Short Answer Questions

Subprime Mortgages

[3 Pts]

• Reason Subprime Mortgages were Created:
• Banks wanted more mortgages to sell to companies as mortgage backed securities
• What Subprime Mortgages Are:
• 0% Down
• Adjustable Rate
• 1st Year [Low]: 3%
• 5th Year [High]: 10%
• No Credit History Needed
• Equity Appreciation

• Effects of Subprime Mortgages
• Adjustable Rates caused people to begin defaulting
• Defaulting & Foreclosure caused banks to own too many houses
• Defaulting caused companies who bought M.B.S. to write off assets and negatively affected their financial statements

Short Answer Questions

Cause of the Economic Collapse

Who's Responsible

[3 Pts]

• The economy was built on bad mortgages that represented almost half of the personal wealth of the nation's top ten investors.
• Banks:
• Subprime Mortgages
• Government:
• No Federal Oversight
• No Control Over Banks
• People:
• Taking Advantage of Subprime Mortgages
• Financial Institutions:
• No Checking / Oversight

Short Answer Questions

Economy Stimulus Action

[3 Pts]

Actions Taken

Reason

• Reason:
• To Stimulate Expenditure → To Stimulate Economy → To Create Jobs
• Actions Taken:
• Cash to Taxpayers
• Tax Cuts
• Interest Rate Cuts by Feds
• Bail Outs
• Money given to 'Big Companies' so' Big Companie' could repay debts with Banks

Short Answer Questions

Economy Stimulus Action

[3 Pts]

Results

• Results:
• Increased Spending → Created Jobs
• Infrastructure
• Construction
• Unemployment Remained at 9%
• Example of Jobless Recovery
• Economic Growth w/out Decrease in Unemployment
• Second Downturn (Double-Dip Downturn)
• Due to National Debt (Wars)

Short Answer Questions

Franchise Agreements

Termination

[3 Pts]

• Termination
• Franchisee (Reasons):
• Franchise Reduces Value
• Franchise Restricts Rates
• Reinvestment Too High
• No Liquidated Damages
• Franchisor:
• Termination Not Allowed After Benefits have been Received
• Need Liquidated Damages, Loses Revenues if Terminated

Short Answer Questions

Franchise Agreements

Advantages / Disadvantages: Franchisor

[4 Pts]

• Advantages:
• Inexpensive Rapid Expansion
• Profitable Source of Revenue
• Builds Brand Recognition
• Builds Customer Loyalty
• Disadvantages:
• Loss of Operational Control
• Difficulties with Hotel Owners
• Liability without Control
• Quality and Service Problems
• No Control Over Pricing
• Costly Start-Up Until Critical Mass

Short Answer Questions

Economy Cycle

Hotel Industry

[5 Pts]

Economic Cycle: 2007

• 2007
• Unemployment: 5%
• REVPAR: [+5.6%]
• OCC: [-0.1%]
• ADR: [+5.7%]
• Debt vs. Equity
• Debt > Risky

• 2008
• Unemployement: < 5%
• REVPAR: [-17.5%]
• OCC: [-8.8%]
• ADR: [-8.7%] 
• Good Times: 
• Estimated REVPAR: [+7.3%]
• Bad Times:
• OCC: Decrease First

• 2009:
• Unemployment: 10%
• First Depression: Caused by Subprime Mortgages
• Double Dip Recession Occurred:
• Due to National Debt from War
• National Debt Depressed Economy
• "Paying More Money for Money"
• Interest Rate Increased

• Shift In Successful Hotels in Economic Downturn
• Mid-Scale Hotels & Budget Hotels > Luxury Hotels
• Hotel Industry Lags / Market Behind
• Incentives to Consumers:
• Pre-Purchase: Save Money
• Rate Decreases:
• OCC, ADR, REVPAR

• Rate Decreases:

1. OCC
• Due to decrease in consumer spending
2. ADR
• Due to decrease in OCC rate
• Attempt to attract consumers
3. REVPAR
• Due to decrease in ADR & OCC
• Less Consumers + Lower Room Rate = Lower REVPAR

Short Answer Questions

Management Contracts

Operator / Owner Objectives

[6 Pts]

Owner Objectives

Management Contracts

First Tier vs. Second Tier

[8 Pts]

Choose One

*****

Term of Management Contract

Definition

Commencement Date & Termination Date

• Term of Management Contract
• Length of time for which the agreement is to remain in effect.
• Commencement Date & Termination Date Required
• Must be Defined Carefully
• Comm. Date: Specific Date or Occurrence
• Occurrence Example:
• "Date Hotel Opens for Business"

Management Contracts

First Tier vs. Second Tier

[8 Pts]

Choose One

*****

Initial Term & Renewal Terms

• Initial Term
• One or More Additional Renewal Terms
• Don't Need Same Provisions as Initial Term
• Example: Mgmt Fees
• Ideal Term Contract [Owners - Provides Options]:
• Initial Term: Brief
• Renewal Terms: Multiple
• Tie Operator to Contract for Extended Pd of Time
• Terminate Contract in Short Pd of Time

Short Answer Questions

Management Contracts

First Tier vs. Second Tier

[8 Pts]

Choose One

*****

Contract Term Provision

• Affects Hotel Operator
• Limits the Period the Property can be Operated & Management Fees Collected
• Term Contract: Long Enough to Reach Critical Mass
• Management Fees
• Reward Profitable Operating Results

• Owner:
• Termination for Non-Performance
• Contract Buy-Out
• Both Successfully Negotiated
• Contract Term: Less Important

Short Answer Questions

Management Contracts

First Tier vs. Second Tier

[8 Pts]

Choose One

*****

Contract Terms

Chain Operator (No Equity)

Management Contracts

First Tier vs. Second Tier

[8 Pts]

Choose One

Contract Terms & Renewal Terms

First Tier Companies

Management Contracts

First Tier vs. Second Tier

[8 Pts]

Choose One

Contract Terms & Renewal Terms

 Second Tier Companies

• Operator [Second Tier Companies]:
  • Contract Term: Less Important
  • Due to Variety of Management Companies
  • Initial Terms: Shorter
  • In Case of Economic Downturn
  • Enable Lender-Owner to Quickly Sell Property Unencumbered by Mgmt Contract
  • Renewal Terms: Frequent, Shorter Terms

Short Answer Questions

Franchisee / Franchisor 

Liquidated Damages, Windows, Performance Provisions

[8 Pts]

Choose One

Liquidated Damages

Short Answer Questions

Franchisee / Franchisor 

Liquidated Damages, Windows, Performance Provisions

[8 Pts]

Choose One

Windows

• Franchisor:
• "Gotcha" Clauses: May Preclude Terminating on Windows Dates
• Ex. Window: 5 Yrs Condition: Royalty Fees Paid On Time Result: One Late Payment = No Window
• Franchisee: 
• No "Gotcha" Clauses if not in Default
• AAHOA:
• "Gotcha" Clauses Preclude ANY Window Termination 

Short Answer Questions

Franchisee / Franchisor 

Liquidated Damages, Windows, Performance Provisions

[8 Pts]

Choose One

Performance Provisions

• Franchisor:
• No Provision for Not Performing
• Franchisee:
• No-Penalty Provision for Franchisor Underperformance
• AAHOA:
• Franchisors should be expected to provide a minimum level of performance

Short Answer Questions

Brands

[10 Pts]

Choose One

• My Brand: Wyndham Garden
• Other Brands:
• Four Points
• Radisson
• Best Western
• Aloft
• Element

• Wyndham Garden
• Advantages:
• Wyndham Hotel Group, LLC.
• Largest Company in Lodging Industry
• Wyndham Rewards
• Average Franchise Fees
• Disadvantages:
• Focus on Business Travelers
• Not Many Wyndham Garden [20]

Short Answer Questions

Brands

[10 Pts]

Choose One

Radisson

• Radisson
• Advantages:
• Many Programs: "Yes I Can!", Express & Late Checkout, High Speed Internet, Express Laundry, Meeting Success, Grab& Run
• Loyalty Program: Club Carlson
• Average Franchise Fees
• Disadvantages:
• Relatively Small Parent Company

Short Answer Questions

Brands

[10 Pts]

Choose One

Four Points

• Four Points
• Advantages:
• Starwood - Parent Company
• Loyalty Program - Starwood Preferred Guest
• #1 Select Service Hotel in 2011
• Starwood Reservation System
• Disadvantages:
• Slightly High Franchise Fees: 12.6%

Short Answer Questions

Brands

[10 Pts]

Choose One

Aloft

• Aloft
• Advantages:
• Starwood - Parent Company
• Loyalty Program - Starwood Preferred Guest
• Starwood Reservation System
• Disadvantages:
• Slightly High Franchise Fees: 12.9%

Short Answer Questions

Brands

[10 Pts]

Choose One

Element

Short Answer Questions

Brands

[10 Pts]

Choose One

Best Western

• Best Western:
• Advantages:
• Extremely Low Franchise Fees: 2.9%
• Loyalty Program: Best Western Rewards
• Reservation System
• Disadvantages:
• Direct Competition: BW in town

Short Answer Questions

Brands

[10 Pts]

Choose One

Four Points Advantages

• Starwood: Parent Company
• Loyalty Program: Starwood Preferred Guest (SPG)
• Starwood Reservation System
• 4 Diamonds Property
• No Competition / Impact
• 3rd Largest Starwood Brand

• Experience in College Towns
• First Local Craft Beer Initiative by a National Hotel Chain
• Interesting!
• Modern Style Similar to Wyndham Garden
• $1 Billion for Renovations, Conversions, & New Hotels
• #1 Select Service Hotel in 2011

• Franchise Fees: 12.6%
• 9th of Top Ten Highest Franchise Fees for First Class Hotels

• Radisson: Many Customer Programs (Express & Late Checkout) 
• Wyndham Garden: Wyndham Parent Company (Largest Company in Industry)
• Aloft: Starwood
• Element: Starwood & Green Initiatives