NEW YORK, March 25 (Reuters) -

Independent hotel operators and giant global chains are

increasingly linking up in franchise agreements as high-interest

rates have slammed the hospitality industry, slowing down new

hotel construction.

For big chains, new franchise agreements from conversions

keep investors happy by opening new hotels in the short term.

Meanwhile, independent, unbranded hotels like switching to

franchise agreements because it gives them greater access to

potential bookings and cheaper financing from lenders.

"Historically, global conversions have been 10% to 20% of

the rooms entering the system, today it is probably closer to

40%," said Patrick Scholes, Truist equity analyst.

For U.S.-based Marriott International ( MAR ), conversions

in 2023 accounted for 40% of organic room signings, double the

20% rate a year earlier. Half of France-based Accor's

hotel openings last year were through conversions. That matches

trends across the industry.

"In a climate where the debt markets for new construction

are somewhat constricted, the importance of conversions is

elevated," Marriott's ( MAR ) CEO Anthony Capuano said on an earnings

call earlier this year.

Hotel operators benefited from the surge in "revenge travel"

as the pandemic receded. However, the economic rebound also

brought higher interest rates - making life more difficult for

smaller operators who rely on capital borrowing to fund their

operations.

Roughly 1,980 hotels opened in 2023, down from 2,730 in

2019, according to hotel development intelligence firm Lodging

Econometrics.

"Access to hotel financing, especially in South America, is

currently limited since many hotels faced difficulties in

meeting their debts during the pandemic," said Fernanda

L'Hopital, South America director of consulting and valuation at

hospitality consulting firm HVS.

A branded hotel may be more appealing to owners refinancing

loans or facing a "wall of maturities" that were pushed back,

said Robin Farley, UBS equity analyst.

Approximately $217 billion in hotel loans are slated to

mature globally by 2025, said Zach Demuth, JLL global head of

hotels and hospitality research.

Those loans are likely to be refinanced at higher interest

rates. In the U.S., interest rates for new branded hotels are

between 6.75% to 8.25%, up from 5-6% before the pandemic, said

Shivan Perera, senior vice president of debts and participations

at real estate lender Avana Capital. Un-branded operators

generally have slightly higher rates between 7% and 9%.

Brand-affiliated hotels have a lower cash-flow risk than

independent hotels, according to a 2022 Cornell University study

based on 4,000 hotels over 20 years.

"Good brands, their loyalty program, their reservation

system, typically will help a property perform better and so a

lender will often have that as a requirement," UBS' Farley said.

In Europe, real estate interest rates are trending at around

6% and 8%, up from 2.5% to 3% before the pandemic, said Tim

Barbrook, head of debt advisory at HVS London. For branded

hotels, rates are about 0.25% lower.

"Some people have had 13 years of extremely low-cost money,

said Barbrook. "They're coming off fixed rate loans into this

much-higher rate environment. Many of our clients wish they

could simply extend the facilities that they already have."

Large operators have launched "soft" and conversion brands

aimed at picking up independents. Those brands help boost net

unit growth, analysts said.

Hilton's franchise and licensing fee revenue rose 14.6%

year-over-year in 2023 and 38.5% in 2022, while Marriott's ( MAR ) were

up 13% in 2023 and 40% in 2022.

"Every couple 100 or 1,000 more rooms matter because there's

a franchise fee associated with it," said Jan Freitag, director

of U.S. hospitality at analytics firm CoStar ( CSGP ).

One such brand is Hilton's "Spark" chain, announced in

January 2023. For smaller operators, a conversion gives them

access to guests who exclusively rely on the chains' loyalty

programs to book rooms.

"We would have never done [the conversion] if we couldn't

have done it with Hilton," said Lou Carrier, chief executive of

Distinctive Hospitality Group, a development firm that opened

the first Spark Hotel in Connecticut. "Within the first two

months over 45% of that hotel's guests were Hilton Honors

members. That was remarkable to me."