Each year, HVS provides a comparative review of various hotel franchises based on their applicable franchise fees. This research is compiled in the HVS U.S. Hotel Franchise Fee Guide.
HVS announced the release of its 2015/16 U.S. Hotel Franchise Fee Guide. The guide is intended to illustrate a basic comparison among franchise fees charged by participants.
According to Kasia Russell, MAI, Managing Director and Senior Partner, “HVS has extensive experience in assisting clients in selecting the appropriate franchise and/or management brand for their proposed or existing hotels. This service also includes assisting with or managing the negotiations in coordination with experienced attorneys and other industry professionals. Because the success of a hotel is based primarily on the cash flow generated, owners and lenders must weigh the benefits of a brand affiliation against the total cost of such a commitment.”
HVS collected proper documentation from 69 hotel brands and then analyzed the sections pertaining to the costs associated with being a franchisee. Brand attributes play a crucial role in an investor’s decision to acquire or change a hotel’s franchise affiliation; thus, when evaluating a potential hotel franchise, one of the important economic considerations is the structure and amount of the franchise fees. The U.S. Hotel Franchise Fee Guide elaborates on initial fees, continuing fees, royalty rees, advertising and marketing rees, reservation fees, frequent-traveler program fees, and miscellaneous fees.
Historically, this guide subjected each brand’s criteria to a broader and uniform set of assumptions. However, the 2014 guide and subsequent updates have been reengineered to consider each brand’s own unique set of variables. HVS categorized the brands into three hotel chain scales: First Class, Mid-Rate, and Economy. HVS defines First Class as luxury, upper-upscale, and upscale brands from the STR Global Chain Scale, while Mid-Rate comprises upper-midscale and midscale brands; Economy corresponds directly to STR’s economy brands. It should be noted that the luxury sub-set was included within the First Class category given the limited data available.
Several important data points critical for developers, owners, and lenders are highlighted, including an analysis of the average franchise cost compared to rooms revenue, a median franchise cost comparison, an outline of overall costs for each brand along with the breakdown of total cost by company, a review of franchise costs across chain scales, and an independent brands comparison.
The 2015/16 U.S. Hotel Franchise Fee Guide was prepared by Kasia Russell, MAI, Managing Director, Senior Partner and head of HVS’s office in Portland, Oregon. Since joining HVS in 2006, Kasia has orchestrated hundreds of hotel assignments nationwide, with a focus on hospitality markets across the Pacific Northwest.
Bomie Kim collaborated on the guide. Her research efforts range from complex datasets on hotel and market performance to detailed illustrations of trends in hotel demand, supply, and transactions. Bomie also works on foundational research for in-depth HVS articles on U.S. hotel markets, providing the most up-to-date insight into the industry dynamics that impact hotels.
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