How the Hotel Investment Model Works

 

How do hotel room investments work?

There are several variations to the hotel room investment model although, in general, most will have a similar structure;

  • The hotel developer will create a subsidiary company to acquire and retain the freehold of the hotel.
  • The hotel’s facilities and grounds are retained by the subsidiary and the individual rooms are sold on a 125 year lease.
  • As part of the purchase agreement the buyer agrees to lease the room back to the hotel operator for a set period of time.
  • The hotel operator then pays the owner annual rent for those rooms irrespective of the individual rooms occupancy levels.
  • A contractual buy back option provides the buyer with an exit and the hotel developer with the opportunity to reacquire the property in its entirety.