Building a Legacy in Hotels with Franchise Attorney Kishane J. Patel | Episode 125

Acquania Escarne 0:00

Hey guys, welcome back to The Purpose of Money. Today, I'm super excited. I am joined by my very own favorite franchise attorney, Kishane J Patel. He is the founder of K J P Counsel and offers boutique legal experience primarily focused on the hospitality industry, with expertise in hotel acquisitions and franchise negotiations with major brands. Kishane specializes in strategic negotiation tactics that protect hotel owners while fostering strong mutually beneficial relationships with franchise partners. KJP counsels diverse client base ranges from single property owners to large entities with portfolios valued over $1 billion as a third generation hotelier cash on brings deep insights into hotel operations, having grown up in the industry and worked in various roles from front desk to housekeeping and maintenance. He also helped launch Nash built Inc, a general contracting firm for hoteliers, where he oversees multi million dollar construction projects across Florida. You are listening to The Purpose of Money podcast, a podcast where we talk about ways to build wealth and create more freedom in your life. Today, I am your host. Aquania Escarne,

Acquania Escarne 1:28

Hey, hey, welcome to the show. This is actually an exclusive interview for our investors of Lake Charles. Our hotel recently acquired in Lake Charles, Louisiana, was a Holiday Inn and is in the process of being converted to a Wyndham. But I brought you here because you are our favorite franchise attorney who helped us with this deal, and I'm super excited to not only talk about your services, but also your hotel ownership experiences. So welcome, welcome, welcome. How are you doing today?

Kishane J. Patel 1:59

I'm doing well. Thank you so much, aquane for that intro. Certainly, I'm a big supporter of your podcast and love everything that you and your partners have done in the hotel space today. Yes.

Acquania Escarne 2:09

Thank you so much. For those of you who are totally in the dark, this year, we spent a lot of time raising capital for the most recent hotel acquisition in Lake Charles, Louisiana, and when you're buying a hotel, you have to definitely utilize a large team. And so kashana is one of our major players on our team, because as a hotel owner, I have specifically focused on brands. So hotels that already have a name brand attached to them or are able to be converted into a name brand hotel, and in this case, our Holiday Inn went from a Holiday Inn to a Wyndham. But before we hop into all of that, kashana, I want you to kind of first tell us a little bit more about yourself. I got a little bit of it in the bio where you said you've totally worked in all sectors of the hotel industry, and you grew up in the industry. But what exactly does that mean? What was your first experience in hotel ownership, per se, like as a child or even as a young adult? Sure.

Kishane J. Patel 3:08

So Aquania, I think the kind of story for most Asian Americans in this country are that, you know, our parents and grandparents immigrated from India, and they came here with very little in their pocket, hardly anything. I believe my grandfather came here with $20 in his pocket, not speaking English and not having a driver's license here in the States and having to figure out how to get into hotels was the first major step and milestone for a lot of Asian Americans across the country, being one of those stories. My grandfather found a little Hotel in Los Angeles, California, and later he and his wife, my grandmother, moved to Pensacola, Florida, which is where I currently reside, and picked up a 12 unit motel. And in that 12 unit motel is where my father and his siblings were raised. They grew up in the hotel space doing anything from front desk housekeeping maintenance, and through the course of many generations and decades. My My parents were also hoteliers, and so growing up, I had a very similar experience where my my father, my mother, my uncle and aunt, who are running and operating our properties, said that these are invaluable skills that you're going to get in the hotel space. And so when I was about five or six years old. Of course, it's hard to understand as a five year old, the work ethic that goes into being a hotel owner. I was, I was cleaning rooms on a weekend morning, on a Saturday morning, our job was to go at 8am and to help participate in cleaning the hotel. And I've got to say, as a five year old, it's kind of hard to understand that.

Kishane J. Patel 4:40

But as I got older and became a hotelier, I I learned the value and importance of understanding that no matter what role you have in the hotel space, that being able to be a part of every segment of operations is what can lead you to becoming a successful hotelier. I'm so thankful for that experience, and I think that a lot of hoteliers in the space currently have experience. It's that same story, and a lot of my peers across the board have all had the same experience, and some of them still operate their own hotels. Of course, today there's lots of management companies and lots of great operators that don't require such a demanding skill set, but when you are in the family business, you grow up in hotels, you tend to learn a thing or two at one given time, our family portfolio was about 15 hotels in Northwest Florida, spanning from Florida to Alabama. And so I can tell you that operations is a handful. I got to experience it with my own parents, my own family, my own siblings, and it was a joy across the board.

Acquania Escarne 5:36

Wow, that is such an experience. And I'm super excited to have this perspective, because I do not come from generations of hotel ownership or even the ability to work in the industry, but I started out as an investor, and then when the right opportunity came along to partner with general partners, then we pursued our own deal. So I would love to ask you a little bit more about that, because when you describe your experience, I thought summer jobs, in fact, all year round jobs, you were going to work and be useful. But from your parents perspective, what was their strategy? Were they also a brand, branded hotel, type of business model where they did franchises, and that's why you became a franchise attorney, or were they boutique hotels that still were successful but never branded? Let me tell me a little bit more about that, because 15 is a lot

Kishane J. Patel 6:31

Sure. So I can tell you, through the 1960s 70s and 80s, a lot of hotels at the time were independent, Mom and Pop operated properties. But as we got a little bit closer to the 90s, and the 2000s going with a franchise appeared to be a more successful model for the Asian American hoteliers in the United States. And so over the last, you know, three decades Plus, there's been a tremendous amount of value that's gotten put into working with franchisors. Now there's two arguments to have, right? One is, you know, being with a franchisor costs money, that is true. But on the flip side, franchis are creating this platform in the system and the marketing to build a clientele that's loyal to it, right? So right now, no matter who's watching this podcast, someone has a preferred hotel they like to stay at, and that's because of the consistency. That's because of what they're going to walk in and expect, a level of service, a level of amenities, or the, you know, complimentary breakfast or the hot buffet. So when these brands take the time to create these platforms, you know, franchisees get the opportunity to say, hey, why don't you give us your playbook? We'll insert it into this hotel, and we'll see if we can partner together to both make money. And one thing I really appreciate is that that model became a successful model across the country.

Kishane J. Patel 7:48

And yes, my family portfolio, when they were hoteliers, and still are hoteliers, was practically all brands that were nationally recognized, right? And that can range anywhere from some of the largest platforms to the smaller ones, because at the end of the day, by working with a flag, you are essentially creating a partnership, a very lifelong partnership that can lead to a very lucrative business. But the most important part is that, as a hotelier, that you engage with the brand, right? I think one of the things that we try to foster a lot of relationships that if you're going to partner with whatever strategic brand you want to go with, it is very important that you build a relationship with them. Why? Because they are going to be your first call when things are going bad or going well. And it's kind of that, that philosophy, when everything's going good, no one has any complaints, but as soon as something goes wrong, we have all these complaints, and it's better if you can cultivate that relationship with whether it's your development officer or, you know, your operations team, your openings team, and even senior management or leadership at these brands, because at the end of the day, their job is to ensure your hotel is successful. And you know, I think if we continue to build that relationship, most hoteliers will continue to see that success.

Acquania Escarne 9:02

I absolutely agree with you, and the biggest proponent to my desire to work with brands is the loyalty factor. You hinted on it a little bit, but having a built in customer base who is eager to rack up points, status or whatever it may be, so they're going to religiously stay at that respective hotel when they travel. Is a good place to be in when you're a hotel trying to have consistent revenue in business. And so you highlighted some of the major benefits to working with a brand is that, although you may pay fees, franchise fees, to have their name on your building, you are getting an exchange for that marketing that they will use to publicize the brand nationwide or even internationally, and it allows you the opportunity to get global customers. So I love that, but I want to get into your role on our specific deal and your role as a franchise attorney. I know a lot of people who try to DIY life. And so if you could please explain to me what is the role of a franchise attorney, and do you recommend you always have one if you are attempting to purchase a hotel that is branded?

Kishane J. Patel 10:16

Sure. So I'll answer the latter part of that. I believe the simple answer is you whether any investor is going if you're going to put money into a project, it is so critical that you safeguard that investment. And so if you're going to spend millions of dollars buying a hotel, it is my advice that you consult with qualified CPAs, qualified attorneys and any other type of advisor that can give you insights as to what you're getting involved in, right? There's this sort of philosophy you're going to spend five or ten million on a hotel take the time to invest in getting the right guidance, because that is not a mistake you can afford to make. And you're right. There are some parties that go out and say, hey, I can save a few $1,000 or, you know, save, you know, from legal fees or CPA fees. But the problem is, is that it is a lot cheaper, more cost effective to be proactive in your business transactions than it is to be reactive, right? So I'll give you one example. Let's say there's a first time hotelier that says, hey, I'm going to pick up a hotel and let's just, let's call it Florida, and that client says, I don't need legal counsel. I'm okay. I'll read it myself, and I'll I'll walk into it. The problem is, is sometimes you don't know what you don't know. And unfortunately, they sign on the dotted line, and then three years later, they find out that there was one request they could have made that could have shifted their damages by hundreds of 1000s of dollars, right? And so for us, you know the the role as a franchise attorney is to one, ensure that you're protecting your investment, and two, that we're educating you on what your obligations are when you enter into a franchise agreement.

Kishane J. Patel 11:54

So most franchise agreements, there's kind of a two step fold. The first thing you're going to see is called an FDD Franchise Disclosure Document. It's a couple 100 pages, depending on what brand you're with, but it's purely an informational packet, and it's provided to you with a legal requirement to ensure that you have time to review it with your professionals. Now I encourage people you know, open it up, look at the sections, see what's interesting to you, right? I'll give you one example on that FDD, there's a subject line called litigation. The brands are required to notify the public who they have ongoing litigation with. Now, why is that important? For we as hotel investors, I'd like to see who's getting into conflicts with their customer base, and there's usually a short description as to what's happening and why? So for franchise attorney, they may say, Hey, look at this. FDD, there's no ongoing litigation, and I've seen it, and my immediate response is, wow, that's a good sign. Now, just because there is litigation does not mean that there's a problem with the brand. It could just be, depending on who their client base was, if there's a, you know, factual allegation that's being made. So I'm not simply saying that that's a good test of good or bad, but it's informational to tell you who runs the company, how long the flag has been created, how many properties are out there. So take advantage of that information and then on your franchise agreement, it's critical that you work with someone who's done franchise agreements. Now the intent of this call isn't to say that you know you should use KJP counselor, you should use us, use whoever you feel necessary, but just ensure that you speak with your attorney to ask, have you looked at franchise agreements before? Because if the answer is no, they may not know exactly what they're supposed to be looking for. They may not understand the industry and the type of trade offs that could be provided.

Kishane J. Patel 13:43

So if someone is a real estate attorney that's always purchased and sold hotels or even homes, it doesn't mean that they understand franchise law. So our advice to people is, qualify a franchise attorney. There's a lot of attorneys in the industry that that do franchise law. So there's not a, you know, hey, you have to pick one or one of two people, but take the time to get to know who that franchise attorney is. What experience do they have? Have they signed it themselves? I always sort of have this philosophy, I don't want a client signing something that I wouldn't want to sign. And if that, if I am going to have a sort of an issue, I notify the client. Hey, I need you to understand aquania Before signing this. Here's your obligation. If things go sour, here's what you're on the hook for, here's your financial obligation. Are you comfortable with that? Because I want to make sure before you sign on the dotted line and send in that affiliation fee, that you're aware of those consequences. So that way, five years from now, when you're making a material decision to either sell or convert or to be in default, that you can be aware that, hey, by not doing this, I could be on the hook financially for X, Y, Z, along with my general partners or whoever's on that franchise agreement. So it's very, very important I advise all clients, whether it's a hotel or any business, consult with somebody who can give you that knowledge and. Walk you through that process.

Acquania Escarne 15:01

Yes, and I want to be fully transparent, because we're honest here on the show, there were times where Kishane was like, I wouldn't do this, or we should push back on that. And we didn't know we should push back. We read it and was like, Oh, it sounds good to me. You know, specifically, like in our key money agreement, and then even some of our loan documents. But you were the one who was like, actually, we want to shine some light on this, because the way it's worded, this could mean this for you. And you guys want to make sure you understand. And there were times where we were like, maybe he's being a little too overreactive. But then when we thought about it, we were like, no, actually, that makes sense. So let's revisit and you helped us successfully renegotiate some of the fine points of our agreements. So I really appreciated that experience and also the insight, because it's true, you don't know what you don't know. And if you're not doing this in and out every day, you don't know what's typical in an agreement versus what's not typical. You also have to have the ability to be open to the fact that changes sometimes need to be made. I think sometimes we're so eager to have a solution that we try to skip steps, but that could be very expensive. But let's talk about one of the good things that we were able to accomplish with our deal specifically, which is called key money, for those who don't know, when you are doing a conversion project or turning your hotel into another brand, from what it currently is, you can sometimes qualify for incentive money from the brand for change, for making that change right. So in our deal specifically, we were able to successfully negotiate key money into our agreement, and you helped us to really understand how much we should accept or push back on the initial offer. What is your position on key money when it comes to new hotel owners or existing hotel owners? How do you think they should approach it and who should accept the offer first. Does that make sense? It does.

Kishane J. Patel 17:04

Aquane, I think that the vague answer to that is that key money is being used as a method to incentivize a hotel or to partner with a brand. And there's a lot of pros to key money, and I'm not going to deny that, but there are also cons to key money, right? So I'll give you a little bit of both, because it's a balancing act. So for the first part, the advantage of having key money is that it gives you a little bit of financial relief, right? So let's just talk a hypothetical. You're buying a hotel, you're going to spend $5 million on it, and the brand says, Hey, we're going to give you $250,000 Well, the first part of that is, typically the money will come to you after you successfully open right now, understand the brand is going to do the same thing that any lender would do before giving you a quarter of a million dollars, which is to do a background check, credit check, make sure that you're financially in a good place to be able to give you that type of key money. Now there's a big misconception that key money is sort of a gift, and it is not a gift. However, if you take advantage of it correctly, it can eventually lead to a point where you don't have to pay it back. So let me give you simple math here. $250,000 is provided to you. You're very thankful because you get to use it for payroll, ordering supplies, ordering breakfast, making sure that you make any improvements to the property that are going to be necessary.

Kishane J. Patel 18:23

So let's say the brand says we're going to give you this $250,000 over 10 years. If you stick with us for 10 years, we won't ask you to repay us. So Acquania stays for 10 years. She's happy. She's making money. That money doesn't have to be paid back, which is wonderful. The problem is sometimes people take the key money and then one of two things happen, they default, which means they stop paying their fees. They're not performing to the to the expectation that the brand had for you, and you default on your agreement, one that could put you in jeopardy, because if you get terminated, you need to pay back that money. It's just like taking a loan from the bank. There could be interest penalties on there. So you need to also be aware that by taking that money, you're assigning yourself to an obligation. The other side of it is sometimes people say, hey, I want to swap brands, right? So there could be someone who opens up with brand A and suddenly they want to become brand B. Well, if you do that, brand A's gonna say, hey, we gave you that money. Time for you to give us that money back, right? Rightfully so, because they've given you the money in hopes that you stay with them for the duration of a relationship. So I always tell people, if you are not in a position where key money is a necessity, leave the key money on the table, push it away and see if you can get some other types of benefits that could help you in operations, right? Help you cut down on operational cost. So there's this sort of balancing act about understanding what your investors and your partners are looking for. And I think you had mentioned earlier about, you know, changes that can be made at the end of the day. Investors are always happy when they're making. Money, and when you have a group of investors and whoever's watching this podcast, your philosophy should be, who am I partnering up with? Right? Because you can get any hotel in America and probably find success, but you're going to find the most success when you believe in who those general partners are, right? If I look to aquania and her partners and say, Yes, this this is the dream team that I believe in. I know they're going to be protecting my investment. Well, then those are the people I want to partner with. Why? Because they're surrounding themselves with advisors that are going to put them in the best possible position and ensure that the money that all the investors are putting up are is protected and that a return is being made. Because no one's making an investment just to make it. They're making it in hopes that they can say, Hey, I've made some money back on this. This project worked Wonderful. Let's go do number two. Let's go do number three, and four and five. And at some point in time, these investors that are working with you are just going to keep saying, please find the next deal. Why? Because you guys are going to be successfully paying returns, and people are going to you're not going to have to look for new investors. It's going to be the same party sitting in front of you saying, on to the next, on to the next, let's continue on. So

Kishane J. Patel 21:06

Again, key monies, a lot of pros, a lot of cons, but it really determined. It's really determined based on what that partnership needs and whether the lender is going to be okay with you taking that liability on, because that liability is now on your books for, you know, potentially 1015, 20 years, depending on how much is provided. Now, brands will fluctuate in their key money as well. So depending on the market, depending on the how much revenue that property is expected to do their footprint in that location, you can get, you know, a little aggressive and say, hey, you know, we need a little bit more, but talk with the development officers. They're in the industry. They're in the field. If you want to talk with a particular brand about whether or not they offer key money, just ask. I can tell you that not every brand does key money. So it shouldn't be viewed as every brand will come and sort of compete, because that's not the philosophy, right? One Brand may say, hey, I'll give a lot of money in this city, but none in this city, because we already have a footprint. So be aware of that, and talk with the development officers from those brands. And if you need their contacts, it's not very difficult to Google. You know these development officers. It shows the state they work in the flags they have. So it's very easy access, and they'd be more than happy to talk to you as well. I can almost guarantee you that

Acquania Escarne 22:21

That is super helpful. And definitely I even learned something because I didn't even realize all the brands didn't offer key money. I feel like every deal I've invested in, this is the first one where it was even an option because we were doing a conversion. And in the other deals, they were existing flags, they were not changed, and they were just changing ownership, so there was no key money offered. So that's really interesting, and even I'm learning, I call myself a continuous learner, even as a hotel investor, so I definitely appreciate that feedback. The next question I have for you is really for those who are listening, what are some of your top three? So not all your advice, because they're gonna have to hire you for that. But what are your top three tips for a new or existing hotel owner who is preparing for their next deal?

Kishane J. Patel 23:09

So on the franchise side, like I said, typically, those are 15 or 20 year agreements. So view it as a relationship you're entering into discuss what those costs are going to be. All right, a lot of times there will be a conversation that your royalty rate is, let's just call it 5% for this conversation. So in your mind, for every $100,000 of income, 5000 would go to royalty. But it's very important to understand that there are other standard fees that are going to be charged on a routine basis inside of that FDD we discussed earlier. It's about usually three or 400 pages. There's a section that discusses the type of fees that you should anticipate seeing on a monthly or an annual basis. Take a look at those costs, because if Acquania thinks that 5% should be on her invoice and suddenly it's 9% she's going to wonder, why, right? So that's tip number one. Tip number two is, understand what your obligations are in your purchase and sale agreement. A lot of times, people enter into a purchase and sale agreement without realizing the consequences of their escrow money deposit or the time frames they have to protect their escrow money deposit. So for example, you know, there's clients who come to us that say, Hey, there's a property I want to buy.

Kishane J. Patel 23:12

There's this $100,000 deposit I have to put but you know, it's non refundable on day one. Well, that's a little nerve wrecking to me, right? I want to make sure the client understands, no matter what your decision is, you lose that $100,000 if you walk away. And when you're working with investors, your job is to protect your investors money, right? And sometimes people say, no, no, my money's fully refundable for 90 days. I'm assured of it. And I look at that agreement, I say, No, it's only for 30 days. And they say, oh my goodness, it's day 28 Why am I just now realizing that? Well, because you entered into the contract without talking with an advisor, right? They would have told you, let's be specifically clear. And. Sure that it's in bold, highlighted, clear language you know how long your money's protected for. And number three is, this is the number one kind of issue that people face, in my opinion, across the countries, it all depends on who you partner with, right? So at the end of the day, whoever your general partners are, whoever the decision makers are going to be, whoever the guarantors are going to be you got to have faith and belief in them. What you don't want to do is enter into a partnership with five people who can't have a conversation together because disputes will come up. There will be times where there's a capital cash call. There's going to be times where decisions have to be made. And if you have five partners, and none of the five people can stand being in the same room as each other. That's problematic, because now your money is tied to, you know, conflicting opinions.

Kishane J. Patel 25:45

So, you know, do your research on who your partners are going to be, or which fund you're with, or which entity you're with, because you have to believe in their in their vision, and you got to trust and have faith that your general partners are going to be as transparent with you as you want to be, because as a limited partner and investor, you want to make sure you understand where all those costs are going, right? There's a lot of times where, you know, a partner will invest and they say, Well, I haven't seen any of the, you know, books, and, you know, 5678, 10 years, and I've never made a penny. Well, that's that's problematic, because everybody needs to have some layer of protection, and every fund's a little bit different, so it depends on the size and the type of documentation that you sign when you enter into it. But partner with people that you really have alignment with, that you have a vision with, because at the end of the day, you've spent your entire life working towards getting prepared for an investment, the last thing you want to do is jeopardize it. Because you know, no matter what protecting your dollars is has to be the number one priority.

Acquania Escarne 26:47

Absolutely, absolutely. That's those are some really, really good tips. Last but not least, the name of the show iscalled The Purpose of Money. So I always ask my guest this question, what is your purpose for money.

Kishane J. Patel 27:01

That's a deep question. And I got to admit, I love the name of the podcast, and I think a lot of people would probably scratch their head because, you know, there's the very typical answers. I think my answer is pretty rooted in the story of my grandmother and grandfather on both ends of my family. You know, my mom's side grandparents were in England. And my dad's parents were, you know, born in India and made their way to the states. They they jumped another country with with $20 in their pocket. They were figuring out life. They had nothing. They had no sense of security. You know, their philosophy was, is, how do we become business owners and hotel owners? And to me, I think the purpose of money is that we need to be able to spread the wealth of knowledge, and we need to be able to spread the wealth of security to those in the community. And one of the things I always I'm thankful for, and I count my blessings, and I never forget to remind myself that, you know, the for the folks that are in, you know, watching this podcast at this investor retreat, you're coming here to discuss what ways you can invest your disposable cash and that alone, no matter which way you look at it, is a blessing. You know, there's a lot of blessings in this world that you know, not every bit of America gets to say, and the purpose to me is, you know, to build security, but at the same time, remember to give back. There's, there's not a, not a time in my my life that my parents haven't always said, you know, it's important, no matter what time of year it is, to give back. And right now in the world we live in, you know, it's very important that we support each other, no matter what level you're at, no matter what city you're in, or how many hotels you own, how much or little of wealth you may have accumulated. The purpose of money, in my opinion, is about security and giving love and hope to those that are around us.

Acquania Escarne 28:56

Absolutely love that answer. My purpose for money is very similar, is to provide freedom and a nice future for my family. And I always tell people jokingly, I work for my next vacation, there you go. So I'm super excited that you were able to share this information with our investors and soon with the world. Thank you so much for being here before I let you go. Can you let everyone know? How do they contact you if they are ready to work with you or just want to hang out a little bit longer and get your expertise. What should they do Sure?

Kishane J. Patel 29:31

So again, my name is Kishane J Patel, feel free to check us out on our website, kjpcounsel.com, KJP Counsel, C, O, U, N, S, E, L, and again, the folks that are in this room can give you my direct cell number for us. We truly do believe in the power of community and networking, so please don't hesitate. The folks that are sitting in front of you, Acquania or Amina or Norlin, can certainly provide you with my cell number. Office number and my email address, and I encourage folks feel free to pick up the phone and let's, let's talk, because I want to answer your questions, and if you need to just kind of vent and say, This is my first go around, what do I do? Let's have that conversation, because we want to make sure that you're in a strong position before you start pulling the trigger on anything.

Acquania Escarne 30:18

Thank you so much for that offer, and I do believe it, because you have been super supportive along our journey, and we have been referring you already to our friends. So I definitely think take him up on that offer, check out the website, and when you're ready to do your first hotel deal, make sure you hire KJP Councel. Thank you so much. This has been awesome. I am excited to even share this opportunity with others, and I appreciate your Frank and honesty until next time, guys keep building generational wealth, take care.

Acquania Escarne 30:53

Thank you for listening to The Purpose of Money podcast. For more resources and information, check out my website, thepurposeofmoney.com, and while you're there, please sign up for our newsletter so you'll have all the latest information on new episodes and blog posts until next time, keep building generational wealth you.

Transcribed by https://otter.ai