By Chase Keller, CCIM
Selling a branded hotel is often very different from selling an independent hotel. The brand affects value, the size and quality of the buyer pool, the ability to secure financing, and the complexity of the transaction.
Here are the biggest differences:
A major brand will determine what a buyer can do with the property. When buying a property under a national brand, the buyer usually inherits the existing franchise agreement. They’ll be responsible for maintaining brand and property standards, and they may have to agree to costly future Property Improvement Plans.
The new owner won’t have as much independence as they would when buying an independent property. They’ll be limited in their ability to change operations and policies, and to put their own stamp on the hotel’s brand.
The pool of buyers for a branded hotel will be larger and, in many cases, better qualified. Buyers might find it easier to obtain financing from lenders for a nationally-branded property. Lenders have more confidence in brands that have proven systems and provide strong marketing, operational, and franchise support.
Lenders also find value in a branded hotel’s track record of success, whereas an independent hotel may not be able to document performance (especially as it pertains to comparable properties). The new owner will need to produce a detailed plan for business development and property improvement.
Finding qualified buyers will also be easier with a proven brand; a significant portion of the buyer pool may have previous brand ownership experience. A branded hotel will also attract interest from REITs and Private Equity. The pool of buyers for an independent property will likely include more local buyers and more first-time entrepreneurs, along with buyers who could not qualify for a branded property.
The brand will be involved in approving the buyer and vetting the deal. Most hotel brands screen for both quantitative and qualitative factors when evaluating franchisees. Prospective franchisees must have an appropriate real estate net worth, an entrepreneurial spirit, a commitment to a culture of excellence, strong business and management skills, and express alignment with the brand’s core values.
The brand will have a well-defined approval process, which may take up to a year from the application. The diligence process will be more complex and more detailed. There may be franchise and transfer fees that will affect the buyer’s cost of the deal. Major brands will also require new owners to attend an in-depth training program that includes mandatory brand orientation, system training, and compliance checks.
In the sale of an independent hotel, the seller and the buyer have the power to craft the terms of their agreement and changes to the property or the brand on their own. Generally, once the buyer completes the sale, they are free to make any changes they determine necessary.
Being aligned with a strong brand comes with plenty of benefits. Brands provide reliable, user-friendly reservation systems and loyalty programs that generate repeat business. Owners benefit from national marketing and advertising. Branded hotels usually have higher occupancy rates and better ADR (average daily rate). National brands also provide a strong career path, benefits programs, and mobility within the organization, all of which will make it easier to attract and retain top talent for the property.
There is plenty of upside in buying a local hotel, including flexibility and owner independence. If the property is in a desirable location and has a strong boutique or lifestyle brand, it will attract property developers and owner/operators with big ideas and a passion for hospitality, which is key to the hotel’s future success.
About the Author:
Chase Keller is an advisor for Franchise Clearly and an experienced broker focusing on the hotel and hospitality industry. As a Certified Commercial Investment Member (CCIM), he is uniquely qualified to handle business sale transactions that involve real estate.