Hotel BuyoutsMay 1, 2013

The Benefits of Buyouts and How to Negotiate the Best Deal By
May 1, 2013

Hotel Buyouts

The Benefits of Buyouts and How to Negotiate the Best Deal
The elegant Mar Vista Ballroom at The Resort at Pelican Hill in Newport Beach, CA. Pelican Hill offers a variety of buyout options. Credit: The Resort at Pelican Hill

The elegant Mar Vista Ballroom at The Resort at Pelican Hill in Newport Beach, CA. Pelican Hill offers a variety of buyout options. Credit: The Resort at Pelican Hill

Even though your mother always taught you that it’s nice to share, sometimes you just don’t want to, especially when the situation involves a meeting that requires a high degree of privacy or exclusivity. In that case, a hotel or resort buyout just might fit the bill.

Tom Wilson, division vice president and financial services sector lead for Maritz Travel, described some of the advantages. “We recently did a buyout for a financial services client. The client wanted to create an intimate atmosphere for their event, and the hotel was the perfect size for their group. With the buyout, the client also liked that they wouldn’t have to share function space with any other groups and that there would be 100 percent focus on their guests.”

He says the three main factors to consider for a buyout include timing, budget and hotel size. “Hotel size is particularly important because you want to be sure it creates an intimate setting for the guests. The perfect property allows clients to create the exceptional experiences they desire. Also, consider all of the areas that can be customized for your event. Is that important for your guests and the business objectives you are trying to achieve? If so, a buyout might be a really great option.

Creating a
Customized Experience

“I would say the biggest advantage is the increased leverage with the hotel — the client can really make the property their own,” Wilson continues. “That leverage gives clients the ability to customize the service experience for their guests. Things like housekeeping times and other staffing throughout the hotel can be customized based on a client’s preferences. Additional benefits worth noting include full access to the resort’s amenities, customization of resort amenities, and the ability to create a ‘home away from home’ experience for guests.”

Frank Ashmore, director of sales and marketing for The Resort at Pelican Hill in Newport Beach, CA, describes some of the buyout options his property offers. The Italian-themed five-diamond resort, which offers expansive views of the Pacific Ocean, features 204 bungalows and 128 luxury villas along with two Tom Fazio-designed golf courses and The Spa at Pelican Hill.

“We have different types of buyout options based on the size of the group,” he notes. “I classify them into two distinct categories: a bungalow buyout or a villa buyout. For a villa buyout, the group would decide what enclave of the villas they prefer to have, whether it’s the three- and four- bedroom villas in the south area or the north where the two-bedrooms are, and then they can transform that space into their own private village.” He explained that the villa portion of the resort has its own front desk, private concierge, restaurant and pool. “The group can put their own registrants there to register their attendees. They can really make them feel like they’re coming into a private space.” He added that other personal touches also can be done, such as adding the company’s logo or theme to the key cards. “It works out really well. Those types of groups tend to be more incentive and culinary-driven.

“The bungalow groups tend to be a little larger — groups that could have upwards of 200 rooms on the peak night or maybe a few more and really want to use the whole facility of the hotel,” Ashmore continues. The Pelican Hill bungalows are organized into four separate streets (vias), and groups reserving an entire street can even plan to have their own private Festa Italiana (street festival) right in front of their bungalows.

Ashmore described one buyout the resort recently did for a large financial company that was entertaining top clients from around the world. “They didn’t need to use all 332 rooms, but they bought them all just to make sure nobody else would be in the hotel when they were here. They did some really unique things. They basically built a dining room out on the event lawn so that they could have a covered space for their attendees in the open air facing the ocean. They knew exactly what they wanted it to be.” He added that for its general sessions, the group brought in custom-designed residential furniture to create a comfortable and sophisticated setting. “A lot of their attendees flew in on private jets,” he notes. “John Wayne airport is just 15 minutes away, so there were a lot of pluses.

“We also give groups the opportunity to have an exclusive buyout opportunity from an industry perspective,” he adds. “If we have, let’s say, an automotive company that wants to do business with us, and they want us to ensure that there won’t be any other auto company there, we’ll write something into their agreement that will allow them to have first right of refusal. We’ll offer them the opportunity to buy the exclusivity, which has been very popular for us.”

The M Resort Spa Casino Las Vegas located in Henderson, NV, contains 390 accommodations, including 39 suites. Drew Varga, vice president of sales for the resort, describes two buyout opportunities the property offers so groups can “come in and own the M.” One option is to buy out all of the resort’s rooms, suites and meeting space, which is something that can be negotiated any time of the year. The second option, which is based on seasonality and a weekday meeting pattern, allows groups to book 150 rooms or more yet still secure all of the resort’s 60,000+ sf of meeting space. “Most hotels won’t commit all of their meeting space to a group unless they take a full complement of guest rooms,” he notes. “Group business is so important to this hotel that we will commit.”

Varga mentioned a unique branding opportunity using slot machines: “We can add a message that will scroll along with the advertisements of our own in-house amenities. If someone is at the slot machine after the evening function, they’ll see ‘XYZ corporation: The future is ours’ or whatever their message is.” The M Resort will even arrange for a private slot tournament or poker tournament as part of a buyout. Varga says that one time, they even reserved a section of the casino for a few hours one afternoon for a group that wanted to have a teambuilding activity.

He adds that because the resort owns its dining outlets, it’s easier to negotiate restaurant buyouts, and they’ve even had a buyout of the resort’s 110,000-sf pool deck for a private corporate party for 8,000 guests.

Negotiating a Buyout

Not surprisingly, negotiating a hotel buyout can be more complex than negotiating other meeting contracts. Tim Brown, chief executive officer of Meeting Sites Resource in Irvine, CA, has negotiated many buyouts. “There are many variables to deal with, for sure,” he notes.

“We’ve had many requests for buyouts, but often it’s not feasible,” he explains. “I’d say we pull the trigger on about 40 percent of them.” He says the reason is that since hotel occupancy rates and revenue per available room (RevPar) have now greatly increased, hotels are in a much better bargaining position. “They can stick with their current model, reserving 60–70 percent for group and 30 percent toward that higher rated individual social business. Since we’ve left the recession, the director of revenue management is firmly in the driver’s seat and obviously is controlling cost factors for a buyout.”

Brown describes the factors he takes into account when negotiating a buyout for a client. “I would first look at the flexibility this group has for dates and their peak night pattern, because every hotel, big, small and in-between, resort or no, is pattern-selling for all market segments. So basically, using Orange County or San Diego for an example, they’re going to get very busy with occupancy Friday and Saturday night and probably take a bigger chunk of their total inventory for that social guest paying more and probably spending more on property with golf and spa and food and everything else.” He says that in that case, the group would have a better chance of negotiating a buyout if they were willing to look at a Sunday-to-Thursday pattern and be flexible about the dates.

Revenue Categories

“Then I would really take the RFP for that particular event, even if it’s incentive just mostly with leisure and fun, and I would really start breaking down the revenue contribution by category.” Brown explains that he would look at the room block first since it’s the hotel’s biggest profit center, and then the F&B contribution maximized over the entire stay. “I’d also be looking at ancillary spend if we had proposed spa, golf and other onsite things that aren’t as profitable but important to the overall mix.

“Often, we’ve had cases, quite frankly, where hotels come in with the rate the customer can live with sleeping-room wise, but the F&B demand was so high it was really not feasible. If they felt that the rate was going to be too high, I would encourage the customer to give some rooms back, just for transient, not group business. Let’s say we have a situation with a 500-room hotel. If you can give the hotel 80 rooms back and have it guaranteed there will be no groups in house because you want that exclusivity and they can get some business at the higher rate, that might seal the deal. It might give you rate flexibility, too, because the hotel can now balance out their contributions by market in high season and in a strong demand period.”

He gave an example. “Let’s just say the revenue manager says, ‘On the group side, I need a $229.87 per night sleeping room contribution.’ Well there are going to be some groups in there at $199, some at $246 and anywhere in-between. When it’s all said and done, that’s the dollar this guy’s got to get. If you come in with a low-ball approach and keep squeezing and squeezing, you’re not going to get it done. There’s no need for them to do that when it’s a seller’s market and they can get those five to seven groups in at a much higher average daily rate.”

Seasonal Considerations

Seasonality also can make a big difference. “We have several groups that are looking at the same hotel for high season, say in Scottsdale, and a shoulder season in October-November, and the amount of negotiations clout we have for October-November versus January to April is rather huge,” Brown explains. “It also affects our contract language. We’ll have a difficult time getting a lot of extra performance clause flexibility in high season where we get just about what we want or meet them in the middle in the shoulder season.”

Location, Location, Location

The location of the property is also a factor. “Downtown hotels offer a little different challenge only because they are going to rely on a lot of transient business,” Brown explains. “In fact, right now we’ve had a big, big spike in meetings in 2011 and 2012. Obviously, that’s not sustainable. There’s still a huge demand for groups, but the transient demand is absolutely on fire and the hotel revenue managers are allocating more and more rooms to that transient side because the revenues are so handsome. So consequently, if a hotel is downtown, that’s going to be tough to get a buyout and hold budget.”

The Rundown on Restaurants

Brown says that buyouts don’t have to include the hotel’s dining outlets. “I’ve had companies do a buyout because they didn’t want anybody else (in the hotel) except for somebody coming in for a meal,” he explains. He says it’s difficult for a hotel to sell out all of their restaurants because they don’t want to upset their regular, loyal customers. “I don’t think that’s a fair request. I bet I’ve never had any language in a contract in all of the buyouts we done over many, many years that have a clause saying they couldn’t operate their restaurants. The other side of the coin is that we might buy out a couple of their restaurants for our dine-around.”

Privacy and Confidentiality

Buyouts also offer groups a level of privacy and confidentiality they can’t achieve when there are other groups in-house. “Sometimes, the reason for a buyout is to keep the meeting ‘under the radar,’ ” notes Ian Black, director of group sales for The Brazilian Court Hotel, a historic Palm Beach, FL, property that dates back to 1926. “One of the philosophies of our property is to treat everybody as a VIP, acknowledge them for who they are, and then leave them alone to go about their business. With only 68 units available at any given time, it makes buyout opportunities fairly easy. As a matter of fact, 25–30 rooms will make a client the premier group in house, and 40+ rooms will practically ensure a client to be the only group in house.”

Brown says that another reason some companies like to do buyouts is the concept of “not having anyone infiltrate their castle.” He notes, “When there’s a lot of proprietary information being passed around through a lot of different mediums, they are mindful about their intellectual capital, if you will, and how that’s protected. If there are no other groups in-house, they kind of control more of what’s going on. This applies, quite frankly, even more to the financial and insurance industries who have more information sitting out there in a volatile market and competitive marketplace.

“That happens quite a bit,” he continues. “We’ve had some companies on the big corporate level that have even had language in their contracts that when the general session is going on, they don’t want any employees in the room. They just basically want the room refreshed at specific times when the meeting is on break. They are really particular about their intellectual capital and streaming out information and how they do that.”

These companies prefer the exclusivity of a buyout for good reason. “Clearly, if you take a typical resort in high season, there could be three to seven groups overlapping at the same hotel,” Brown notes. “For some of our customers, we list the names of some of the companies that cannot be onsite over those days, but who knows about the CEO of the competitor attending someone else’s meeting? Or if he’s one of the social guests and he’s looking at the reader board. Or not even the CEO, but some enterprising marketing guy is on-property and he wants to get some scoop on what brand ‘X’ is doing. I guarantee if he walks in to have dinner and he sees that name on the reader board, his antennas are up and he’s like a hound looking for the rabbit.”

Promotional Power

Depending on the guidelines of the hotel, a buyout can give a group more leeway in terms of promotional opportunities. “Another advantage (of a buyout) is that the client can enhance guests’ experiences by importing their company’s branding and culture into the entire property. This includes items like signage and décor,” Wilson notes. “We put this in the contract,” Brown says. “(For example), we can put a giant carpet where they walk into the hotel with our message on it and logo.”

The bottom line is that there are many advantages to being the big dog (or maybe even the only dog) on campus for a meeting. The key to success is to negotiate the right deal, and Brown offers some sound advice. “Think like a revenue manager and be mindful of the total art of the deal in terms of the win-win that will allow you to achieve all of your goals.” I&FMM

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