The One Year Expedia Bump – Data crunchers beware! screencast

4923_4x6@72 - Biz 1  Richard B Evans CHA CHAE CRME              logochp- small logo

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A new commission collection model is being put into play by Expedia in 2013 that will affect what unit owners in condo-hotels see on their Owner Statements and what hoteliers see on their STR Reports.  Both condo-hotel and traditional hotel executives be aware of the “bump up” of Average Daily Rate & RevPar from 2012 to 2013 due to Expedia’s business model change.

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The One Year Expedia Bump – Data Crunchers Beware! – narrative

4923_4x6@72 - Biz 1 Richard B Evans, CHA CHAE CRME                               logochp- small logo

 “The One Year Expedia Bump”

Expedia’s Collection Model Changes – Data Cruchers Be Aware!     

             

i). Changes that the condo-hotel unit owner will see comparing year over year results.

ii). Intellectual Considerations – Year over year changes effecting STR Report data & analysis

Our metric model shows the ‘cause and effect’ analysis (exhibit C) of Expedia’s change

What if I told you that the ADR and Rev Par changes on Exhibit C (below) were ALL due to the change in Expedia’s Commission Collection Model?!

A new commission collection model is being put into play by Expedia in 2013 that will affect what unit owners in condo-hotels see on their Owner Statements and what hoteliers see on their monthly STR Reports.

Background

The On-Line Travel agent (OTA), Booking.com introduced a different commission collection model upon entering the market a number of years ago, in which guests booking reservations through the Booking.com website are required to pay the hotel directly and in full at check in.  In turn, the condo-hotel (or traditional hotel) would be required to pay the percentage fee commission owed to Booking.com, by cutting a check for the established percentage rate agreed upon and multiplied by the Gross Room Revenues received.

Since inception, Expedia.com (and most other OTA’s) collected gross room revenues directly from guests and, in turn, would remove their commission fee before paying the condo-hotel (or traditional hotel) for the guests stay.

Sales tax challenges experienced by OTA’s (because they have been collecting revenues directly from guests) are believed to be a significant factor in making this change to the commission collection model.    In effect, the move no longer will require Expedia (or any other OTA who follows) to be looked to for sales taxes.

i). the Gross Room Revenue change in revenues reported to condo-hotel unit owners.

Exhibit A                                                                              Old Model          New Model

Gross Room Revenues Collected by OTA:                              $1,000                   $       0

Gross Room Revenues Collected by Hotel                                       0                   $1,000

**Fess Removed by OTA:                                                             <  250>                           0

Owner Statements in 2012 showe                                 $  750                            – 

Hotel pays Expedia & Booking.com                                                                        < 250>  

Amount collected by hotel for reservation                 $  750                     $  750

**IF commission were equal from both OTA’s the aforementioned would be the result.  Commission, however are not always equal.

 THE ONLY CHANGE that will be seen is the appearance that Gross Room Revenues in the Condo-Hotel have increased.   THERE SHOULD BE NO NET CHANGE TO THE OWNERS CHECK.

Exhibit B    

Condo-Hotel Owners Statement                      Before-2012                     New-2013

Gross Room Revenues from Expedia              $         750                            $  1,000

Less: Travel Agent & OTA commissions          <         50>                           <    300>

Less: Reservation Fees                                         <        10>                            <      10>

Less: Credit Card Fees                                          <          5>                            <        5>

Total Deductions from GRR                               <        65>                            <    315>

Net Gross Room Revenues                                          685                                      685

Percentage Representing Unit Owner Share            46%                                     46%

Amont due to owner before deductions                     315                                       315

Linen Fee, etc.                                                           <      15>                               <      15>

CHECK TO OWNER                                            $    300                                 $   300

ii). Intellectual Considerations – the one year Expedia bump!

The real change that takes place in looking at data in 2012 and 2013 (from the Expedia Commission Model Collection change) comes about when analyzing your Average Daily Rate and Rev Par results each month in reports like STR, where even small dollar jumps can be deemed to be significant. Further comparisons to your competitive set will also change year-over-year depending upon each hotels sales mix.

Condo-hotels (and traditional hotels) with excessive reliance on OTA channels (of which Expedia always is a significant part) to generate Gross Room Revenues will show a higher 2013 Average Daily Rate and REVPAR rate, even if sales have been the same as the prior year.  The difference will be the 20% to 30% fee commission paid to Expedia.

As no one can ever know what each member of your competitive sets sales mix is, for one year you could see a “superficial” bump up of ADR and REVPAR.

Our intellectual review also shows that the “Expedia One Year Bump” will have an effect on components relating to Incentive Bonus Plans in many Hotel Management Agreements!

Exhibit “C”

  

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How Important is Owner Distribution Percentage?

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Comparing Condo-Hotel and Traditional Hotel Metrics

 

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SEC Allows No Pooling of Revenues or Expectations of Profitability in Condo -Hotel Sales

logochp- small logo  4947_4x6@72 Biz 2   Richard B Evans CHA CHAE CRME

Written: February 5, 2013

            The offer and sale of a condominium by a developer can constitute the offer and sale of “securities”, subject to both federal and state securities laws, if the “totality of the circumstances test” is not met.  This test has become increasingly more difficult to define and understand (as of the summer of 2011) when an appeal was made to the 9th Circuit Court.

IN LAYMAN’S TERMS:

The totality of the circumstances test:  A test used to determine whether certain constitutional rights of a defendant have been violated.  The test looks to all the circumstances surrounding the alleged violation, rather than to any particular factors; as had been the case before.  While some factors may recur more frequently than others, the relative importance of any one factor depends upon the particular facts of a case.

The Definition of an Investment Contract:  a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or third-party (hotel operation); Or, when a purchaser is no longer buying real estate, but “investing in a business enterprise“ and can therefore be deemed to be purchasing a “security”.

What would happen if condo-hotel sales were deemed to be “securities”?

(1)     The registration of securities by developers would be a costly, time-consuming and would likely drive the price of condo-hotel units higher.

(2)    Claims made based on misrepresentation or fraud would look to securities law for remedy.

(3)     Salesperson would need to be registered as broker-dealers

Guidelines being observed, by the majority of developers of Condo-Hotels today in selling units.

1). under no circumstances are revenues in a rental management program to be pooled with other participants. The pooling and distribution of revenues to unit owners, whose unit may or may not have been occupied during a specific period, constitute the sale of an investment contract and not the sale of real estate.

2). the purchaser of a unit in a condo-hotel cannot be required to enter any Rental Management Program.  He or she must be given the option of allowing competing vacation rental companies or realtors to bid for their business or the owner must be given the option of renting his/her unit themselves.

3). The purchase of a unit in a condo-hotel cannot be “intermingled” with the specific enticement of a rental management agreement that will bring or estimate revenues or tax benefits.

4).  The real estate sales person and the rental management sales person must be exclusive and no compensation may be paid to the real estate sales person if a rental management agreement is signed.

5).   advertising, sales literature, promotional schemes, and/or oral representations may never promise economic inducement or benefit derived from the promoter or a third-party.

6). No significant restrictions can be placed on the purchaser of a unit in a condo-hotels use.

7). The Sales Agreement and a Rental Management Agreement must be separate.  Prospective buyers that ask for more information about the Rental Management agreement should be given options and sent to companies who may represent details under certain circumstances and provide “raw data” on what comparable property rental management programs are producing.

8). There can be no expectation of PROFIT.  The acknowledgement of NO EXPECTATION OF PROFIT is often required by developers and signed off on by the buyer.

9). Rental Management Agreements are executed after the Sales Contract is executed.

** the Developer of the Condo-Hotel project CAN voluntarily register with the SEC and have his/her Realtors do the same (becoming certified to sell securities), enabling them to sell units at the project deemed to be “security” transactions.  In this case the property may POOL their REVENUES and share them amoungst unit owners. Keep in mind that this is an expense proposition for the Developer. 

More information on the subject can be obtained from Mark F Grant Esq., Greenspoon Marder 954-527-2404 or mark.grant@gmlaw.com

 

LEGAL HISTORY:

SEC v. W.J. Howry Co. (1946) – HOWRY provided the test for determining whether a transaction qualified as an investment contract and hence, a security.

1973 SEC Public Release NO 33-5347 – “Offer and Sales of Condo or Units in a real estate development”

2002 Intrawest No-Action Letter – one of the clearest descriptions of how to conduct a condo unit sale w/o stepping over the line.

MAY 15 2012 – Salameh et al v Tarsadia Hotels, et al – California

2011 US District court for Southern District of California dismissed the above referenced complaint.

Appealed to the 9th Circuit 2011 – disregarding past Intrawest No-Action letters by SEC.  SEC argues that the overall product structure should be analyzed; not just the meticulously followed sales process.

References used for this article:

The Condo-Hotel: When Might the Securities Laws Apply?   By Bart Bartholdt ©2005 Graham & Dunn PC

Condo-hotels: stuck between a Hard Rock and the SEC rulings.  By Christopher Payne; Ballard Spahr LLP, Denver

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Exit Surveying Guests at Condo-Hotels

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Having trouble viewing screen cast videos? Here’s a quick fix

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