Archive for ‘Hotel Brokerage’

November 17th, 2010

Bank work out deals are posing problems for Hotel Franchisors and Franchisees

As the economy continues to change and more hotel owners are throwing their hands up in the air and giving the keys back to the lender, the franchisees are faced with another problem; what happens to the franchise? As a hotel brokerage company, we constantly see this as problem with the franchised hotels that go up for sale.  Whether the hotel in question is a Comfort Inn, Hampton Inn, Holiday Inn Express, or a Super 8, the franchise is usually in question.  Too often the owners are more concerned about dealing with the bank and dismiss the franchisors. Depending on the franchise and how solid their agreements are, they can have some serious impact on the owner and can go after the liable party for liquidated damages. The liquidated damages can total into the hundreds of thousands of dollars for larger hotels.

Several components play a factor in the distress of the franchise. The largest component usually consists of an extensive property improvement plan (PIP) that has been neglected by the franchisee. An incoming Buyer may not want to spend the capital to bring the existing franchise up to the standard required by the franchisor. The only options the Buyer has is to drop the franchise altogether and go independent or go with a lesser brand that will not require the extensive PIP improvements.  Typically, the market does not support the current franchise and an alternate franchise may be the answer. For example, if you take a small market in rural MN that has a 50-unit Comfort Inn that is not performing, the hotel cannot afford the franchise royalty fees associated with a premier brand. It may save money and maintain market share by moving to a less expensive brand like America’s Best Value Inn. An incoming Buyer may recognize this value and request that the brand not be transferred with the sale.  

As hotel brokers conducting short sales for the banks and hotel owners, we need to be conscious of all the moving parts associated with the sale of a hotel.  Making sure the Seller is protected on all aspects of the transaction is critical. An owner who is considering the sale of a hotel property should always consult with industry experts to plan the best avenue of approach for the sale. To arrange for a detailed consultation please contact Corey Stender at Timm & Associates, Inc.

Corey Stender

Timm & Associates, Inc.

Hotel Real Estate Advisor