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Hotel Lending Lawyer:
What every hotel lender needs to know about
HMAs and hotel franchise agreements

By Jim Butler & Guy Maisnik of the Global Hospitality Group®, 
Author of
August 19, 2011

Tips from the Hotel Lending Lawyer: Hotel loan problems and hotel loan document issues are best dealt with at the loan origination. Do you know these fundamentals about your hotel loan documents dealing with hotel management agreements (HMAs) and hotel franchise agreements?

There is a long list of things every hotel lender should take into account before making a loan so that it will be protected when a default occurs -- much less a foreclosure. But few considerations are as important as dealing with issues raised by HMAs and hotel franchises.

Over the years, we have counseled hotel developers, owners and lenders as they try to fix bad hotel deals and repair bad hotels loans. Often, their problems could have been avoided if experienced hotel advisors had reviewed the necessary documents with a practiced eye, connecting the dots and filling in the blanks before the loan was underwritten.

Hotel lending experience is the key

Lenders need hotel-specific experience -- not just real estate experience -- because, as my partner Guy Maisnik writes in his article below, "You don't know what you don't know." And what you don't know can cost you a bundle.

Because a hotel's operating business is inextricably intertwined with single-purpose real estate, the borrower's financial obligations are exceedingly complex. We have written other blogs about why hotel lending is different from other kinds of real estate lending, that you may want to read (see, Why hotel lending is different and 8 pitfalls of hotel lending and how to avoid them).

Guy has more than three decades experience in hotel and commercial real estate finance and has recently assisted 3 major lenders in revising and structuring their hotel lending programs and documentation, including their hotel construction lending. In this eye-opening series of articles, Guy discusses how hotel lenders often find unpleasant surprises with hotel loans when they don't get experienced hotel counsel to prepare their loan documents. And real estate lending experience is not hotel lending experience!

Please see the links at the end of this article for other articles in the "What every hotel lender needs to know" series.

What every hotel lender needs to know about

hotel management agreements and hotel franchise agreements


Guy Maisnik | Hotel Lending Lawyer, JMBM Global Hospitality Group®

Why hotel loans are different than other real estate loans -- A quick review

Hotel lending involves more lending to an operating business than lending to an owner of most types of commercial real property. Unlike typical real estate, hotel revenues are cyclical and not fixed. In fact, hotel revenues change daily. (That can be good news, as hotels can be a solid inflation hedge.) An experienced hotel lender will structure its loan with hotel-related loan covenants consistent with the hotel's operating results, so that loan payments will more closely match the fluctuating and cyclical nature of hotel revenues.

Further, because the hotel is an operating business, the hotel will succeed or fail by the actions and inactions of the hotel management team. Running a hotel is much more difficult than running a traditional real estate project. Because many lenders handle their hotel lending out of their real estate lending department, they often make the mistake of twisting their real estate secured loan documents to include hotel lending provisions. This is always a mistake. We have to remind these lenders that "You don't know what you don't know" when it comes to hotel lending. Hotel loans need to be in the hands of legal and business hotel specialists.

Because the operating business of the hotel represents at least half the value of the hotel, the hotel lender has to be tuned into issues that arise in the running of the hotel. Such issues include hotel projected revenues and expenses, marketing, trade credit, capital and operating costs, revenue enhancement and cost containment, employment and unions, ADA compliance, labor and employment, branding, back-end systems, and so forth.

Any good commercial real estate lender will plan for an exit strategy in the event the borrower should default. For the hotel lender, this means it must be prepared to own and run a hotel.

Understanding the impact on your loan of hotel management agreements and hotel franchise agreements

Hotel management and branding are keys to a successful hotel. The hotel lender has to understand thoroughly the hotel management and franchise arrangements. An experienced hotel lender will be well aware that the hotel and franchise agreements carry significant obligations, burdens and requirements on the hotel owner's part. The hotel lender must confirm that the hotel owner has the financial resources and experience to comply with them.

The hotel lender also needs to understand the other costs associated with the hotel management and franchise agreements, how these issues impact the value of its collateral, and how these agreements impact its rights and remedies as a hotel lender.

For example, such arrangements will have a significant cost structure, including a requirement that the hotel owner pay a variety of fees beyond the base fee, such as incentive fees, marketing fees, centralized system fees, consulting fees, and so forth. This fee structure can often be three or four times the base fee amount. This is why the hotel lender needs to take a systematic approach to reviewing the hotel and the hotel operating documents. The documents should answer the following critical questions:
  • Is the hotel operator the right hotel management or franchise company for this project? How was this decision made? What are the rights of the hotel lender to change these circumstances if a wrong decision was made?
  • Does the hotel lender have the right to receive copies of key communications between the hotel owner and management, budgets, reports, projections, business plans, marketing plans and operating plans? Does the lender have the right to require such financial information and other information in a form acceptable to it? Does the hotel lender have the experience to understand these key communications and indicators within them?
  • Does the hotel lender have approval rights over the hotel operator (particularly with independent third party operators) and key members of its executive staff, the number of employees and any changes in hotel positioning and amenities?
  • Can the lender freely terminate a hotel management agreement on foreclosure (or deed in lieu)? If not, will the brand's long-term, no-cut management contract discourage a high percentage of potential buyers for the hotel or reduce its sales price, and has the lender accounted for this in its underwriting?
  • Does the lender understand the specific duties of the hotel operator, and does the hotel lender have enforcement rights under the hotel documents?
  • Is the hotel lender senior -- or is it actually junior -- under the Subordination, Non-Disturbance and Attornment Agreement (SNDA)? And what are the lender's obligations under the SNDA? With the typical hotel SNDA, the right hand taketh what the left hand appear to giveth the lender. These obligations can be extremely costly, and may not be obvious to an inexperienced eye when reviewing the SNDA. (The SNDA is addressed in a separate article in this "What every hotel lender should know" series.)
  • Have the elements of fiduciary protections been built into the hotel documents?
  • If the hotel owner owes money to the hotel operator, franchisor or even third party contractors or vendors, will the hotel lender ultimately get stuck with paying the bill?
  • What impact does an owner filing for bankruptcy have on the hotel lender's rights vis-a-vis the hotel operator and the hotel management agreement? And what steps can the hotel lender take up front to protect its rights?
Experienced hotel lenders and knowledgeable hotel lawyers and advisors, will dig deeply into the hotel management or franchise agreement to find the answers to these questions. The answers may lead to more questions but, ultimately, the lender must be satisfied that it understands all the ways in which these documents affect its rights and obligations.

Hotel lending lawyer series - What every hotel lender needs to know

There are a lot of hotel-specific issues that hotel loan documents have to deal with. This series is designed to provide the essentials:

What every hotel lender needs to know about HMAs and hotel franchise agreements

What every hotel lender needs to know about SNDAs

What every hotel lender needs to know about cash controls

What every hotel lender needs to know about hotel due diligence


Guy Maisnik is a hotel lawyer with nearly three decades in commercial real estate transactions. He is a partner and Vice Chair of JMBM's Global Hospitality Group®, a member of the JMBM Chinese Investment Group™ and a partner in the JMBM's real estate department. Guy advises clients on hotel transactions, representing lenders, opportunity funds, banks, special servicers, owners, REITs and developers in hotel transactions, including senior and mezzanine financing, workout and debt restructure, strategic portfolio acquisitions, co-lender, participation and securitization arrangements, joint ventures, management agreements, buying, selling and ground leasing of hotels, complex mixed used resort development, fractional and timeshare. For troubled hotels, Guy develops and executes strategies for CMBS and whole loans, and REOs. He also assists investors with recapitalization of distressed borrowers and purchases of troubled assets. Guy has assisted major lenders in revising and structuring their hotel lending programs and documentation, including their hotel construction lending. Guy's practice is both domestic and foreign; he has advised on hotel and real estate matters throughout the United States, Canada, Mexico, South America, Middle East, Caribbean, Western and Eastern Europe, Asia and Scandinavia. For more information, please contact Guy Maisnik at 310.201.3588 or [email protected].


This is Jim Butler, author of and hotel lawyer, signing off. We've done more than $60 billion of hotel transactions and have developed innovative solutions to unlock value from hotels. Who's your hotel lawyer?


Our Perspective. We represent hotel lenders, owners and investors. We have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,300 properties all over the world. For more information, please contact Jim Butler at [email protected] or +1 (310) 201-3526.

Jim Butler is a founding partner of JMBM, and Chairman of its Global Hospitality Group® and Chinese Investment Group™. Jim is one of the top hospitality attorneys in the world. GOOGLE "hotel lawyer" and you will see why.

Jim and his team are more than "just" great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them.

JMBM’s Global Hospitality Group®
The hotel lawyers in the Global Hospitality Group® of Jeffer Mangels Butler & Mitchell (JMBM) comprise the premier hospitality practice in a full-service law firm and are the authors of the Hotel Law Blog. We represent hotel owners, developers, investors and lenders and have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,000 properties worldwide. For more information about the Global Hospitality Group®, go to For more information about full range of legal services provided by JMBM, go to

Jim Butler
[email protected]


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