Four Seasons guards that reputation by securing elaborate contracts with owners that ensure it will be able to maintain the property according to its standards.
Hotel operators such as Four Seasons, Marriott and Hilton typically receive about 3% of a hotel's income for management fees, said industry attorney Jim Butler of Jeffer, Mangels, Butler & Marmaro. But that's just the beginning. Operators also pay from hotel revenue all the costs of operating the hotel, including employee wages and benefits, utility bills, food and beverage costs, marketing, reservations systems and a host of other items.
Brands also dictate owners' spending on capital improvements such as carpeting, wall coverings, televisions, furniture, linens, towels and other operating supplies and equipment. In total, about 12% to 14% of a branded hotel's gross income is controlled by the operator, Butler said.
That formula becomes problematic for owners when hotel income goes down. At the Aviara, revenue has declined with the recession but the owners still have to make payments on a $186.5-million loan they took out to acquire the hotel at the top of the real estate market in 2007, analysts said. In that transaction, Palo Alto-based Broadreach became the majority owner in a joint venture with hotel investment company Maritz, Wolff & Co. of St. Louis.
"Based on what's going on with resort hotels, there is no way that property can cover its debt service," said industry consultant Alan Reay of Atlas Hospitality Group. "The hope from the owners is 'If I can get rid of Four Seasons, I can get rid of a lot of expenses.' "
Four Seasons said in a statement last month that the Aviara was operating profitably but that the owners' loan payments had become a millstone.
"Put simply, they borrowed more money than the resort can service," Four Seasons said. "Broadreach Capital Partners and Maritz, Wolff & Co. are unwilling to take the necessary steps to meet their financial obligations, and Four Seasons will do everything possible to ensure that the owners live up to these obligations."
Four Seasons contracts are perhaps the toughest for hotel owners to break, consultants said. By Four Seasons' reckoning, the Aviara opened as a Four Seasons in 1997 with the expectation that it would stay a Four Seasons for 100 years.
The Aviara's owners and managers have been knocking heads at least since early this year.
