Investment Grade Hospitality & NNN

2nd April 2025 | by the Investment Grade Team

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Below is a general overview of how and when major hotel brands (Hilton, Marriott, Choice Hotels, Extended Stay America) and some emerging hospitality concepts (e.g., glamping/experiential brands) may utilize a triple-net lease (NNN) structure. Because hotels often require intensive management and brand oversight, pure NNN leases are less common in hospitality than in other asset classes (like retail or industrial). However, there have been select instances—especially sale-leaseback arrangements—in which hotel properties do operate under a NNN framework.

1. Understanding the Triple-Net (NNN) Structure in Hospitality

Why Hotels Typically Avoid NNN

  • Operational Complexity: Hotels are operationally heavy—everything from staffing to food and beverage to brand standards must be managed daily. Under a typical NNN lease, the tenant (operator) bears responsibility for property taxes, insurance, and maintenance. Most hotel brands prefer control via management agreements or franchise agreements rather than leaving key decisions to a third-party landlord.
  • Brand Control & Quality: Hotel companies (especially the large flags like Hilton or Marriott) prioritize consistent guest experience and brand standards. They often favor a management contract or franchise model to ensure compliance.

Where You’ll See NNN in Hospitality

  • Sale-Leaseback for Single-Asset Owners: An owner-operator with a strong brand affiliation might choose to sell the real estate to a REIT or other investor and lease it back under a NNN lease. This approach converts real estate equity into cash while letting the operator keep day-to-day control.
  • Extended-Stay & Select-Service Properties: The more standardized and less labor-intensive the operation, the more likely you may find a net lease. Extended-stay and limited/select-service hotels sometimes lend themselves better to an NNN-like structure because they have fewer amenities (e.g., limited F&B, simpler staffing).
  • Franchisees with Private Real Estate: Some franchisees seek to structure a net lease for their local property if they can find financing partners or REITs comfortable with the brand’s credit and performance.

2. Major Hotel Brands

Hilton

  1. Typical Structure:
    • Hilton commonly operates via management agreements (where Hilton manages the property for a fee) or through franchise agreements (where a third-party owner operates under Hilton’s brand standards).
  2. When NNN Appears:
    • NNN is rare at the brand corporate level but can surface when franchisees/owners do a sale-leaseback. For example, a private equity owner might buy several Hilton-branded select-service hotels (e.g., Hampton by Hilton) and lease them back to an operating company on a NNN basis.
  3. Example:
    • Hypothetical scenario: A group acquires a portfolio of Hampton Inns. The group signs a franchise agreement with Hilton for branding/standards, but simultaneously enters into a NNN lease with a separate operating entity. This arrangement is typically used to separate real estate ownership from operations while retaining the Hilton franchise license.

Marriott

  1. Typical Structure:
    • Marriott primarily uses management agreements (especially for full-service and luxury flags) and franchise agreements (more common for select-service or limited-service brands: Courtyard, Fairfield Inn, Residence Inn).
  2. When NNN Appears:
    • Marriott itself seldom signs direct NNN leases for large, full-service properties because of operational complexity. However, certain owners/franchisees with smaller Marriott-branded hotels may secure NNN leases.
    • Sale-leaseback is sometimes employed by owners who operate under a Marriott franchise and want to monetize the property.
  3. Example:
    • Apple Hospitality REIT is known for owning Marriott-branded hotels. In some cases, they (or similar REITs) will lease back properties to operating entities under a net lease structure. The brand agreement remains between the operator and Marriott.

Choice Hotels

  1. Typical Structure:
    • Choice Hotels (Econo Lodge, Comfort Inn, Quality Inn, Sleep Inn, Cambria, etc.) is heavily franchise-based. Individual or small-portfolio owners are the backbone of Choice’s model.
  2. When NNN Appears:
    • Because these properties are often budget/midscale segments, some owners and investors prefer the consistency of a net lease if the operations can be standardized. Choice properties are sometimes well-suited for NNN due to lower service requirements than full-service hotels.
  3. Example:
    • A franchisee might sign a 20-year franchise agreement with Choice and simultaneously sign a 10–15 year NNN lease (with renewal options) with a REIT or private landlord. The operator is then responsible for taxes, insurance, and upkeep, while adhering to Choice’s brand mandates.

Extended Stay America

  1. Typical Structure:
    • Extended Stay America (ESA) properties focus on minimal on-site services: no restaurant, simplified housekeeping, fewer staff. This leans more favorably to net lease structures.
  2. Sale-Leaseback History:
    • ESA has historically engaged in sale-leaseback transactions. Because extended-stay demands are consistent—tenants stay for multiple weeks/months, costs are predictable—investors often see these as stable, long-term net lease opportunities.
  3. Example:
    • In 2014, Blackstone and other partners took Extended Stay America public; subsequently, certain assets were sold and leased back to the operating entity. These leases included net provisions (NNN or NN) to allocate responsibility for property expenses to the operator.

3. Emerging Hospitality Concepts

Glamping & Experiential Lodging (Getaway, AutoCamp)

  1. Nature of Operations:
    • These are often outdoor or semi-outdoor hospitality experiences with unique structures (cabins, Airstreams, tents) and specialized locations (remote, scenic).
  2. When NNN Might Happen:
    • Because of the specialized physical assets (tiny cabins, custom lodging), typical net leases can be more complicated—land improvements, infrastructure, and brand experience are critical. However, certain local owners or real estate funds can hold the land and lease it to an experiential operator on a net basis if the operator is strong enough to handle all site-related costs.
  3. Example:
    • AutoCamp could partner with a landowner who invests in the property, builds out essential infrastructure, and then leases the entire campground to AutoCamp under a net lease. AutoCamp would be responsible for insurance, maintenance, property taxes, etc. This is more likely if AutoCamp has proven operational history and strong financial backing.

STR (Short-Term Rental)-Branded Micro-Hotels

  1. Nature of Operations:
    • Micro-hotel or short-term rental concepts (e.g., pods, small-footprint rooms) revolve around cutting-edge design and technology (keyless entry, app-based booking). Often, operators want to control the experience entirely.
  2. NNN Applicability:
    • True triple-net structures are uncommon in brand-new micro-hotel/STR concepts because of unproven operational track records and lenders/investors demanding more direct control. However, there are property owners who might lease out a small footprint building to a micro-hotel startup on a net basis if the operator is confident in their model.
  3. Example:
    • A “pod hotel” brand secures a lease from a landlord who invests in the building renovations. If the operator is strong enough to guarantee rent (and handle all real estate expenses), that can become a net lease scenario.

4. Selected Examples & Case Studies

  1. Extended Stay America Sale-Leaseback (Multiple Years)
    • ESA conducted multiple sale-leaseback deals in the 2010s, one with Blackstone and another upon its IPO. These agreements generally placed responsibility for property-level expenses on the operator, effectively making it a net lease arrangement.
  2. Hampton Inn Portfolio Sale-Leaseback
    • In various portfolios across the U.S., private equity groups have purchased Hampton Inns (Hilton select-service) and leased them back to a hospitality operating company that continues to run them under a Hilton franchise. The lease structure often includes net or triple-net terms.
  3. Choice Hotels Franchisee Deals
    • Smaller owners of midscale Choice-branded properties (like Comfort Inn) sometimes list them on net-lease marketplaces (e.g., LoopNet, Crexi) indicating “NNN investment with a franchise operator.” The brand continues to collect franchise fees, but the real estate investor gets stable rent from the operator.
  4. Emerging Glamping Partnerships
    • Getaway has entered into lease-like arrangements with certain landowners in rural areas. While details can vary, it can resemble a net lease if the operator (Getaway) covers property improvements, site maintenance, taxes, and insurance.

5. Key Takeaways

  1. NNN in Full-Service Hotels Is Rare: Large, full-service hotels (Hilton flagship, Marriott Marquis, etc.) need robust management teams and brand control, making pure NNN less common.
  2. More Common in Select-Service / Extended-Stay: Properties with leaner operations (no major F&B component, smaller staff) are better fits for NNN or net-lease structures.
  3. Sale-Leaseback = Main Path: Most hospitality NNN examples arise when an operator/brand sells the property to an investor (REIT, private equity, etc.) and leases it back, shifting property-level costs onto the operator in exchange for stable occupancy and brand continuity.
  4. Franchise Models Can Layer with NNN: A brand like Marriott, Hilton, or Choice typically enters a franchise agreement with the operator. The operator (franchisee) then might hold a NNN lease with a separate property owner.

Final Thoughts

While the hospitality industry predominantly uses management and franchise agreements, certain segments and owners do utilize NNN structures—especially in extended-stay or select-service segments and via sale-leaseback transactions. If you are looking for real-world deal examples, researching REIT filings (like Apple Hospitality REIT, Park Hotels & Resorts, and others) or specialized net-lease listings for “hotel” or “hospitality” properties is often the most direct way to find concrete case studies.

If you’re considering the purchase or sale of a hotel—or need help refinancing maturing debt, exploring recapitalizations, structuring joint ventures, or executing a sale-leaseback—now is the time to act. The Investment Grade team has the expertise, strategic relationships, and market insights to guide you through every stage of the transaction and maximize your returns. Let our proven track record in hospitality investment be your advantage. Contact us today and put our knowledge to work for you.

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