Explanation

This risk was not identified in the FDD package. The franchise system has experienced steady, not excessively rapid, growth in recent years. Rapid expansion can sometimes strain a franchisor's ability to provide adequate support to all franchisees, potentially diluting the quality of training, site selection assistance, and ongoing operational guidance.

Potential Mitigations

• In any franchise, a business advisor can help you assess if the franchisor's support infrastructure is keeping pace with its growth.
• It is prudent to ask current franchisees about the quality and timeliness of support they receive from the corporate office.
• An accountant can review the franchisor's financials to see if they are reinvesting in support systems.

Explanation

This risk was not identified. The franchise operates in the extended-stay hotel industry, which is a well-established market segment rather than a new or trendy concept. Investing in a fad business carries the risk that consumer interest could decline rapidly, leaving you with a long-term contractual obligation for a business with waning demand.

Potential Mitigations

• A business advisor can help you research the long-term stability and economic trends of any industry you consider entering.
• Your accountant can help you model the financial performance of a business under various market conditions to test its resilience.
• When evaluating any franchise, consider its ability to adapt to changing consumer preferences and economic cycles.

Explanation

This risk was not identified. The executives listed in Item 2 appear to have substantial prior experience in the hospitality and franchising industries with large, established companies like Radisson, Choice Hotels, and Red Roof Franchising. An inexperienced management team can be a significant risk, as it may lead to poor strategic decisions and inadequate franchisee support.

Potential Mitigations

• It is always prudent to have your business advisor research the backgrounds of the key executives listed in Item 2.
• Asking current franchisees about their direct experiences with the management team can provide valuable insight.
• Your attorney can help you understand the roles and responsibilities of the key personnel as described in the FDD.

Explanation

This risk was not identified, as the franchisor is part of a large, publicly-traded hotel corporation, not a private equity firm. When a franchisor is owned by a private equity firm, there's a risk that decisions may prioritize short-term investor returns over the long-term health of the franchise system. This can sometimes lead to increased fees, reduced franchisee support, or a quick sale of the company.

Potential Mitigations

• If a franchisor is PE-owned, having your business advisor research the firm's track record with other franchise brands is wise.
• In such cases, your attorney should carefully review the franchisor's right to sell or assign the franchise agreement.
• It's beneficial to ask current franchisees about any changes in operations or support since a potential PE acquisition.

Explanation

This risk was not identified. Item 1 clearly discloses the parent company, RLHC, and its parent, Sonesta International Hotels Corporation. The FDD includes the parent's audited financial statements in Exhibit B and a Guaranty of Performance from the parent in Exhibit C. Failure to disclose a parent company or its financials when required can obscure the true financial stability and control structure of the franchisor.

Potential Mitigations

• Your attorney should always verify the corporate structure described in Item 1 to ensure all relevant parent companies are disclosed.
• If a parent guarantee is provided, an accountant should review the parent's financial statements for stability.
• Understanding the relationships between the franchisor and its parent or affiliates is key to assessing overall risk.

Explanation

This risk was not identified. Item 1 details the franchisor's history, including name changes and asset acquisitions from predecessors like Vantage Hospitality Group and Wyndham Hotel Group. This appears to be a reasonably clear disclosure of the company's lineage. In some cases, a franchisor might obscure a problematic history of a brand by operating it under a new corporate entity without adequate predecessor disclosure.

Potential Mitigations

• A franchise attorney can help you trace the history of the brand and its ownership through the details provided in Item 1.
• If a brand has a predecessor, it's wise for your business advisor to research the predecessor's reputation and history.
• Speaking with long-term franchisees can provide insight into the brand's evolution through different ownership structures.