STR is making changes to the highly regarded and widely used STAR Report. Those of us who spend time drafting, reviewing, negotiating, and understanding hotel management agreements know that an important element of a management agreement is the Performance Test, and that a critical element of the typical two pronged performance test is the RevPAR threshold as compared to the hotel’s competitive set. The guidelines that will go into effect on Jan. 1, 2017, are designed to recognize and accommodate for recent (and probably continuing) consolidation in the hospitality industry, and achieve a better balance within the competitive set. One very important clarification in the new guidelines is that the competitive set would have not less than 4 hotels, excluding the subject hotel, and include at least 2 management companies, also excluding the subject hotel.
The new guidelines may be very helpful, and all parties to management agreements should consider the implications. That being said, remember that not all management agreements permit changes to the initial competitive set. Parties to management agreements should consider examining the existing management agreement to assess the potential for competitive set revisions while also reviewing the new guidelines.
For more information on the new guidelines, click here.