Extended Stay America Select Suites
Initial Investment Range
$195,146 to $13,285,766
Franchise Fee
$60,350 to $87,850
ESH Strategies Franchise LLC is offering franchises for Extended Stay America Select Suites hotels that provide extended stay guest lodging services for self-sufficient, value conscious guests seeking flexible stay terms at affordable rates in a guest-centric environment.
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Extended Stay America Select Suites March 27, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: July 16, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
High Risk
Explanation
The franchisor, ESH Strategies Franchise LLC (ESH), shows improving financial health, moving from a net loss in 2023 to a net income in 2024. However, the auditor's report in Exhibit C contains an "Emphasis of Matter" paragraph. This note highlights significant related-party transactions, stating the financials may not reflect what would have occurred independently. This indicates a potential dependency on affiliates, which could pose a risk to you if those relationships change or weaken.
Potential Mitigations
- An accountant should analyze the financial statements, paying close attention to the nature and impact of the related-party transactions described in the footnotes.
- Discussing the long-term stability and standalone viability of the franchisor with a business advisor is a prudent step.
- Your attorney can help you ask the franchisor for more details about its operational and financial relationship with its parent companies.
High Franchisee Turnover
Low Risk
Explanation
This specific risk was not identified in the FDD package. Item 20 data shows a very young franchised system with only five outlets at the end of 2024 and no recorded terminations, non-renewals, or other cessations. High turnover is a critical indicator of potential systemic problems, so its absence in the early stages is positive, but you should monitor future FDDs for any changes in this trend as the system grows.
Potential Mitigations
- With your business advisor, you should still contact current franchisees from the list in Item 20 to inquire about their satisfaction and experiences.
- An accountant can help you establish benchmarks for acceptable turnover rates as you monitor the system's health in future years.
- Your attorney can advise on how turnover statistics can signal underlying issues within a franchise system.
Rapid System Growth
Medium Risk
Explanation
Item 20 data shows rapid growth, primarily from converting a large number of company-owned hotels to this brand. While the franchised unit count is low, the overall brand has expanded from 87 to 211 total hotels in two years. Such rapid expansion could potentially strain the franchisor's ability to provide consistent and high-quality support, training, and resources to all locations, including new franchisees like you.
Potential Mitigations
- Inquire with the franchisor about their plans for scaling support infrastructure to match the significant growth in hotel count; a business advisor can help evaluate their response.
- Interviewing existing franchisees about the current quality and responsiveness of franchisor support is a crucial due diligence step.
- An accountant can review the financials in Item 21 to assess if ESH has the capital and personnel resources to support this expansion.
New/Unproven Franchise System
High Risk
Explanation
The franchisor explicitly flags its short operating history as a special risk. ESH began franchising this specific brand in September 2022 and has never owned or operated a hotel of this type itself, though its affiliates have. As of the end of 2024, only five franchised hotels existed. This limited track record for the franchised system means you face the higher risks associated with an unproven franchise model and support structure.
Potential Mitigations
- A business advisor can help you conduct extensive due diligence on the performance of the affiliate-owned hotels to gauge the business model's viability.
- Speaking with the first few franchisees on the Item 20 list is critical to understand their early experiences with the franchisor's support system.
- Your attorney may be able to negotiate more favorable terms to compensate for the higher risks associated with an emerging system.
Possible Fad Business
Low Risk
Explanation
This risk was not identified in the FDD package. The extended-stay hotel concept is a well-established segment of the lodging industry, not a temporary fad. However, any business's success depends on long-term consumer demand. Evaluating whether a franchise concept has enduring appeal, versus being tied to a short-lived trend, is a critical part of due diligence, as your contractual obligations will continue regardless of shifts in consumer interest.
Potential Mitigations
- A business advisor can help you assess the long-term market demand for extended-stay lodging in your specific geographic area.
- It is wise to evaluate the franchisor's plans for innovation and adaptation to stay competitive within the lodging industry.
- Your accountant can help you model the financial resilience of the business under various economic conditions.
Inexperienced Management
Medium Risk
Explanation
Item 1 states that ESH itself, the franchisor entity, has never owned or operated any hotels of the type being franchised. While its affiliates have extensive operational experience and its management team comes from other hospitality companies, this specific franchising entity lacks a direct operational track record. This could create a disconnect between the franchisor's directives and the practical realities of hotel operation you will face.
Potential Mitigations
- A thorough vetting of the management team's specific experience in both the hotel industry and in supporting a franchise system should be conducted with a business advisor.
- Speaking with existing franchisees about the quality of the operational support and the expertise of the support team is essential.
- Your attorney can help clarify which entity is responsible for providing operational support and their level of experience.
Private Equity Ownership
Medium Risk
Explanation
Item 1 discloses a complex ownership structure leading up to The Blackstone Group Inc. and SCG (Starwood Capital Group). Franchisors owned by private equity firms may prioritize short-term investor returns over the long-term health of franchisees. This can sometimes lead to increased fees, reduced support, or a sale of the entire system, potentially to a new owner with a different operational philosophy. The Franchise Agreement gives ESH broad rights to sell the system without your consent.
Potential Mitigations
- Researching the private equity owners' track record with other franchise systems they have managed can provide valuable insight; a business advisor can assist with this.
- Discussing any changes in support, fees, or direction since the current ownership took over should be a key topic when you speak with existing franchisees.
- The implications of a potential sale of the franchise system should be carefully reviewed with your attorney.
Non-Disclosure of Parent Company
Low Risk
Explanation
This risk was not identified in the FDD package. ESH clearly discloses its parent companies in Item 1. Furthermore, while a separate parent company guarantee is not provided, the franchisor's own audited financial statements are included in Exhibit C. It is important in any franchise review to understand the corporate structure and ensure that the entity making promises has the financial backing to support them, which appears to be disclosed here.
Potential Mitigations
- Your accountant should always confirm that the provided financial statements belong to the actual franchisor entity you are contracting with.
- A review of the complete corporate structure with your attorney helps clarify which entity holds specific obligations to you.
- If a parent company were to provide a guarantee, your attorney would need to review that document carefully for its terms and limits.
Predecessor History Issues
Low Risk
Explanation
This risk was not identified in the FDD package. The franchisor, ESH Strategies Franchise LLC, was formed in 2010 but only began franchising this brand in 2022. It does not list any predecessors. Therefore, the risk of inheriting historical problems from a prior entity is not present. In any franchise offering, it is important to review Item 1 for any disclosed predecessors and then check their litigation and bankruptcy history in Items 3 and 4.
Potential Mitigations
- It is good practice to ask your attorney to verify the corporate history if there is any ambiguity about predecessors.
- In cases with predecessors, a business advisor can help you research their historical track record and reputation.
- Speaking with long-term franchisees who operated under a predecessor is a key due diligence step, when applicable.
Pattern of Litigation
High Risk
Explanation
Item 3 discloses significant pending litigation. ESH and its affiliates are defendants in a consolidated antitrust class action, `In re Extended Stay Hotel Antitrust Litigation`. The suit alleges that several hotel companies violated the Sherman Act by using a common algorithm to artificially raise room rates. While ESH denies the allegations, being named in such a significant lawsuit creates uncertainty and potential reputational risk for the brand. A prior class action regarding guest refunds was also settled.
Potential Mitigations
- Your attorney must review the details of the pending antitrust litigation and explain the potential implications for the business model and your operations.
- Consider engaging a business advisor to assess the potential reputational and operational risks associated with these allegations.
- Asking the franchisor for their perspective on the litigation and how they are addressing the underlying issues is an important step.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
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