SPECIAL REPORT : FRANCHISING
experiential stays , but boutique hotels realize they can ’ t do it on their own ,” says Choice ’ s Pepper in explaining the growing popularity for the soft-brand model . “ It ’ s the best of both worlds : These boutiques can stay independent but have all the benefits of a brand .”
First and foremost is the connection to a brand company ’ s reservations system . Beyond that , Pepper says , brands can offer cost savings to properties that affiliate . “ The third leg is the technology ,” he says . “ Hotels need to show up in all the places travelers go to make reservations . That ’ s hard for independents to do on their own . They need the help of a big brand .”
Financing returns Financing is available , but most executives acknowledge underwriting standards remain high , particularly for new development . Still , deals are getting done . As one franchise executive pointed out , lenders never really say no — they just figure out ways to put a deal on the table that ’ s so onerous and burdensome a company would never agree to it .
“ There ’ s a level of underwriting rigor that is very pronounced ,” Marriott ’ s Brown says . “ On the other hand , it ’ s good to have a lot of rigor because the deals getting done are only the best deals .”
Financing is returning to the markets in stages . First , urban properties caught the attention of lenders . Next were the new oil boom markets , such as in North Dakota .
“ Now we ’ re starting to see the secondary markets pick up , especially from local banks ,” Choice ’ s Pepper says . “ Valuations are increasing , so there is a story to tell . All indicators are that we ’ re on a very good run for the next couple of years . Banks understand the story , so they ’ re open to more lending .”
To jump-start development and transactions activity , some brand companies including Choice , Marriott and others are providing key money , sliver investments , guarantees or other tools to help developers and owners bridge their gaps in financing .
Brown says Marriott has , in some cases — especially high-value deals in urban locations — guaranteed up to
Tryp by Wyndham Istanbul
10 % of project costs so developers can move the loan-to-value ratio in a deal to a more manageable level .
Johnson of Carlson says some new development is picking up because local banks are beginning to lend again . “ The average amount equity developers need to bring to the table is about 40 %, but there are some players who can do that ,” Johnson notes . “ They ’ re the ones who will be the winners because their properties will be open and running when we hit the peak again .”
Thaw in relations Marriott ’ s Brown says relations with franchisees haven ’ t really changed much over the years . To him , it ’ s all about relationships . “ The franchisor-franchisee dynamic should be like a good marriage , one that ’ s characterized by the three Cs : communication , commitment and compromise ,” Brown explains .
Most brand executives say their franchisees understand the need to upgrade their properties to remain competitive , especially in light of the constrained levels of new supply in the market .
“ Most of our conversations with franchisees and owners are about this being the right thing to do at the right time ,” Brown says . “ Most of them have the philosophy that as the economy continues to grow in order to drive rate you must have a really good , competitive product .”
Pepper says some Choice franchisees are asking for help to make their upgrading decisions . “ They haven ’ t done this in a while , so they want to make sure they ’ re spending money in the right spots ,” he adds .
Like many brands , during the downturn Hilton eased its insistence on completion of property improvement plans and also reduced franchise fees , lowering its 4 % ( of gross rooms revenue ) program fee to 3.5 %.
“ It was our way to help our franchisees during the tough times , but the caveat was we would raise the fees once we got out of it ,” Fortier says . “ We also told them they would need to put money back into their properties . They understand and see the benefit . As new competition enters a market and existing properties renovate , you ’ ve got to upgrade , or you ’ ll lose the business .”
Gilles Gonzalez , senior vice president – franchise for Accor , believes the recession injected a dose of pragmatism into the marketplace . During the downturn , the company insisted on compliance with brand standards but still tried to be flexible as needed .
“ In this context , transparency and communication with our franchisees are key ,” Gonzalez says . “ More than ever , we have to share our vision and objectives with franchisees before launching cash-consuming projects . We have to be sure they ’ ll be on board by demonstrating that every single euro invested will have an ROI .”
26 HOTELS April 2013 www . hotelsmag . com