Agreements with Chain-Hotel Companies

Abstract

Hilton International developed the first management contracts under which the owner took the full risk of operating losses as well as debt service and had the ongoing responsibility of supplying working capital while the hotel company had responsibility for the hotel's operations. This concept was adopted by other international and U.S. hotel companies and, before long, U.S. institutional investors invested only in new hotels that would be managed by major chains. In contrast, the franchise agreement was developed by Holiday Inns. That concept was to get others involved in financing and development so the company could expand rapidly. When the original franchise concept as applied by Holiday Inns and Days Inns was extended to more-sophisticated and more-valuable properties it made much less sense. In a recessionary climate, hotel owners are in a strong position to obtain a good contract for a new hotel or even to improve the terms of an existing contract or franchise agreement.