Explanation

This risk was not identified in the FDD Package. Item 20 data shows the system is new, with only one franchised outlet open as of year-end 2024 and no history of terminations, non-renewals, or other cessations. High franchisee turnover is a critical indicator of potential systemic problems, so the lack of historical data for this new brand is itself a risk factor that should be considered.

Potential Mitigations

• Engaging a business advisor to monitor franchisee satisfaction and system health as the brand grows is a prudent long-term strategy.
• Since no turnover data exists, speaking with the initial franchisees and those with signed agreements is crucial for your due diligence.
• Your franchise attorney can help you understand the risks associated with investing in a new system with no performance history.

Explanation

This risk was not identified in the FDD package. Item 20 indicates the system is in its infancy, with only one unit open at the end of 2024 but 25 agreements signed. This represents planned rapid growth, not historical growth. While rapid growth can strain franchisor resources, the franchisor's financials in Item 21, backed by a major parent company, appear structured to handle this expansion. The risk is prospective rather than a current issue.

Potential Mitigations

• Your business advisor can help you evaluate whether the franchisor's support infrastructure is scaling adequately with its planned growth.
• It is important to ask the initial franchisees about the quality and timeliness of the support they are currently receiving.
• An accountant should review the franchisor's financial statements to confirm it has the resources to support its growth targets.

Explanation

This risk was not identified in the FDD Package. The business model, focused on mid-scale hotels, is a well-established concept in the lodging industry and is not based on a current fad. While consumer preferences change, the core offering of lodging accommodations has sustained, long-term demand. The franchisor is a subsidiary of Marriott International, Inc., a company with extensive experience in the hotel industry, which suggests a focus on long-term viability rather than short-lived trends.

Potential Mitigations

• A business advisor can help you research the long-term stability and competitive landscape of the mid-scale hotel market in your area.
• Engaging with your attorney to understand how the franchise agreement allows for system evolution could provide insight into long-term adaptability.
• Your own market research should confirm sustained local demand for this type of lodging.

Explanation

This risk was not identified in the FDD Package. Item 2 shows that the directors and principal officers of the parent company, Marriott International, Inc., have extensive and long-standing experience in the lodging and franchise industries. The management team for the City Express brand itself is drawn from experienced executives within the broader Marriott system. This depth of relevant experience in both the specific industry and in managing large-scale franchise systems is a significant mitigating factor against this risk.

Potential Mitigations

• Confirming the stability of the management team by asking about recent turnover is a sound step your business advisor can help with.
• It is still advisable to question current franchisees about their direct experiences with the management team's support and responsiveness.
• An attorney can help you review the backgrounds of key personnel listed in Item 2.

Explanation

This risk was not identified in the FDD Package. The franchisor, MIF, L.L.C., is a subsidiary of Marriott International, Inc. (MII), a publicly-traded corporation, not a private equity firm. While public companies also focus on shareholder returns, their operational incentives and investment horizons often differ from the typical short-to-medium-term exit strategies of private equity funds. This structure suggests a focus on long-term brand management and operational stability.

Potential Mitigations

• Understanding the ownership structure and its implications for long-term strategy is a valuable discussion to have with your business advisor.
• Your attorney can review the franchise agreement for any clauses related to assignment or change of control that could affect you if the franchisor is acquired.
• An accountant can analyze the parent company's public financial reports to understand its long-term financial health and strategy.

Explanation

This risk was not identified in the FDD Package. Item 1 clearly discloses that the franchisor, MIF, L.L.C., is a subsidiary of Marriott International, Inc. (MII), its parent company. Furthermore, Item 21 provides audited financial statements for the franchisor entity itself. While the franchisor is a distinct legal entity, the document is transparent about its relationship with and dependence on the parent company, which is a positive disclosure practice.

Potential Mitigations

• It is prudent to have your accountant review the financials of both the franchisor (MIF) and the parent (MII) to get a complete picture of financial stability.
• Your attorney can help clarify the legal and financial relationship between the parent and the subsidiary franchisor.
• A business advisor can help you research the public records and reputation of the parent company.

Explanation

This risk was not identified in the FDD package. Item 1 states the franchisor, MIF, L.L.C., was established in 2012. It also discloses the City Express brand was acquired from a Mexican company, HCity, in 2023. While the brand is new to the U.S. market, the FDD appears to properly disclose the predecessor relationship for the brand itself. There is no indication of hidden or negative history being obscured from a prior franchisor entity.

Potential Mitigations

• Your attorney can review the disclosures regarding predecessors to ensure they comply with legal requirements.
• It's beneficial to ask the franchisor about the integration of the acquired brand and any challenges encountered.
• A business advisor can help you research the history of the City Express brand in its original markets if you have concerns.