In the first post of this series, we reviewed selecting the ideal location for your hotel. We now turn to identifying the appropriate brand.
Although operating as an independent hotel is an option (more to come in a future post), i.e., no affiliation with a major brand such as Hilton, Marriott, or IHG, the majority of new hotel development will utilize brand support. Brands are attractive for several reasons including a well-defined development process, expertise in site selection, brand support upon opening to drive business to the hotel, and easier financing options as lenders tend to prefer the comfort that a brand affiliation provides.
In addition to identifying the right brand, it is also crucial to negotiate a favorable franchise agreement with the brand for the proposed hotel. While franchise agreements are designed to govern the relationship between the brand and owners of the proposed hotel, they also have a direct financial impact on the hotel’s performance. For example, the length of the franchise agreement – typically 15 years from hotel opening – will be important for providing additional comfort to a lender. Another item to be negotiated is the potential phase in of franchise fees that can range from 8% – 13% of revenue. In some cases, brands may be willing to phase in the full amount of franchise fees over a 3-5 year period. Sea Glass Hospitality Partners has strong relationships with the major brands and we can work with you and your investors to negotiate the right brand with the most favorable terms for the site as we have done many times beforehand.
The next post will cover the unique aspects of financing the hotel development.