Top Hotel Franchises

Building and operating a new hotel comes with branding, marketing and management needs in order to provide the best quality of service to its clients. For many investors in the hotel business, an important consideration when setting up a new hotel is whether to operate independently or under a franchise. That is because the operational model that one chooses affects how the hotel is run.

In the US, it is reported that roughly 67% of hotel chains operate under a franchise, enabling them to access the franchisor's brand's management, marketing and global distribution strategy. It is no wonder that many hotel owners choose to operate under a franchise when setting up a new property.

Before you quickly sign a franchising agreement, you need to ask yourself if that is the best operating model for your property. As things continue to evolve in the hotel industry, here's what investors need to know when deciding on whether to operate their hotel independently or under a franchise.

Key Takeaways

• In the US, approximately 67% of hotel chains operate under a franchise enabling them to access the franchisor's brand management and global distribution strategy.
• A hotel franchise is a business arrangement whereby an established hotel brand (franchisor) enables an independent hotel owner (franchisee) to operate using their brand name, operations manual and business plan at a fee.
• Some of the top franchises in the hospitality industry include: Choice Hotels International, Four Points by Sheraton, Hilton Hotels & Resorts and Holiday Inn.
• Invest in Bay Street's Alt Path Hotel Fund to gain access to Portugal's booming hotel industry. These projects are subject to 45-55% cash back incentives from the Portuguese government. Get in touch with us here for more information.

Disclaimer

The contents of this article are for educational purposes only. They are not intended to be a source of professional financial advice. You will find experts on investing here.

Partner with Bay Street for hotel investment opportunities in Portugal

Great news for investors! For individuals looking to get into hotel investing in Portugal, you can do so through Bay Street's Alt Path Hotel Fund. In the US, the firm owns and operates properties in Los Angeles and Lake Tahoe, and so far these projects have generated significant profits. In Portugal, Bay Street represents one of the forty approved funds for Golden Visa applications. These projects have an estimated IRR of 18.87% and are subject to 45-55% cash back incentives from the Portuguese government.

If investing in the hotel industry or acquiring a Golden Visa is on top of your priority list, then talk to us today. Together with our qualified team of investment professionals, we can help you navigate the hotel fund investment and Golden Visa application processes.

Schedule an appointment with us today and get started on your hotel investing journey today.

What is a hotel franchise?

A hotel franchise is a business arrangement whereby an established hotel brand (franchisor) enables an independent hotel owner (franchisee) to operate using their brand name, operations manual and business plan at a fee. By paying the fee, the franchisee not only benefits from using the brand name and guidelines but also gets operational support. In addition to the initial franchise fees, the franchisee is also required to pay royalty fees which cover things like marketing expenses and quality control.

For an independent hotel owner to operate under a franchise, they have to sign a franchise agreement which outlines the cost, brand guidelines and standard operating procedures for their property.

Hotel franchise agreement

A hotel franchise agreement is a legal contract between a hotel owner (the franchisee) and a hotel brand (the franchisor), that governs the relationship between the two parties. This agreement grants the franchisee the right to operate a hotel under the franchisor's brand name and business model.

The agreement also outlines the terms and conditions under which the franchisee can use the brand's name, access its reservation system and receive ongoing support and training from the franchisor.

Some of the elements captured in this agreement include:

• Brand guidelines
• Fees and royalties to be paid to the franchisor
• Physical areas where the franchisee can operate
• Access to the franchisor's reservation system
• Contract duration and renewal options
• Initial and ongoing training for the franchisee's staff, along with continuous operational support
• Operational guidelines
• Marketing and advertising support
• Legal provisions that cover termination, dispute resolution and a non-compete clause

10 best hotel franchises

As an independent hotel owner looking to operate under a franchise, here are some of the best hotel brands that you should consider.

Choice Hotels International

Franchise fee: $15,000 - $60,000

Royalty: 5.0% - 6.0%

Four Points by Sheraton

Initial franchise fee: $60,000 or $450 per room

Royalty fee: 4.5%

Hilton Hotels & Resorts

Initial franchise fee: $75,000 for up to 250 rooms and an additional $400 for each additional room

Royalty fee: 5%

Holiday Inn

Initial franchise fee: $50,000

Royalty fee: 6%

Hyatt

Initial franchise fee: $100,000 or $300 per room

Royalty fee: 5%

Intercontinental Hotels Group

Initial franchise fee: $75,000

Royalty fee: 5%

Marriott International

Initial franchise fee: $85,000 or $300 per room

Royalty fee: 6%

Motel 6

Initial franchise fee: $25,000

Royalty fee: 5%

Radisson Hotel Group

Initial franchise fee: $75,000

Royalty fee: 5%

Wyndham Hotels & Resorts

Initial franchise fee: $50,000 or $500 per room

Royalty fee: 5%

For more insights on hotel franchises, read more here.

Pros of operating under a franchise

If you're an investor considering operating your hotel under a franchise, here are some of the benefits.

Brand recognition: Operating under a well known hotel franchise can help with brand awareness, in both new and existing markets. This can attract more business and leisure travelers leading to higher occupancy rates and increased revenue.

Access to reservation systems: A key benefit that franchisees enjoy is access to a centralized reservation system that is operated by the franchisor. This enables franchisees to reach more potential guests through various online booking channels.

Operational support from the franchisor: Independent hotels that join a franchise receive comprehensive training and operational support from the franchisor. This includes an operational manual that outlines best practices in areas such as guest service and revenue management, as well as access to standardized operating procedures and training materials.

Tested and proven business model: As with any business, running a new hotel comes with a risk of failure. Operating under a well established hotel franchise increases your chances of success as the business model has been tried and tested.

Easier access to financing: Many businesses, hotels included, usually need financing during expansion or renovation. When operating independently, accessing a facility from the bank might be a challenge. However, you might qualify for a loan faster when borrowing under a franchise as it's an established business and the chances of defaulting are lower.

Cons of operating under a franchise

Franchise fees and royalties: To operate under a franchise, independent hotel owners are required to pay initial franchise fees and ongoing royalties based on a percentage of revenue. These costs can affect profitability of a hotel, especially during low seasons. Before entering a franchise agreement, be sure to carefully evaluate the associated costs.

Brand reputation: While brand recognition can be an advantage to a newer hotel, negative publicity as a result of poor guest services on the franchisor's end can tarnish the reputation of individual franchisees. This can lead to low ratings which can affect client perception and guest bookings.

Limited control: New franchisees are required to follow the brand and operational guidelines of the franchisor, meaning that they have limited control over certain aspects of their business like pricing strategies and marketing campaigns. This lack of autonomy can make it hard for franchisees to quickly adapt to emerging trends and changing guest preferences.

Exit restrictions: Franchise agreements typically last anywhere between 15-30 years, and exiting a franchise agreement can be a complex and expensive process. This can therefore limit the flexibility of franchisees who wish to exit or sell their business in the future.

Lack of local appeal: A key feature in hotel franchising is uniformity and consistency across all franchise locations to maintain a similar look and feel. However, this can sometimes come at the expense of incorporating local cultural elements, leading to a lack of differentiation from other hotels in the area.

Key considerations for investors looking to operate under a franchise

Hotel investing can be a profitable business venture for investors. But before considering any hotel franchise opportunities, here are some key things to consider.

Do your research

Selecting the right franchise to operate under is a crucial decision as it will determine the positioning and profitability of your hotel. Choosing a franchisor with a well established and reputable brand can help you attract customers and build trust in the market over time. If you can, speak to other franchisees to get feedback on how the relationship has been with the franchisor so far.

Analyze the historical performance of the franchisor

Looking at the franchisor's past performance and track record will give you a clear picture of what to expect in the future. As an investor, you will be able to understand the brand's growth potential as well as operational support offered to franchisees. A great track record is an indication of future success, and the opposite is also true. Also, make sure that you understand the key performance indicators (KPIs) used by the franchisor to measure success, such as occupancy rates, average daily rate (ADR), and revenue per available room (RevPAR).

Financial Requirements

Another important factor to consider is the total cost that you will incur as a franchisee, including initial franchise fee, royalty fee and marketing and advertising fees. Understanding how much you require as capital when starting out is important as this information will help you when planning for recurring costs and revenue projections.

Consult a hotel investment advisor

Speaking to an investment advisor with experience in the hotel industry can also be beneficial as they will be able to guide you on the best franchise options, depending on your budget and investment goals.

Schedule an appointment with a qualified hotel investment advisor today.

Franchise Agreement Terms

Before signing the franchise agreement, ensure that you clearly understand the legalities of the franchising process. Make sure that you're comfortable with the duration of the franchise agreement, initial and royalty fees and the termination clause. It is important that you also have your lawyer review the contract before signing it.

Bay Street Capital Holdings

Bay Street Capital Holdings is an independent investment advisory and wealth management firm. With a keen focus on hotel investing in Portugal, Bay Street has set up the Alt Path Hotel Fund in order to grow and diversify its clients' investment portfolios.

If you're an investor looking to venture into Portugal's lucrative hotel industry, you can do so through Bay Street's Alt Path Hotel Fund.

Schedule a call with our experts today for more information on our hotel fund.

Sources

https://www.cloudbeds.com/hotel-business/franchises/

https://www.hospitalitynet.org/explainer/4120463.html

https://topfranchise.com/articles/top-10-hotel-franchise-businesses-in-usa/

https://deltacofranchise.com/blog/best-hotel-franchises-to-start

https://www.nerdwallet.com/article/small-business/hotel-franchise