hotwa m 16 Sandman_C 8-14

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hotwa m 16 Sandman_C 8-14
Irvin W. Sandman of Graham & Dunn PC
BUYING & SELLING HOTELS
Negotiation, Documentation
and Closing the Deal
Irvin W. Sandman, Esq.
Gary E. Fluhrer, Esq.
Irvin W. Sandman, Esq.
Program Co-Chair
•
•
•
Graham & Dunn Hospitality Industry Group Leader since 1993. Irv and
his team of 14 attorneys handle the special needs of the lodging
industry, bringing to bear hotel industry knowledge, experience, and
connections to help hoteliers,
hoteliers developers and investors succeed
succeed.
Lead counsel in hotel transactions worldwide representing asset values
totaling in excess of $1 Billion
2008 Recipient of Anthony G. Marshall Hospitality Law Award
Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA
Speaker 16c: 1
Irvin W. Sandman of Graham & Dunn PC
I. Overview—Agreements that can be
expected
A. Purchase and Sale documents
(1)
Letter of Intent
(2)
Purchase and Sale Agreement
I. Overview—Agreements that can be
expected (continued)
B. Buyer-Side Structural and Ownership Documents
(1)
Owner LLC Agreements
• Owner LLC
• Equity LLC
Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA
Speaker 16c: 2
Irvin W. Sandman of Graham & Dunn PC
I. -
B. Buyer-Side Structural and Ownership
Documents (continued):
(2)
M
Management
and
d Brand
B d Agreements:
A
• Hotel Management Agreement (HMA)
• Technical Services Agreement (TSA)
• Asset Management Agreement
• Franchise Agreement
I. -
B. Buyer-Side Structural and Ownership
Documents (continued):
(3)
Development Services Agreement (DSA)
(4)
Debt Financing Agreements
(5)
Subordination Agreement
Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA
Speaker 16c: 3
Irvin W. Sandman of Graham & Dunn PC
I. -
B. Buyer-Side Structural and Ownership
Documents (continued):
(6)
Mi d Use
Mixed
U Agreements:
A
• Condominium Marketing License
Agreement (CMLA)
• Condominium Documents (residential
condos or condo hotel)
II. Purchase and Sale Agreements
ƒ
Gary E. Fluhrer is a partner in the Seattle office of Foster Pepper
PLLC where he is co-chair of the firm's Real Estate Practice Group. He is
a member of King County, Washington State and American Bar
Associations and their respective Real Property sections, American
College of Real Estate Lawyers, and is a trustee and past President of the
Pacific Real Estate Institute. He practices in the real estate, lending, land
use and tax areas, and participates in numerous bar and industry real
estate organizations. Foster Pepper has traditionally maintained one of the
most extensive real estate legal practices in the Pacific Northwest. The
Firm has experience with virtually every sector of the real estate market,
including office buildings, hotels, mixed use hotel projects, corporate and
industrial parks, landmarks and special projects, public/private projects,
shopping malls, hospitals/medical centers, destination resorts, sports
stadiums,
t di
marinas,
i
universities,
i
iti
multifamily
ltif il projects,
j t retirement
ti
t facilities
f iliti
and nursing homes.
BUYING AND SELLING HOTELS AND MOTELS – Selected Issues
Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA
Speaker 16c: 4
Irvin W. Sandman of Graham & Dunn PC
Speaker 16c: 5
BUYING AND SELLING HOTELS AND MOTELS – Selected Issues
Gary E. Fluhrer
I. GENERAL CONSIDERATIONS
A
A.
DESCRIPTION OF PURCHASED ASSETS
B.
PERSONAL PROPERTY/ALLOCATION OF PURCHASE
PRICE
1. Washington State Transfer Taxes
a.
Real Estate Excise Tax
b
b.
S l Tax
Sales
T
BUYING AND SELLING HOTELS AND MOTELS – Selected Issues
BUYING AND SELLING HOTELS AND MOTELS – Selected Issues
2. Depreciation For Federal Income Tax Purposes
3. Goodwill
C. CONTRACTS
D. EMPLOYEES
1. Structuring Transaction
ƒ
Buyer “Assumes” Employees
ƒ
Employees Are Terminated and Rehired in Whole or Part by Buyer
2. Special Considerations for Union Shops
BUYING AND SELLING HOTELS AND MOTELS – Selected Issues
Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA
Irvin W. Sandman of Graham & Dunn PC
BUYING AND SELLING HOTELS AND MOTELS – Selected Issues
E. LIQUOR LICENSE CONSIDERATIONS
F LITIGATION
F.
G. MATTERS CONCERNING THE TERMINATION OR
CONTINUATION OF AN EXISTING MANAGEMENT
AGREEMENT
H BUYER STRUCTURE
H.
I.
CLOSING ADJUSTMENTS
BUYING AND SELLING HOTELS AND MOTELS – Selected Issues
BUYING AND SELLING HOTELS AND MOTELS – Selected Issues
II. SPECIAL CONSIDERATIONS
A BULK SALE CONSIDERATIONS
A.
B. PLANT CLOSURE LAWS (WARN)
1.
Employers Subject to the Notice Requirement
2.
Applies to Plant Closings and Mass Layoffs
3.
WARN’s Effect on the Real Estate Transaction
4.
State Mini-WARN Acts
BUYING AND SELLING HOTELS AND MOTELS – Selected Issues
Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA
Speaker 16c: 6
Irvin W. Sandman of Graham & Dunn PC
Speaker 16c: 7
BUYING AND SELLING HOTELS AND MOTELS – Selected Issues
C. HART SCOTT RODINO
1. Transaction Reportable under the Act if:
2. Multiple “Transactions”
3. Real Estate Exemption for Hotels
4. Process
D. NATURE OF ROOM RENTALS
BUYING AND SELLING HOTELS AND MOTELS – Selected Issues
BUYING AND SELLING HOTELS AND MOTELS – Selected Issues
TYPICAL BUYER ORGANIZATIONAL STRUCTURE
Hotel
H l
Hotel
Mortgage
Lender
Mortgage Loan
Deed of Trust
Security Agreement
Mezzanine
Lender
Mezzanine Loan
Pledge Agreement
Member A
[Single Member LLC], a
Delaware limited liability
company
(Mortgage Borrower)
100%
[Parent LLC], a Delaware
limited liability company
(Mezzanine Borrower)
Member B
Member C
BUYING AND SELLING HOTELS AND MOTELS – Selected Issues
Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA
Irvin W. Sandman of Graham & Dunn PC
Speaker 16c: 8
III. Management and Brand Agreements
A. Branded Hotel Management Agreement (HMA)
(1) Background
B k
d
•
Roots – Hotel Lease
•
Unique, industry-specific relationship
(2) The underlying tension in the relationship:
III. -
•
Who
o owns
o s what?
at
•
Manager: “enhance the brand.”
•
Owner: “use the brand.”
•
“It’s my guest”
A. Branded Hotel Management Agreement
(HMA) (continued):
(3) Flashpoints
•
Is the agreement open to negotiations?
•
Key money
•
Fees—base, incentive, thresholds
•
Annual capital and operational budget process
•
Changes in “brand standards”
Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA
Irvin W. Sandman of Graham & Dunn PC
III.
- A. Branded Hotel Management Agreement
(HMA) (continued):
• Performance clauses (meeting competitive
/
g budget)
g )
set/meeting
• Guest information
• Subordination/nondisturbance agreement
• Dispute resolution
• Termination on sale
• The pendulum swings both ways—where are we
now?
III. Management and Brand Agreements
B. Technical Services Agreement (TSA)
• Manager works with you through the
development process
• Manager helps you build a workable hotel—
but also protects its brand standards
• Flashpoints:
• Delay while manager considers the plans
• Provide for “reasonableness” in approvals
• Allow for termination if the development fails to
proceed
Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA
Speaker 16c: 9
Irvin W. Sandman of Graham & Dunn PC
III. Management and Brand Agreements
C. Asset Management Agreement
• When to consider having an Asset Manager?
III. Management and Brand Agreements
D.
Franchise Agreement
•
Is the agreement open to negotiations?
•
When?
•
What can you do? Research; Competition
Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA
Speaker 16c: 10
Irvin W. Sandman of Graham & Dunn PC
III.
Speaker 16c: 11
- D. Franchise Agreement (continued):
• Flashpoints to test:
• IIn a new d
development,
l
t termination
t
i ti if the
th
project fails to proceed
• Length of the agreement’s term
• Restricted Area
• Fees--initial deferrals
• Reserve fund ramp-up
• Operating
O
ti standards—beware
t d d b
the
th new brand
b d
• Restrictions on transfer
• Termination on sale
Questions?
Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA
Irvin W. Sandman of Graham & Dunn PC
Speaker 16c: 12
Contact us:
Irvin W. Sandman, Esq.
Gary E. Fluhrer, Esq.
Graham & Dunn PC
Foster Pepper PLLC
Pier 70
1111 Third Avenue
2801 Alaskan Way, Suite 300
Suite 3400
Seattle, WA 98121
Seattle, WA 98101-3299
Direct: 206-340-9641
Phone: 206-447-8896
Email: [email protected]
Email: [email protected]
Web: www.grahamdunn.com
Web: www.foster.com
Law Seminars International | Buying & Selling Hotels | 08/18/08 in Seattle, WA

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