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Meet the Money® 2014

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Hotel Management Agreements

Hotel Franchise & License Agreements

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This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer. Please contact me at Jim Butler at jbutler@jmbm.com or 310.201.3526.

Published on:

12 September 2011

Hotel Lawyer with some tips on Hotel Franchise Agreements and the 5 biggest mistakes a hotel owner can make

Hotels need brands, and brands need hotels. For many years, hotel brands have been growing in importance for the success of hotels in the United States and abroad. The trend toward branding is quite a phenomenon. According to numbers we have seen, In the early 1990s, approximately 40% of the hotels in the U.S. were branded and the balance were independent. Now the number is probably closer to 80% or more of the hotels are branded or brand-affiliated.

The branding is often accomplished by a franchise or license agreement from a company owning the brand. Other times it is accomplished by a branded hotel management company entering into a management agreement with the owner of the hotel, providing both the brand and management for the property.

Although we have spent a lot of time on Hotel Law Blog discussing hotel management agreements, today we are going to focus on the franchise or license agreement arrangements. With more than 20 years’ experience working with more than 1,000 hotel management and franchise agreements, we have some perspectives that may be worth considering.

Hotel owners keep falling into the same traps
One of these perspectives of our hotel lawyers is that many sophisticated hotel investors and owners seem to fall into a handful of traps that would be easy to avoid. And this same handful of traps catches the unwary time and again.

So this article focuses on hotel franchise agreements and outlines the 5 biggest mistakes an owner can make when seeking a hotel franchise arrangement. If this sounds all too familiar, you have probably learned these lessons the hard (and expensive) way. If you haven’t stumbled on these yet, you won’t want to miss the warning flags and the traps they portend.

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Published on:

10 September 2011

A highly controversial new law, which many employers believe will unfairly foster union organizing, requires that employers post notices of employee rights — including the right to organize, join or discuss the activities of a union. The law goes into effect on November 14, 2011.

Employers must comply with the new rule whether they have a unionized work force or not.

My partner, labor and employment lawyer Scott Brink, has outlined in his article below the requirements the new rule imposes on employers.

Scott and the labor and employment lawyers of JMBM’s Global Hospitality Group® have represented the hospitality industry in all aspects of labor and employment law including union prevention, collective bargaining negotiations, and defense of unfair labor practice charges before the NLRB. If you have questions about how this new rule will impact your hotel business, we can help.

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Published on:

8 September 2011

Hotel Lawyer on changing brand standards.

Hotels need brands, and brands need hotels.

Like all relationships, the relationship between branded hotel operators or franchise companies (the brand) and hotel owners needs ground rules. As long as both parties agree to the rules and follow them, who can complain?

Now, what happens if the ground rules change? In most relationships, both parties would agree to change the rules — or they would separate and go their own ways.

And what if one of the ground rules is that only one party can change the rules at any time? And the other party would have to follow them, no matter what? This is what can happen to hotel owners that agree, often for very good reasons, that a brand can change its standards for the hotel.

Sometimes the change in brand standards is not so good for the owner… one day you’re turning a profit and the next day you’re in the hole, paying for expensive changes required by the “new brand standards,” with no return on investment in sight.

The management or franchise agreement sets the ground rules and allocates risk between the hotel operator and the hotel owner. Negotiating the agreement, which will include “brand standards”, is one of the most important things hotel owners will ever do for their hotel investment.

Here is some advice from my partner, Robert Braun, co-author with me of the HMA Handbook.

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Published on:

31 August 2011

Hotel Lenders: Do you know how due diligence for hotel lending differs from due diligence for other commercial real estate lending? More expertise, more time, more resources.

We have seen far too many hotel lenders “who don’t know what they don’t know” when underwriting a hotel loan, but then get a very expensive education post foreclosure. The due diligence required in hotel lending is far more intensive than for any other kind of real estate lending and requires far more expertise. The article below by my partner Guy Maisnik gives a few examples.

If you would like a refresher as to why hotel lending is different from other kinds of real estate lending, you may want to refer to (see, Why hotel lending is different and 8 pitfalls of hotel lending and how to avoid them).

Please see the links at the end of this article for other articles in the “What every hotel lender needs to know” series.

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Published on:

28 August 2011

Hotel Lawyer update on Hotel owners terminating hotel operators. This weekend has been a busy one for owners tired of dealing with their branded managers. The Turnberry Group dropped Fairmont on Sunday. See Hotel lawyers on terminating hotel operators: Turnberry Resort drops Fairmont flag.

And on the same day, the owners of the M Edition Waikiki seized control of their hotel from Marriott and installed Aqua Hotels as the new operator. See Marriott Loses Trendy Waikiki Hotel as Owner Changes Locks Overnight as reported by Alexandra Berzon and Kris Hudson of the Wall Street Journal.

Over the years we have spent a lot of time on the subject of getting a great hotel operator and terminating bad ones. Owner discontent seems to erupt when operators continue to deliver disappointing results and ignore owner’s requests to drive the top line and manage costs. Then the operators wonder why owners are upset. See for example “Terminating hotel management agreements when things don’t work” and “How to terminate a hotel management agreement when an operator really deserves it!
Marriott loses control over half of its trendy Edition Chain in the pre dawn hours of Sunday morning.

The dispute between the owners of the M Edition Waikiki and Marriott has been a contentious and high profile piece of litigation. For the background of this dispute, an outline of what went wrong, and the contentions of the parties, see “M Waikiki’s Edition lawsuit against Marriott and Ian Schrager – an owner’s HMA dispute with Marriott and M Waikiki Edition lawsuit against Marriott – What Marriott’s General Counsel says“.

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Published on:

28 August 2011

Hotel Lawyer update on Hotel owners terminating hotel operators. Over the years we have spent a lot of time on the subject of getting a great hotel operator and terminating bad ones. Owner discontent seems to erupt when operators continue to deliver disappointing results and ignore owner’s requests to drive the top line and manage costs. Then the operators wonder why owners are upset. See for example “Terminating hotel management agreements when things don’t work” and “How to terminate a hotel management agreement when an operator really deserves it!“.

Turnberry Isle Resort back under founding family’s management and control.

Over the weekend, the owners of the Turnberry Isle Hotel & Resort in Aventura, Florida took control of their hotel and terminated their relationship with Fairmont Hotels.

The resort was created by the Soffer family’s Turnberry Associates in the 1970s, and reacquired in 2006. Turnberry recently completed a $150 million renovation. The hotel had been operated by the Fairmont chain until Sunday, August 28, 2011.

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Published on:

24 August 2011

Hotel Lenders: Will you control the revenues of your hotel after foreclosure? Are you sure? What could go wrong? A lot can go wrong with lender expectations in a hotel loan unless the hotel loan documents are prepared by knowledgeable hotel lending lawyers.

In today’s blog post, Guy Maisnik highlights the importance of the hotel lender keeping control over revenues post foreclosure, and explains why it doesn’t always happen.

If you would like a refresher as to why hotel lending is different from other kinds of real estate lending, you may want to refer to (see, Why hotel lending is different and 8 pitfalls of hotel lending and how to avoid them).

Please see the links at the end of this article for other articles in the “What every hotel lender needs to know” series.

CONTINUE READING →

Published on:

21 August 2011

One of the most read articles in the history of Hotel Law Blog is entitled: “
M Waikiki’s Edition lawsuit against Marriott and Ian Schrager – an owner’s HMA dispute with Marriott.

I have gotten a lot of compliments on the article from people saying that it helped them understand what was going on there. But a recent letter from Ed Ryan, Executive Vice President and General Counsel of Marriott International took quite a different tone.

Although I disagree with many of Ed’s points, the letter is thoughtful and well written. Ed encouraged me to publish it so people could see the “other side” of this issue. And in the interest of airing another view, I have done just that.

Read Ed’s letter below. Then read the blog again, and take a look at the complaint. Then you be the judge.

I look forward to hearing your thoughts.

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Published on:

18 August 2011

Hotel Lenders: What should every hotel lender consider in the SNDA before making a hotel loan? Here’s what to look for.

In today’s blog, my partner Guy Maisnik discusses the importance of something most lenders do not seem to adequately understand (until it is too late) and which often ensnares the lender when the loan gets in trouble – the Subordination, Non-Disturbance and Attornment Agreement or “SNDA“.

If you would like a refresher as to why hotel lending is different from other kinds of real estate lending, you may want to refer to (see, Why hotel lending is different and 8 pitfalls of hotel lending and how to avoid them).

Please see the links at the end of this article for other articles in the “What every hotel lender needs to know” series.

CONTINUE READING →

Published on:

17 August 2011

Tips from the Hotel Lending Lawyer: Hotel loan problems and hotel loan document issues are best dealt with at the loan origination. Do you know these fundamentals about your hotel loan documents dealing with hotel management agreements (HMAs) and hotel franchise agreements? There is a long list of things every hotel lender should take into account before making a loan so that it will be protected when a default occurs — much less a foreclosure. But few considerations are as important as dealing with issues raised by HMAs and hotel franchises.

Over the years, we have counseled hotel developers, owners and lenders as they try to fix bad hotel deals and repair bad hotels loans. Often, their problems could have been avoided if experienced hotel advisors had reviewed the necessary documents with a practiced eye, connecting the dots and filling in the blanks before the loan was underwritten.

Hotel lending experience is the key

Lenders need hotel-specific experience — not just real estate experience — because, as my partner Guy Maisnik writes in his article below, “You don’t know what you don’t know.” And what you don’t know can cost you a bundle.

Because a hotel’s operating business is inextricably intertwined with single-purpose real estate, the borrower’s financial obligations are exceedingly complex. We have written other blogs about why hotel lending is different from other kinds of real estate lending, that you may want to read (see, Why hotel lending is different and 8 pitfalls of hotel lending and how to avoid them).

Guy has more than three decades experience in hotel and commercial real estate finance and has recently assisted 3 major lenders in revising and structuring their hotel lending programs and documentation, including their hotel construction lending. In this eye-opening series of articles, Guy discusses how hotel lenders often find unpleasant surprises with hotel loans when they don’t get experienced hotel counsel to prepare their loan documents. And real estate lending experience is not hotel lending experience!

Please see the links at the end of this article for other articles in the “What every hotel lender needs to know” series.

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