Explanation

This risk was not identified. As a new franchise system, Item 20 shows no operating history and therefore no data on franchisee terminations, non-renewals, or other cessations. For an established system, high turnover can be a significant red flag indicating potential problems with profitability, franchisor support, or the business model itself. You will be one of the first franchisees in this system.

Potential Mitigations

• Speaking with the other franchisees who have signed agreements but not yet opened (listed in Exhibit M) is a crucial due diligence step; a business advisor can help prepare questions.
• Your attorney can help you understand the unique risks and potential benefits associated with being an early adopter of a new franchise system.
• An accountant should assist in building financial models from the ground up, as there is no historical franchisee data to rely upon.

Explanation

This risk was not identified, as the franchise system is new with no open units, so there is no history of rapid growth. For mature systems, very fast expansion can sometimes strain a franchisor's ability to provide adequate support to all units. As an early franchisee, your concern may be the opposite: whether the support systems are fully developed and tested.

Potential Mitigations

• Inquiring about the franchisor's detailed plans for scaling its support infrastructure is a prudent step for a business advisor to assist with.
• Your attorney should thoroughly review the support obligations outlined in Item 11 and the Franchise Agreement.
• Speaking with the initial cohort of franchisees (Exhibit M) can provide valuable insight into the early support experience.

Explanation

This risk was not identified. The serviced-apartment hotel concept is a recognized segment of the established lodging industry, not a fad based on a fleeting trend. The franchisor's parent company, Marriott International, Inc., has extensive experience in various lodging segments, including extended-stay, which suggests a strategic, long-term approach to developing this brand.

Potential Mitigations

• Engaging a hospitality consultant can help you assess the long-term demand for this specific type of lodging product in your target market.
• Your accountant can assist in modeling financial performance based on established benchmarks for extended-stay hotels.
• The Franchise Agreement's provisions for system evolution should be reviewed by your attorney to understand how it can adapt to future market changes.

Explanation

This risk was not identified. The franchisor, MIF, L.L.C., is a subsidiary of Marriott International, Inc. (MII). Item 2 shows that the management team consists of seasoned executives from MII with extensive experience in the global lodging and franchise industries. This depth of relevant experience is a significant factor in a franchise system's potential for success and stability.

Potential Mitigations

• It is still valuable for your business advisor to research the specific track records of the key executives responsible for this new brand.
• Asking the franchisor about the team specifically dedicated to this brand and their direct experience can provide further clarity.
• Your attorney can confirm that the support commitments described in the Franchise Agreement are robust and clearly defined.

Explanation

This risk was not identified. Item 1 indicates the franchisor is a subsidiary of Marriott International, Inc. (MII), which is a publicly-traded company, not a private equity firm. Private equity ownership can sometimes introduce risks related to short-term profit motives or frequent sales of the franchise system, which is not the case here.

Potential Mitigations

• A business advisor can help you understand the typical strategic priorities and governance structure of a large, publicly-traded company's brand portfolio.
• It is wise to have your attorney review the 'assignment' clause in the Franchise Agreement to understand what happens if the system is ever sold.
• Your accountant can analyze MII's public financial reports for insight into its overall strategy and financial health.

Explanation

The FDD discloses that the franchisor is a subsidiary of Marriott International, Inc. (MII), but does not include MII's separate financial statements in the FDD package. While the franchisor's own audited financials are provided, MII's financial strength is a material factor in the system's stability. Because MII is a publicly-traded company, its financial information is publicly available for review, mitigating this risk.

Potential Mitigations

• Your accountant should obtain and analyze the public financial statements of the parent company, Marriott International, Inc. (MII).
• It is important for your attorney to assess the legal relationship and any binding obligations between the franchisor and its parent.
• A business advisor can help evaluate the practical implications of this parent-subsidiary structure for your investment.

Explanation

This risk was not identified as Item 1 does not list any predecessors for this new franchise system. In cases where a franchisor acquires a business from a predecessor, it is important to review the predecessor's history for any signs of trouble, such as litigation or high franchisee turnover, which could potentially be inherited by the new system.

Potential Mitigations

• Your attorney should confirm the corporate history outlined in Item 1 to ensure no predecessor information has been omitted.
• A business advisor can assist in researching the history of the specific brand concept, even if it was not previously franchised.
• Speaking with long-tenured Marriott executives, if possible, could provide background on the brand's development.