Clients Buy South Carolina Hotel, Reflag as a Marriott Property

Ryan Dumas‘ clients came to him with a complex loan. First of all, they wanted to purchase a South Carolina hotel. But the seller would not be transferring the franchise to the buyers. Instead, he was taking his franchise flag to a new property that he was purchasing. Thus our buyers would need to reflag immediately upon taking possession.

One more thing: the equity injection money would be coming from the proceeds of a business sale, what is called a 1031 exchange. A 1031 exchange, also known as a like-kind exchange, is a real estate investing tool. It allows investors to swap out one investment property for another, deferring certain capital gains taxes.  Need more information on 1031 exchanges?

Our entire team worked closely with our client and the many moving parts of this loan. Ryan noted, “The buying partners know the local market well. The hotel they were looking at is well-located and poised to continue to be profitable. But having to reflag immediately added another layer of complication. The clients had to negotiate with Marriott, which has a very demanding vetting process of their franchisees. Ultimately, this property will function well as a Marriott property. Marriott has good brand awareness and loyal customers.”

Your To-Do List if Considering a Hotel Reflag:

• Work with your franchise representative. Go over the multiple aspects of the reflagging procedure with your franchise representative. Make sure you know the timeline, the expenses and the required PIP (property improvement plan). Determine what training the franchise will provide. Obtain details of the marketing support and front desk registration systems.

• Understand the multiple steps to reflag. Franchises have to approve your application. Only then can they begin to draft the franchise agreement. The franchises also publish a franchise disclosure document (FDD) which is updated every year. During the updating time, there is a blackout period. The blackout period can interfere with your closing timeline.

• Obtain detailed timelines of receiving the executed franchise agreement. Find out the exact date you can receive the draft of the franchise agreement. Then inquire as to when it can be executed. Some franchises hold an agreement in escrow and only release it upon the execution of the deed and/or warranty.

• Does your attorney need to get involved?:  Work with your attorney, if necessary, to review the franchise documents. There are also attorneys whom we can recommend, who specialize in negotiating with franchises.

Our GRP Capital team specializes in finding the right lender for each project. We save our clients time and money, as we research the best choices for their funding sources. Our experience allows our clients to find funding that is project-appropriate and will allow for sufficient cash flow. Whether you are looking to refinance or purchase or engage in construction, we would love to discuss your business plans with you. If you are considering becoming a first-time (or second or third time!) buyer, we can assist you.