Choosing an Operator for Your Condo-Hotel: 8 Questions Before Signing

A hotel operator’s pitch deck is always good. It has photographs of handsome properties, a map with flags on it, international chain logos and a profitability projection that goes up. They all look alike, which is why none of them helps you decide.

What does help is eight specific questions, asked before signing, whose answers can be verified. They are not questions of trust: they are questions whose answer either sits in a document or sits nowhere. This article works through them one by one, explains what a serious operator should answer, and — most usefully — what each evasion means.

1. How exactly are your fees calculated?

The correct answer has two components and a written calculation base.

• Base fee, a percentage of revenue. It covers the operator’s structure and is charged whether or not there is profit.
• Incentive fee, a percentage of the operating result. This is what aligns interests: the operator earns more only if the owner earns more.

The follow-up question is what separates professionals: on exactly what base is each one calculated? Total revenue or rooms only, before or after taxes, and which line items enter the result the incentive is computed on. The mechanics are set out in our article on the hotel management agreement.

Warning sign: an operator that charges only a base fee and does not want an incentive. It sounds cheap and it is the opposite: it means their income does not depend on the hotel making money.

2. What will you charge me beyond your fees?

This is where contracts become expensive without the headline percentage changing. Ask for the complete, closed list of everything charged to the hotel on top of the fee.

• Shared corporate services — sales, revenue management, centralised accounting, systems — with the allocation formula across properties.
• Software licences for the property management system, booking engine and channel manager.
• Travel costs for corporate staff visiting the property.
• Purchasing commissions, if the operator retains part of the discount it negotiates with suppliers.

None of these charges is illegitimate. What is illegitimate is for them to appear afterwards. Each must be in the contract with its formula, and the total must fit within the cost framework we describe in what it costs to run a hotel.

Warning sign: «those are minor expenses, we’ll sort them out later». Minor expenses added together are the difference between a good year and a mediocre one.

3. What reporting will I receive, and how often?

The answer should be an example, not a description. Ask for the actual reporting pack from another property, with the figures redacted if necessary, and check that it contains at least this.

• Income statement in USALI format, the sector standard maintained by Hospitality Financial and Technology Professionals, compared against budget and against the same month of the prior year.
• Operating indicators — occupancy, average rate, RevPAR and the indices against the competitive set — as explained in our article on RevPAR, ADR and occupancy.
• Forward bookings: pace of intake and comparison with the prior year at the same distance out.
• Channel mix, showing the weight of direct sales against online agencies and tour operators.
• Online reputation: average score and how it is trending.

Warning sign: a report showing only total revenue and total expenses. Without benchmarked indicators, an owner cannot tell a bad year in the market from bad management.

4. Who controls the bank account and who signs?

The least glamorous question and the one that prevents the most problems. Operating accounts should be in the name of the property or its owning company, not the operator’s, with tiered signing authority: the operator disburses up to a set amount, above which the owner’s signature is required.

It should be equally clear how working capital is handled, how often surplus is distributed to the owner, and what minimum balance is kept in the operating account.

Warning sign: accounts in the operator’s name «for convenience». When the relationship breaks down — and some do — recovering control of the money will be a court procedure rather than a letter to the bank.

5. Who is the employer of record?

In the Dominican Republic this question carries substantial financial consequences. There are two models and both are valid if properly structured.

• The owner is the employer and the operator directs. The most common model: the labour cost belongs to the hotel and the operator answers for the management.
• The operator is the employer and invoices the cost. It gives more operational flexibility and shifts the employment relationship to a third party.

Either way, the contract must state who provisions the severance entitlements that grow with seniority, how staff transfer if the operator changes, and who assumes liabilities predating the signature. The framework is Labour Code 16-92, overseen by the Ministry of Labour, with social security contributions made through the system supervised by SISALRIL.

Warning sign: the contract not saying. Silence in this clause means the owner will find out who pays on the day of the first dismissal.

6. What will you be measured against, and what happens if you miss?

An operator without a performance clause is an operator without consequences. A serious clause has four parts.

1. Result threshold: a percentage of budgeted gross operating profit, with the budget approved by both parties.
2. Market threshold: a RevPAR index against a competitive set named hotel by hotel in an annex. Sector benchmarks are published by firms such as STR.
3. Cure period: how many consecutive periods of failure are required and how long the operator has to correct it.
4. Consequence: termination without penalty if the failure persists.

Warning sign: accepting only the result threshold. A bad year for the whole destination sinks the result through no fault of the operator; conversely, a booming destination hides mediocre management. Without the market threshold, the clause measures the weather, not the operator.

7. How do I get out of this contract?

Contracts are signed with the best case in mind and suffered in the worst. Five points to review.

• Initial term and renewals. If renewal is automatic, what the window is for declining it.
• Termination for breach, with the grounds listed.
• Termination for convenience and its penalty, normally calculated on outstanding fees.
• Termination on sale of the asset. The point that matters most to an owner with a divestment horizon: a contract obliging the buyer to retain the operator narrows the pool of buyers.
• Transition protocol. What is handed over, within what period and in what format: accounting, personnel files, contracts, forward bookings, the customer database and system access.

The last point is the most overlooked and the most expensive. A hotel that changes operator and does not receive its own reservation base starts from zero in the middle of the season.

Warning sign: exit penalties disproportionate to the remaining term, or no transition protocol at all.

8. Which properties do you operate today, and may I speak to those owners?

The simplest question and the most revealing, because the answer cannot be dressed up. Ask for the complete list of properties under management — not “advised” or “affiliated” — with years of tenure at each, and the contact details of two current owners and, if possible, one former owner.

Ask the referenced owner three specific things: whether the report arrives on time, whether there were charges they did not expect, and how the last serious disagreement was resolved. That third question is worth more than the other two combined: every management relationship has a conflict sooner or later, and what defines an operator is how they handle it.

You can see our list in the portfolio, who leads it in our management team, and our trajectory in our history.

Warning sign: refusing references «for confidentiality». Confidentiality protects a client’s figures, not their existence. An operator with satisfied owners introduces them gladly.

The particularities of a condo-hotel

Everything above applies to any hotel. When the asset is a condo-hotel with multiple owners, four additional questions admit no vague answer.

1. How is the pool distributed and what is my unit’s factor? With the formula in writing and a full worked numerical example, as detailed in how a condo-hotel rental programme works.
2. What separation is there from the condominium administration? Distinct accounts and ledgers, and hotel use of common areas priced by a meeting resolution. The detail is in our article on tourist condominium management.
3. How much is set aside for replacement and who holds that fund? Without a funded reserve, a capital call arrives within six years.
4. What majority of owners is required to change operator? It is the only real collective lever. If it is not provided for, it does not exist.

Brand and operator: two decisions, not one

A frequent warning in conversations with owners: the presence of an international flag answers none of the eight questions above. The brand supplies distribution and recognition; the operator is who runs the hotel every day. They are two separate contracts and, as we set out in franchise versus independent operator, they are assessed separately.

A hotel with a strong brand and a weak operation is not a good business: it is a bad hotel that also pays a royalty. Local context weighs on the assessment too, because the seasonality and channel mix of each tourism pole condition what it is reasonable to demand; sector figures are published by Asonahores and arrivals by destination by the Ministry of Tourism.

Comparing two proposals that look identical

With the answers in hand comes the real problem: two serious operators produce similar documentation and similar percentages. An honest comparison is not made on the headline percentage but on total cost and on how the risk is shared.

Add up the full cost, not the fee

Take the first full year’s budget and calculate, for each proposal, the sum of base fee, estimated incentive, corporate services, software licences and any other charge. Express the total as a percentage of projected revenue.

It is common for the proposal with the lowest base fee to end up the most expensive once the additional charges are added. That half-hour exercise saves more money than anything else in the process.

Measure how much risk each one takes

The ratio between base and incentive tells you how much the operator has at stake. A structure weighted towards the base shifts nearly all the risk to the owner; one with a meaningful incentive shares it. At equal total cost, the proposal with more weight in the incentive is usually the better decision, because its income depends on the hotel working.

Compare the exit, not only the entry

Put term, early-termination penalty, grounds for breach and transition protocol side by side. An extra point of fee is paid every year; a badly negotiated exit clause is paid once and can cost far more.

Assess the specific team

Whoever signs the contract is not whoever runs the hotel. Ask for the profile of the proposed general manager and of the regional executive who will supervise the property: years in the Dominican market, previous properties and tenure at each. A solid operator with an inexperienced local team performs worse than a mid-sized one with a manager who knows the destination.

And a final check, uncomfortable but necessary: the operator’s own solidity. They will handle the hotel’s cash and, in some models, be the employer of the staff. Confirm their track record, corporate structure and that they are current with their obligations before the Directorate General of Internal Revenue.

Conclusion: the evasion is the answer

The eight questions share one characteristic: none is answered with an opinion. Either the document exists — fee formula, list of charges, reporting template, signing authority, performance clause, transition protocol, list of properties — or it does not. And when it does not, the answer still arrives, just in the form of an evasion.

Choosing an operator is not choosing whoever is most likeable in the meeting, but whoever hands over the seven documents without friction. If you want to see how we answer these same questions, they are set out in why partner with us and in our collaboration process.

Frequently asked questions about choosing a hotel operator

How much does a hotel operator normally charge?

The usual structure combines a base fee on revenue with an incentive on the operating result. More important than the percentages is the calculation base of each and the closed list of additional charges billed on top.

Is it a bad sign if an operator charges no incentive fee?

Usually yes. Without an incentive, their income depends on turnover rather than result, so they do not share the owner’s risk. A lower base fee with an incentive tends to align interests better than a higher base without one.

Whose name should the hotel’s accounts be in?

The property’s or its owning company’s, never the operator’s, with signing authority tiered by amount. That is what allows control of the money to be recovered with a letter to the bank rather than through litigation.

What is a competitive set and why does it matter so much?

The group of hotels the property genuinely competes with, named one by one in an annex to the contract. Without it, the performance clause measures the destination’s luck rather than the operator’s performance.

Can I change operator before the contract ends?

Yes, if a prescribed ground for breach is met or if the early-termination penalty is accepted. That is why both the grounds and the transition protocol should be negotiated at the outset, not once there is a dispute.

What must an outgoing operator hand over?

Closed and reconciled accounts, personnel files, current supplier contracts, forward bookings, the customer database and access to every system. The reservation base is the most critical: without it the hotel restarts its commercial effort from zero.

Is it worth asking other owners for references?

It is the single most useful check. Ask whether reporting arrives on time, whether unexpected charges appeared, and how the last serious disagreement was resolved. Refusing references on confidentiality grounds is itself an answer.

Is a larger operator better than a mid-sized local one?

It depends on the asset and the destination, and size alone predicts nothing. A large operator brings systems, purchasing scale and distribution reach; a mid-sized one with an established Dominican team brings destination knowledge, reliable local suppliers and attention that is not competing with fifty other properties. What decides is not size but the specific team assigned to your hotel and the quality of the answers to the eight questions above.