Explanation

This risk was not identified in the FDD package. The extended-stay hotel business is a well-established segment of the lodging industry and is not typically considered a fad. However, any business can be affected by evolving consumer preferences and economic cycles. Assessing the long-term sustainability and competitive advantages of a specific brand within this established market is always a crucial part of due diligence for a prospective franchisee.

Potential Mitigations

• Engage a business advisor to research the long-term trends and competitive landscape in the extended-stay hotel market.
• Your financial advisor can help you assess the business model's resilience to economic downturns and changing travel patterns.
• Discuss the franchisor's strategies for innovation and brand differentiation with existing franchisees.

Explanation

This risk was not identified in the FDD package. Item 2 indicates that the executive team has members with extensive experience in the hospitality industry, including with other major hotel brands like Best Western, Red Roof Inn, and Hyatt. This suggests the management team possesses relevant industry experience. However, the experience specific to managing this particular franchise brand since its 2019 inception is inherently more limited.

Potential Mitigations

• A business advisor can assist you in researching the backgrounds and track records of the key executives listed in Item 2.
• When speaking with franchisees, inquire specifically about their assessment of the management team's competence and support.
• It is wise to ask the franchisor about their team's specific experience in the extended-stay hotel segment.

Explanation

This risk was not identified in the FDD package. The franchisor properly discloses its parent entity, LG AS Brand Parent LLC, in Item 1. Furthermore, while the franchisor's own financial statements show instability, they include a note disclosing a letter of support from this parent company, providing some transparency about the financial backing of the system. The parent company's financial statements are not provided, but the support letter is referenced.

Potential Mitigations

• Your accountant should review the disclosures regarding the parent company and the nature of its financial support.
• It would be beneficial for your attorney to request a copy of the parent's support letter to understand its specific terms and conditions.
• Clarifying the parent company's long-term commitment to the brand is a key due diligence step you can take with a business advisor.

Explanation

This risk was not identified in the FDD package. Item 1 discloses that the current franchisor acquired the assets of a predecessor, Affordable Suites of America, Inc., in January 2019. It provides the name and last known address of this predecessor. This disclosure appears to meet the basic requirements. However, you should remain aware that the current management has a relatively short history with the brand.

Potential Mitigations

• You might ask the franchisor if they can provide older FDDs from the predecessor to better understand the system's history.
• In discussions with long-term franchisees, inquire about their experiences under the previous ownership structure.
• Your attorney can help you understand the implications of the asset acquisition and what liabilities, if any, were assumed.

Explanation

This risk was not identified in the FDD package. Item 3 of the FDD states, "No litigation is required to be disclosed in this Item." This indicates there is no current or recent history of the type of litigation that is legally required to be reported, such as actions alleging fraud, violations of franchise law, or other material claims. The absence of such disclosed litigation is a positive indicator, though it does not guarantee a dispute-free relationship.

Potential Mitigations

• An attorney can perform an independent public records search for litigation involving the franchisor or its principals as an extra layer of due diligence.
• During discussions with current and former franchisees, it is still wise to inquire about any disputes they may be aware of, even if they haven't resulted in litigation.
• Your business advisor can help you assess the franchisor's overall reputation within the industry.