alt Hacker NewsA typical chain hotel (by which I assume you mean a Marriott/Hyatt/Hilton/IHG/Choice/etc brand) is a franchised “small” business.
The franchisee typically pays 10% to 20% royalty to the franchisor (the aforementioned companies). Otherwise, they rent hotel rooms and pay staff to clean them and rent them again.
What is the tax play? That the hotel owner can 1031 into bigger and better hotels? Anyone who owns real estate can do that.
Well, one could argue the entire setup is a means of structuring investments and organizing/attracting Capital eh?
Hotel owner (aka franchisee) puts in capital in a specific way under license, gets help operating it, in exchange for the 10-20% licensing fee paid back to the main corporation.
In many cases, the owner/operator is nearly turnkey, and it’s an effective way of setting up a defacto managed business investment, almost like a LP. Many of the franchised hotels are actually owned/operated by LPs setup for the purpose.
Also in many of these cases, the franchiser provides contacts for financing, may directly facilitate/recruit Capital, and may even provide loans to the franchisee directly.
For most of these larger hotels, the actual act of renting out rooms, etc. is pretty much all automated/managed through the central system anyway, and the majority of the operating costs are structured in such a way as to minimize tax liability.
Is it clearer now?