Most of the deals we work on at HBC are franchise properties. There are several well-known franchise chains to choose from in the market.  These include Choice (Quality Inn, Comfort Inn, Econo Lodge, Comfort Suites), Wyndham (Days Inn, Super 8, Travelodge) and IHG (Candlewood Suites and Holiday Inn Express) to name a few.  These franchises all require that a new buyer enter into a new Franchise Agreement for a term of anywhere from 10 – 20 years. Also, the franchise will require that the new buyer completes a Property Improvement Plan, aka PIP, on the property as a contingency of the property ownership transfer to the new buyer.  The completion of the PIP is 100% the responsibility of the new buyer. At HBC, our lenders will provide the financing for 80-85% of these PIP renovations. The buyer will have anywhere from 3 months – 2 years to complete whatever renovations the franchise requires in the PIP.

Alternatively, other well-known chains such as Best Western and America’s Best Value Inn’s do not have franchise agreements and instead require that the buyer enter into a Membership Agreement.  Best Western only requires a 1 year Membership Agreement which is renewed on a yearly basis. Best Western will conduct quarterly inspections of the property and make maintenance recommendations / requirements to the property owner.  America’s Best Value Inn commonly requires their members enter into 3 year Membership Agreements.  However, at times this could be longer.  A property that is with a chain that has Membership Agreements are beneficial to the buyer because they do not commonly have a large PIP for the buyer to have to pay for and complete.  The membership-based chains typically do not have large PIPs because the seller of the property must keep the property in decent physical condition in order to be approved by the chain to transfer the property to a new buyer.  Therefore, the responsibility is on the seller to keep the property in good condition to qualify for a sell. Instead, in a franchise-based chain, the responsibility is on the new buyer to do the PIP to keep the property in line with the franchise condition requirements.

A benefit of a membership agreement-based chain is that the property owner can easily terminate their agreement after the expiration of their brief membership without any repercussions.  Conversely, if the property owner of a franchise property wants to cancel their franchise agreement prior to the expiration of the term of their agreement (commonly 10-20 years) for any reason, including a sale or conversion to another brand, the property owner will be subject to early termination damage fees called liquidated damages.

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