The flag is not the safe harbour it is sold as.

The argument for putting a flag on a small upscale hotel is usually made as an argument about risk. Take the franchise, the reasoning goes, and you buy distribution, a loyalty base and a lender who recognises the name. Stay independent and you are on your own. It's a tidy story. The data behind it is thinner than the telling suggests.

Preferred Hotels & Resorts and PHG Consulting worked through STR and HVS figures across three very different years, a banner year in 2019, the aftermath of the financial crisis in 2009, and the pandemic trough in 2020, and found independents ahead of both hard brands and franchise soft brands on average daily rate and RevPAR in all of them. The net RevPAR point is the one that matters: the gap they measured comes before franchise fees are subtracted, and franchise fees aren't small.

Read that paper with your eyes open. Preferred sells membership to independent hotels, so they had a preferred answer before they opened the spreadsheet. The conclusion survives that anyway, largely because the underlying STR and HVS series aren't theirs to shade. It also matches what we've seen in the branded properties we've looked at in leisure markets, though we don't underwrite branded deals and shouldn't pretend otherwise.

Three words that do a lot of work

The paper's terminology is worth borrowing, because the distinctions do real work. A hard brand is a franchise agreement with Hilton, Marriott, Hyatt and the like, carrying the brand's name over the door. A franchise soft brand is one of the collections those same companies own, Autograph and Luxury Collection at Marriott, Curio at Hilton, where the property keeps its own identity but still signs the franchise agreement and still pays. An independent soft brand is neither: the hotel builds its own name and buys services it actually wants.

That middle category is where most of the confusion lives. A soft brand looks like independence from the guest's side of the desk and behaves like a franchise on the owner's side of it. The cost structure, the brand standards, the required capital programme and the term all come along with it.

Why the maths gets worse as the hotel gets smaller

Franchise fees scale with revenue. The infrastructure a flag provides doesn't scale down with it. On an eight-key inn or an eleven-cottage property, you pay a percentage of rooms revenue for a reservation system, a loyalty programme and a brand standards manual, and in a destination market the guest most likely didn't come because of any of them.

In a destination leisure market that's decisive. Somebody booking a weekend on the Mendocino Coast is choosing Mendocino first and a property second. Very few people drive three hours up Highway 1 to redeem points. The brand's contribution to the booking, the thing you are actually renting, is weakest exactly where our hotels are, and strongest at an airport or in a market where the guest has no local knowledge and defaults to a name they recognise.

There is a real cost to independence and we should name it. You have to build the direct channel yourself, and that is slow. You have to earn every review rather than inherit a brand's aggregate reputation. Financing can be marginally harder with lenders who like a familiar name on the collateral. At our scale that's a fair trade. At three hundred keys next to a convention centre we wouldn't assume it.

The capital has noticed

The performance argument above is a decade old, so it is fair to ask whether anyone with money actually agrees. Jillian Mariutti of JLL's capital markets group, writing for BLLA, puts independent hotel liquidity up 55% comparing 2021 through 2024 against 2014 through 2019. Branded liquidity over the same comparison grew 3%. Financing has loosened alongside it: more lenders in the space, compressed spreads, deals typically around 60 to 65% loan-to-value, and SOFR down roughly 100 basis points since the easing cycle began.

She also names what should keep it going, which is $145 billion of hotel loan maturities falling across 2025 and 2026. Owners who can't refinance become sellers, and assets that come loose at that basis are the ones an operator can fix. Same dislocation Trinity described in the note on operating-intensive real estate, read off the lending side instead of the operating side.

What we do instead

Each hotel keeps its own name, its own site and its own character, and that is where the guest relationship actually sits. Somebody books Dennen's Victorian Farmhouse or the Hearthstone Inn; they are not booking a portfolio. We do run two umbrella sites, Cannon Beach Hotel Collection and Stay Mendocino, but they are closer to plumbing than to branding: a way to move a guest to a sister property when a first choice is full, and a shared frame for the teams who work across several houses. Neither fills a room on its own, and we wouldn't claim a guest recognises either name.

The rest is unglamorous: own the booking relationship, price daily, and keep the fee line at zero where the property is unencumbered. See also the note on why hotels behave differently from other real estate, which is the other half of the same argument.