators; they can be more innovative and market-responsive. Also, when it comes to disposing stage control power of own brand is higher than franchised brand.

4. Assigning local management team to the new hotel.
Local operators enjoy its advantages on recruitment, market, culture etc. even MNCs sometimes have to implement “regiocentric” strategy to subsidiaries. As there is no international brand hotel in Barcelona at the moment, local management team can develop its own SOP and approach to maximise operating efficiency.

CONCLUSION
The finding of Arts hotel has shown the competitive advantages since it is under the Real Cortez management. Faus and his investors are looking for short-term return and concerning bargaining position balance with Real Cortez. Thus, renegotiation details on contract with Real Cortez are necessary. Nevertheless, it is essential to consider from Management Company’s point of view to finalise the adjusted agreement achieving mutually beneficial and win-win cooperation.

REFERENCES:
Beckley B. 28th January 2016, Asset Management Keynote Speaker Lecture, Asset Management Workshop, Shannon College Hotel Management.
Denton, G., Raleigh, L., & Singh, A. (2009). Contemporary Hotel Management Contracts. Hotel Asset Management Principles & Practives (pp. 156-177). Lansing, Michigan: American Hotel & Lodging Education Insititute.
Hughes J. & Keogh L., 14th January 2016, Asset Management Keynote Speaker Lecture - Ireland Hotel Market Overview, Asset Management Workshop, Shannon College Hotel Management.
MellenSuzanne R. (2012). Hotel Valuation, Hotel Investments Issues & Perspectives (pp 123-146). Lansing Michigan: American Hotel & Lodging Education Institute.
Rosenberg, S. B., & Corgel, J. B. (1990, June 1st). Agency Costs in Apartment Property Management Contracts. Journal of the American Real Estate & Urban Economics Association, pp. 184-201.
SegelI.Arthur. (2008). The Arts Property and Hotel. Boston, MA 02163: Harvard Business School Publishing.

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