There are great benefits to a hotel owner to belonging to a national hotel franchise. Having a flag means the hotel or motel has passed rigorous tests for cleanliness, and the lodging facility enjoys certain modern conveniences, such as telephones, access to the internet, cable television, rooms of a comfortable size, and in some cases a pool, a spa and a restaurant.
One of the major advantages of enjoying a flag is the national reservation system. A travelor can call a toll-free telephone number, or visit the franchisor's web site, and locate the most convenient hotel in the chain to the city he is visiting. He can also make reservations.
For example, when I (George Blackburne) travel, I usually will stay at a full-service Hilton Hotel. I like full-service hotels because they have restaurants, and I don't have to brave the elements or wander the streets of sometimes danagerous Central Business Districts (CBD's) looking for food. If I therefore travel to Baltimore for a conference, the local Hilton owner greatly benefits for belonging to the Hilton Hotel franchise because he will win my business almost automatically.
Hotel owners that belong to a hotel franchise will pay an annual franchise fee of 3% to 6% of their room rents to the national franchisor for the use of the name, access to the national reservation system, the enjoyment of group purchase discounts (soaps, sundries, etc.), and national media advertising. In addition, the hotel will be subject to regular quality inspections. If the hotel repeatedly fails these inspections, the hotel will lose its franchise. This happens very regularly.
A hotel or motel without a flag is known as an independent hotel. Indepedent hotels are at a great competitive disadvantage. Travelors, especially business travelors, need to be able to count on finding lodging with a reliable level of service when they arrive in a strange city. Independent hotels are unknown to strangers and therefore enjoy far less of their patronage.
Many bridge loans and mezzanine loans are made to hotel owners in order to reflag (change national franchises) their hotels. Perhaps the hotel owner has lost his flag or has been given an ultimatum by the hotel franchisor to modernize his hotel.
In other cases, a hotel owner will want to upgrade his flag, maybe from a Best Western to a Holiday Inn. This may involve major renovations, and the bridge loan or mezzanine loan is likely to be structured with an interest reserve to cover the payments during the renovation.
Hotel owners can find over one hundred bridge lenders and mezzanine lenders who will help them reflag their hotels on C-Loans.com.
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